In last year’s Autumn Statement, Chancellor of the Exchequer Philip Hammond announced the official death of PFI. He said that the UK government would abolish the use of PFI (along with its successor PF2) for future projects, noting that “I have never signed off a PFI contract as Chancellor and I can confirm today that I never will”.
The political reality is that the PFI brand is toxic
Even before the demise of Carillion, the PF2 model and earlier versions of the Private Finance Initiative model were beginning to look like an increasingly politically toxic way to procure and operate public infrastructure in the UK.
However, as pointed out in the July 2018 Public Administration Select Committee report: “After Carillion: Public sector outsourcing and contracting”, the situation has been exacerbated by the long-term ineffectiveness of government procurement.
By failing to properly understand the infrastructure market, it says, government has contributed to the problems and “deliberately promoted an aggressive approach to risk transfer to the private sector” - risks that it has failed to properly analyse.
The Government remains committed to public-private partnerships
In the same Autumn Statement Hammond also confirmed that, with around half of the UK’s £600 billion infrastructure pipeline still set to be built and financed by the private sector, he remained “committed to the use of public-private partnership where it delivers value for the taxpayer and genuinely transfers risk to the private sector”.
So while it is clear that PFI and its cousin PF2 are no longer options on the table, it remains highly likely that public-private partnerships will continue to exist. What will the future form be of these partnerships? No one knows. The Government is yet to announce any further details of its preferred model, although that will have to change soon as investors increasingly look to other geographies for investment options.
How to solve the PPP conundrum?
The challenge for the private sector and government is how to fix the problem. We need the public and private sectors to work hand in hand to secure investment for UK’s infrastructure.
Fundamentally, the private investment model for infrastructure delivery and management isn’t broken. But it does need reform and review, not least in the wake of the government’s abolition of the PFI/PF2 model.
People from across both the public and private sector have lost sight of their original vision to improve outcomes for customers and returned to a model which is all about cost and financial return. A re-balance is needed.
A New Year and a new push for clarity
It is now the start of a new year. A time for fresh thinking and making plans for the next 12 months. Two months on from the Chancellor ringing the death knell for PFI and PF2, it’s time to formulate the new partnership model for the public and private sectors, so the country’s infrastructure plans can remain on course.
Read our green paper ‘what is the future of UK infrastructure development and finance’ which is the first in a series to stimulate thinking, discussion and action across the industry.
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