The government needs to get serious about delivering its pipeline and stop stalling progress with more consultations says Stephen Tobin, infrastructure expert and partner at Pinsent Masons.
Last week, Phillip Hammond announced in his Spring Statement that the UK government will use a variety of models to encourage private investment in public infrastructure in England once the UK leaves the EU, but will not seek a “like-for-like” replacement to the now-abolished Private Finance Initiative (PFI).
As part of this process, the government published a consultation on the future of English infrastructure finance, setting out various private financing models already in use, and seeking views on how these “could be applied in new contexts”.
The fear is that this is purely a stalling mechanism. Consultations are all well and good, but they should not be used as an alternative to progressing difficult decisions and delivering on the National Infrastructure Pipeline.
“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.” It also goes on to address the likely “gap” in support for infrastructure once European Investment Bank financing is removed.
What the government doesn’t acknowledge here is the lack of political capability and support behind infrastructure projects to get them off the ground. There is plenty of appetite amongst private finance providers and we already see significant innovation and successful, flexible alternative funding models out there including different regulated asset base models, contracts for difference in energy markets and the Hub Scottish Futures Trust (although through a devolved structure). The market accepts that PFI is not perfect, but it did actually produce considerable investment quickly.
“With only 8% of the government’s pipeline ready for contractors to gear up for delivery, it is difficult for construction firms to invest in the skills and innovation needed.”
Stephen Tobin, Pinsent Masons.
Politicians need to be having 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.
Acknowledging that PFI was a “fiscal illusion” should be accompanied with some “fiscal truths” – that designing, building, operating, financing an asset and managing all the risks that exist around complex infrastructure has a higher ticket price than the simple cost of the bricks & light fittings.
The government needs to prioritise addressing the National Infrastructure and Construction Pipeline. Earlier this year, The Infrastructure Forum in collaboration with a wider working group including Pinsent Masons, noted that as of February 2019 the official pipeline listed 684 current work streams, made up of both individual projects and broader programmes.
The programmes, which make up 60% of the pipeline, lack the detail needed by firms to gear up for procurement; while of the 278 projects, 128 are already under construction. This means that only 8% of the pipeline, or £30.24bn of the £413bn total value, offers realistic investment potential for contractors.
With only 8% of the government’s pipeline ready for contractors to gear up for delivery, it is difficult for construction firms to invest in the skills and innovation needed to become more productive – a key focus for everyone in coming years.
Greater certainty is needed, together with wider skills within government to help with modernising procurement. We need to get the balance of risk transfer optimised to reflect what the public is willing to accept as the cost for infrastructure alongside what the private sector needs in financial return terms to provide its finance and skills.
Stephen Tobin is an infrastructure expert and partner at law firm Pinsent Masons.
Article originally appeared on Infrastructure IntelligenceÂ
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