The government’s replacement for private finance is the subject of consultation, held up like so much else at the Brexit roadblock, and now by a general election. The conclusion of the consultation is keenly awaited by an industry worried about what infrastructure will actually be built – as opposed to the programmes promised by politicians caught up in election hysteria – and crucially, how it will be paid for.
There seems to be a widespread agreement that private funding in some form will be needed in a post austerity world, with the current Chancellor of the Exchequer Sajid Javid promising an ‘infrastructure revolution’ as an extra £13 billion or so is pumped into public services. But the signs for private finance in any form are not good.
In January last year the public sector spending guardians at the National Audit Office highlighted that there was no demonstrable delivery of value for money from using private finance, since when the private finance initiative (PFI) has been on the ropes. And this was before the collapse of Carillion, a scandal which could have fatally wounded private finance on its own. A background of regular stories about excessive charges like providing a sink in a hospital costing £5,500, and £25,500 for three parasols at a school doesn’t help either.
While the consultation is still underway, the health service has just been reported as having ‘officially announced’ that private funding is being dropped for NHS capital projects. Government owned Community Health Partnerships had proposed using private finance in a public-private sector partnership using Regional Health Infrastructure Companies (RHICs) under Project Phoenix, but declined to confirm or deny reports that the project had been scrapped. The Department of Health and Social Care is currently shielded from having to comment due to the period of ‘purdah’ imposed during a general election campaign.
This is one phoenix that looks unlikely to rise from its ashes however as the move seems to confirm a policy change. The scrapped scheme was to leverage private funds along the same lines as the local investment finance trusts (LFITs) that have been used successfully to finance primary care facilities. RHICs would have funded projects that were deemed too large for LFITs, but not big enough for the traditional private finance approach.
The consultation launched in March said there would be no more off balance sheet smoke-and-mirrors type financing, and there would be greater transparency in how projects are funded – although observers immediately almost unanimously agreed that there would have to be a place for private financing.
New ideas are being sought via the consultation process. Charles Roxburgh, second permanent secretary at the Treasury, recently told the House of Commons Treasury Select Committee that officials were not wedded to having a single successor for PF2 and there was a ‘vast range’ of alternatives. ‘We are not expecting to produce PF3 as a single preferred approach,’ he said.
In the meantime, the health service is in desperate need of new facilities and the government has agreed to provide public funding for several major schemes, including some that might previously have been suitable for private investment. Public funding can’t do the job on its own however, so if not PF3 then what? Watch out for some old wine in new bottles. CL
Nick Barrett
Editor