Blog: Why private finance is returning to the UK’s public discourse

The ‘abolition’ of PFI by Theresa May’s government in 2018 brought about a moratorium on the pros and cons of private finance in the UK’s public infrastructure. But are those conversations back on the political agenda?

Over the past decade and more, many in the UK PFI/PPP industry have been used to hearing the same old tropes around PFI being ‘bad’ (it costs too much; the contracts are too inflexible; the private sector isn’t delivering; the public sector didn’t know what it was signing up to).

As we have often tried to show in this publication, there is another side to that particular coin, but it rarely makes the national press: ‘School/hospital/road performing as expected’ is admittedly not a headline-grabber - although some partnerships have been successful in highlighting their work in the local press where they have gone above and beyond their contract to benefit the communities they serve.

Nonetheless, the debate over PFI has largely been consigned to history in the public consciousness - an aberration in public procurement that came to an end when then-Chancellor Philip Hammond announced he was ending the use of PFI and its successor, PF2, for good.

However, this may be changing in 2024. In recent weeks the use of private finance in infrastructure has been appearing on the BBC, in the Financial Times and discussed on popular podcasts such as The Rest is Politics. Meanwhile there is a growing sense as we enter election year that a future government might want to lean into the private sector a bit more when it comes to its infrastructure policy.

One of the drivers here was this week’s announcement that former Labour Cabinet minister Lord John Hutton would become the chair of the Association of Infrastructure Investors in PPPs (AIIP). 

Notably, however, everyone I have spoken to in connection with this appointment is in agreement that this is not about trying to fight the battles of the past: attempting to convince the public that PFI is or was ever a ‘good thing’ is a fight that was lost many years ago (in part due to a failure by the industry to properly engage in the argument when it was live). Lord Hutton, I understand, is well-versed in the pros and cons of PFI and passionately believes that there is an important role for private finance to play in the delivery and ongoing upkeep of public infrastructure.

And while he will no doubt be making the point to government that there are plenty of examples of where PFI has worked, he will not be discussing a return to the model.

Instead, he and others in the AIIP will be working to develop the thinking on what comes next. How can a government deliver the energy transition, revitalise the NHS estate, replace schools, courts and other buildings ravaged by RAAC (Reinforced Autoclaved Aerated Concrete) or deliver any of the other myriad infrastructure requirements that a modern society needs?

Many people - both political commentators and members of the public - seem convinced that this year’s General Election will return a Labour government (although recent analysis for BBC News, ITV News, Sky News and the Press Association suggest that may be harder than many assume: Labour would need a record swing of 12.7% just to gain a small majority - a higher swing than was achieved by either Tony Blair in 1997 or Clement Atlee in 1945).

Labour’s current pre-eminence in the polls, however, does mean that many organisations are now looking to them, rather than the Conservatives, to hear what they have to say on pretty much all areas - a quick look at any organisation’s events related to public policy will show a smattering of shadow cabinet speakers, whereas actual ministers can be harder to find.

So Lord Hutton’s appointment is significant. As a former Labour Cabinet minister, he brings with him a considerable weight and, I’m told, remains well connected within Labour circles, meaning he will be able to put forward the infrastructure investors’ point of view to those who may well be in charge in a year’s time.his knowledge of how PFI managed to deliver a raft of hospitals during his time as a junior health minister means he has hands-on experience from the government side of the table.

Labour has been making overtures to the private infrastructure community for some time now. At October’s Party Conference, shadow Chancellor Rachel Reeves unveiled plans to “accelerate the building of critical infrastructure”. The following month, she hosted a roundtable of bank and insurance leaders to discuss how more private money could be invested in UK infrastructure projects.

In December, the Labour Party appointed Juergen Maier, former head of Siemens UK, to lead a review of the UK’s rail and urban transport network. And just this month, the party unveiled a review of the UK's delivery of major infrastructure projects, with a panel including Maier plus National Grid chair Paula Reynolds, Skanska UK chief executive Katy Dowding, and Mark Reynolds, chief executive of Mace.

So the party is clearly open to listening to the industry on how it can kickstart a new wave of infrastructure investment that brings in plenty of private sector money and expertise. As leader Sir Keir Starmer has said on a number of occasions, he envisages his government working “in partnership” with the private sector.

The good news for him is that there does seem to be genuine appetite from the private sector to help fulfil this ambition. Investors remain willing to wait for the opportunity presented by the A9 in Scotland, despite the mutual investment model (MIM) package unlikely to see the light of day before 2025.

And then there was the surprise announcement of BlackRock’s acquisition of Global Infrastructure Partners (GIP). As many in the industry pondered how this move might work in practice, there was a key line in the announcement that gave some clue as to at least why the deal was happening. BlackRock said “large government deficits mean that the mobilisation of capital through public-private partnerships will be critical for funding important infrastructure” - and it clearly wants to be playing in that space.

Might all this mean that the stars are aligning for a new PPP programme from Westminster in the years ahead? Possibly. But given the toxic nature of the old PFI debate, whoever is in power will have to tread carefully if they are to consider that path again.