The Treasury has today launched a consultation on possible new models for private financing of infrastructure that could lead to the creation of a new investment bank – but has ruled out a like for like replacement for the Private Finance Initiative.
In the Spring Statement to the House of Commons today, chancellor Philip Hammond said the consultation would look at how to support private infrastructure investment after the UK leaves the European Investment Bank and after government had "retired" PFI.
Hammond announced in last year’s Budget that the government would end the use of the PFI and its successor PF2 schemes. The UK is meanwhile set to lose access to the European Investment Bank, which has lent €118bn since 1973 to UK energy and transport projects and social infrastructure, following Brexit.
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Today’s review seeks contributions on the effectiveness of the government’s use of investment models and existing tools to support private investment and considers the possible creation of a national, operationally independent, infrastructure finance institution.
The consultation document sets out that the government “will consider the infrastructure finance market, analyse future challenges, and look at the future role of the government in ensuring that viable projects can raise the private investment they need”.
However, it states that the government “will not be seeking a like-for-like replacement” for PFI and PF2”. Instead, it says it 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”.
The consultation is also looking for views on the effectiveness of existing government tools to support the supply of infrastructure finance, and whether they could be used in other sectors. These tools include the UK Guarantees Scheme, which underwrites nationally significant infrastructure projects being developed by private firms, a regulated asset base in water and energy networks, and Contracts for Difference auctions in renewable energy.
The Treasury has asked whether the government should change, expand or reduce the levers it uses to support the supply of infrastructure finance, and whether existing models could be used in different contexts.
In a report examining the use of the PFI and PF2, published before Hammond announced plans to scrap them, the Public Accounts Committee of MPs said it was “unacceptable” that the Treasury had no data on the benefits of PFI, despite it having been used for more than 25 years to build schools and hospitals.
MPs recommended that the Treasury calculate the returns to originating PFI equity investors when they sell on their stake.