The government published a wide-ranging consultation on the future of English infrastructure finance alongside the chancellor's Spring Statement. The consultation sets out the various private financing models already in use and seeks views on how these "could be applied in new contexts", as well as views on the government's own role in ensuring that viable projects can raise the private finance they need.
The consultation does not make any formal proposals for new initiatives or new models. However, it states that "off-balance sheet" mechanisms demonstrating the same characteristics as PFI and its replacement, PF2, will not be considered.
"The government will … no longer procure off-balance sheet projects using a Design, Build, Finance and Maintain/Operate contracting structure where the taxpayer directly pays for the project," it said in the consultation. "This supports the government's wider agenda of improving the management of the public sector balance sheet and ensuring value for money for the taxpayer."
"Private finance could still bring benefits to government-funded infrastructure, for example in risk management, project discipline and innovation, so the government is open to exploring new ideas for using private capital in government projects, including through on-balance sheet structures. However, the government recognises the lessons learned from the experience of PFI and PF2 including the need for greater transparency: new ideas must be able to demonstrate that the benefits brought by private capital outweigh the additional cost to the taxpayer of using it," it said.
PFI was the government's preferred means of enabling long-term private investment into government-funded infrastructure projects until 2012, when it was replaced by the PF2 model in response to widespread concerns about value for money. PF2 was ultimately used only six times, for projects with a total capital value of around £900 million, or 0.5% of public investment between 2012 and 2018, according to the consultation.
The government is seeking views on whether the "well-established" investment models in use in consumer-funded sectors such as energy and water could be applied to new sectors. The consultation mentions the regulated asset base (RAB) model used for water and energy networks, and the contracts for difference (CfD) model used to support renewable energy. It has also asked respondents what government interventions and guarantees would be needed to ensure success.
The consultation also addresses the likely "gap" in support for infrastructure once the UK leaves the EU and ceases to be a member of the European Investment Bank (EIB). EIB has loaned €118 billion to UK projects since 1973, and although the UK is "actively exploring" options for a future relationship with EIB after Brexit this cannot be guaranteed.
The consultation closes on 5 June 2019.
In his Spring Statement speech, UK chancellor Philip Hammond reiterated the government's commitment to publishing a National Infrastructure Strategy later this year. The strategy, which will be published alongside the government's upcoming spending review, will form its detailed response to the first UK National Infrastructure Assessment, which was published by the independent National Infrastructure Commission last year.
Project finance expert Stephen Tobin of Pinsent Masons, the law firm behind Out-Law.com, said that it was the spending review rather than the consultation which would be of "critical significance" for the UK construction industry.
"How the spending review responds to the continuing national infrastructure challenge is critical," he said. "To the extent that it is relevant at all, the consultation should be used to help inform decision making rather than provide further opportunity for delaying investment."
"Consultations are all well and good, but they cannot be used as an alternative to active engagement with the industry - playing about with finance is not really the issue. What's lacking is not the appetite and interest of private stakeholders, but political will to give more attention to bringing forward projects and consistently recognising the value of private finance solutions as part of a spectrum of different ways of financing infrastructure."
"We're already seeking significant innovation and successful, flexible alternative funding models out there including different regulated asset base models, and the Hub Scottish Futures Trust. The government now needs to address the National Infrastructure and Construction Pipeline as a priority - as it stands, only 28% of projects in the pipeline are credible. Politicians need to have conversations with their constituents as to how the roads, trains, schools, hospitals and energy generation that we rely on are paid for and the level of investment needed to keep up with technological developments and environmental challenges," he said.