Highways England must wait until June to find out how the flagship Lower Thames Crossing and Stonehenge Tunnel projects will be funded, after chancellor Philip Hammond launched a consultation into replacing the scrapped private finance initiative (PFI) funding model.
Hammond launched the consultation on replacing the PFI/PF2 funding models during yesterday’s Spring Statement.
The PFI/PF2 initiatives were scrapped by Hammond in the 2018 Autumn Budget, leaving major civils projects, such as £1.3bn A303 Stonehenge tunnel and the £1.5bn approach roads to the Lower Thames Crossing in limbo. Both had earmarked as privately funded PF2 schemes..
At the time Highways England chief executive Jim O’Sullivan told New Civil Engineer that a decision on a replacement funding scheme was needed by January this year.
However, Hammond’s announcement means Highways England will have to wait another three months for an answer.
A consultation documents released with the Spring Statement adds: “The government is open to exploring new ways to use private finance in government projects, but the benefits brought by private finance must outweigh the additional cost to the taxpayer of using private capital, and the government will not consider proposals demonstrating the same characteristics as PFI or PF2.”
There are more than 700 PFI and PF2 deals currently in operation in the UK, with a capital value around £60bn.
The consultation is seeking the views on how PFI will be replaced and on whether reform of the institutional governing structure is needed.
It will cover finance for project in a range of sectors including energy, transport, water, flood defences, mobile telecommunications and broadband, and waste.
A panel of infrastructure and finance specialists will be appointed to help with the consultation, and its members are expected to be announced shortly.
Mace chief operating officer for consultancy Jason Millett welcomed the consultation, saying that private investment would be vital post-Brexit. “Given the demise of PFI, finding a new way to fund Britain’s infrastructure is of the utmost importance,” he said.
“It’s right that the private sector should contribute, but in light of our imminent exit from the European Union, it is also vital to ensure that Britain is able to continue to draw on foreign direct investment from across the globe to drive our infrastructure delivery,” he added.
Pinsent Masons partner and infrastructure expert Stephen Tobin said politicians was failing to unite projects with private backers. “Consultations are all well and good, but they cannot be used as an alternative to active engagement with the industry,” he said.
“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.”
Meanwhile Clyde & Co infrastructure partner Liz Jenkins said there was a real risk of simply repackaging PFI without replacing it. “PF2 is seen as a dirty word within the current government and the public and so it is in dire need of a rethink,” she said. “This consultation should provide an alternative but once you scratch beneath the surface it may look more like a rebrand and very similar to its predecessors.”
ICE head of policy and public affairs Chris Richards, said the consultation was urgently needed to ensure sustained economic growth. “The chancellor is right to consult on a range of options for safeguarding investment in infrastructure, including replacing the potential loss of UK access to European Investment Bank (EIB) finance, following Brexit. The ICE outlined the urgent need to look at contingencies for this financing in its State of the Nation report last year,” he said.
“Whatever Britain’s future trading arrangements, key infrastructure networks will still be relied on to connect businesses and people, raise living standards and drive economic growth. Investment in these networks must be sustained.”
The consultation will close on June 5 and will be used to inform both the 2019 Spending Review and the National Infrastructure Strategy.
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