Some hopes may have been pinned on a road building led economic recovery getting under way this year, particularly after the Chancellor and the Prime Minister made such encouraging noises around the time of the Budget and as far back as the publication of the National Infrastructure Plan (NIP) in 2010.
Infrastructure investment has been increasing, but there is growing disquiet that failure to come up with a procurement route that will bring forward signifi cant investment in roads especially will cause delays that the construction industry cannot aff ord. The NIP talks of the need for £250 billion of infrastructure investment, but there is as yet no sign of any procurement or funding route adequate to the task.
The coalition government set its face firmly against the Private Finance Initiative (PFI) from the outset, but it seems that there will have to be an about face on the PFI or an abandonment of hopes for signifi cantly increased investment in roads in particular, and perhaps in other infrastructure. Sovereign wealth funds, global infrastructure investment funds, and pension funds from the UK and overseas have been mentioned as potential investors in UK infrastructure. Even China has been tipped as a potential investor.
Pension funds, and possibly other potential institutional lenders, are reported to be unlikely to invest ahead of completion of the risky construction phase of projects, which would mean government or possibly contractors to underwrite the risk – contractors would be happy to do that, but at a price. There appears to be a ‘Mexican stand off ’ between the government and fi nancing institutions over this.
PFI has been slated for rewarding private sector investors too highly after the riskier construction phase is completed. Our cash strapped government cannot fund investment on the scale required, but if investors like pension funds take up the not inconsiderable slack they need to earn a return, against a background of public mistrust of the profi ts being made.
Toll roads have been mooted; as much as £100 billion could be raised by tolls or shadow tolls, a report from bankers NM Rothschild recently estimated. Again, the public don’t like the idea but it might be difficult to avoid some form of tolling.
Whatever solution, or combination of solutions, the government is moving towards, there seems to be very little urgency about it on its part. Something was hoped for either at Budget time or in some later announcement from the Chancellor, but the Treasury appears to be keeping its cards very close to its chest and has had PFI under review since last year. Consultation on PFI reform ended in February and a full response is still hoped for in summer, but industry sceptics warn not to expect anything even then.
Although there are around 50 PFI projects under way, with capital values of over £6 billion, there are currently none under preparation. The figure of £6 billion highlights how crucial PFI has become to the provision of infrastructure in the UK and to the survival of its construction industry. The demand is there, the funding can be there, all that is needed is a decision on a procurement route. Action will either come soon, or too late.
Nick Barrett
Editor