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Underpinning the private finance initiative is not a bail out

Government support for PFI projects is vital to the recovery of the UK’s economy, argues NCE editor Antony Oliver

Two weeks ago I warned against ruling out the private finance initiative as a funding mechanism for public infrastructure. This week’s Treasury decision to underpin £13bn of stalled privately financed infrastructure projects simply bolsters my position firmly behind the concept.

What government can do now is provide the confidence to enable other vital private sources of funding to step forward

For when the Opposition and unions talk about a PFI bailout they fundamentally miss the point. As I said previously, this is not simply about writing blank funding cheques for projects that otherwise wouldn’t be justified.

On the contrary, this is about distributing risk to those best able to manage it and so underpinning an investment programme designed to stimulate the economy - a programme of work which will be central to the engineering-led recovery of this nation.

And this latest Treasury intervention is not without precedent. Even in the comparative good times before the current recession took grip, government has been on hand to help smooth the financial path and take on some of the otherwise un-economic risk.

Think back a decade to the last great UK infrastructure project - the Chanel Tunnel Rail Link. This £5bn privately financed infrastructure project, the first new major railway constructed in the UK for a century, didn’t have an easy birth.

In fact the private sector consortium came very close to collapse when forecast passenger revenues started to look shaky. But government stepped in. Not to take over the project. Not to stump up funding but simply to underwrite the deal, reduce risks and provide the confidence needed for the private sector to stay on board.

We can all see the results today. The project was delivered successfully on time and on budget with private finance and by private companies - underpinned by government support.

The result was arguably the best of both worlds. We saw the private sector properly incentivised to deliver and we saw government doing what it does best - underwriting some of the risks and bringing confidence to the rest of the market.

It is just one example of course. But when it comes to major infrastructure, that is what the Treasury should be there for.

And in the same way, that is what this government initiative must be all about - providing relatively small amounts of cash and security to deliver huge amounts of confidence.

And right now that confidence is the one thing that is in very short supply right now.

Because remember, we are trying to stimulate the economy rather than simply put public cash into infrastructure schemes. And with up to £13bn worth of projects stalled, the public purse could not do it alone.

But what government can do now - and this appears to be a start - is provide the confidence to enable other vital private sources of funding to step forward. Step forward in the knowledge that they will get a return.

This Treasury scheme should thus be welcomed by civil engineering but also welcomed by everyone keen to see the UK economy bounce back from recession.

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