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19 June 2014
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A private argument

The political consensus on PF2 has been lost, but has anyone noticed?
Scour the newspaper front pages, and you won’t see any reference to it. In fact, do an internet news search and, beyond the construction press and the Financial Times, you still won’t find any mention of it.

It is a measure of how far down the political agenda that PF2 has fallen that, even when the Commons Treasury committee issues a stinging rebuke to the initiative, few in the mainstream press appear to notice. And what about the government? Has Chancellor George Osborne responded with a robust defence, or perhaps even Prime Minister David Cameron been moved to issue a response? Well, no. So far, the government has remained quiet on the report.

It’s a far cry from the launch of the report, which was used as a teaser by the Treasury ahead of the Autumn Statement in December 2012. Then, both Chief Secretary to the Treasury Danny Alexander and Osborne could be found trumpeting a final end to ‘bad old PFI’, with the uninspiringly titled PF2 taking its place.

But for the industry, the final publication of this long-awaited report (the evidence sessions were completed in May last year) is potentially important. Of course, it confirms much of the problems that many in the industry have been discussing since the model was first announced: the likely increased cost of capital; the lack of sufficient carrots being dangled to bring new investors to the table; lack of risk transfer caused by the government retaining an equity stake in schemes.

More than that, though, the report confirms what has been known for some time – the political consensus on PF2 has not lasted very long. When the review of PFI was launched by Infrastructure UK chief executive Geoffrey Spence, he said that the model was discredited within Parliament, among politicians of every hue. The whole point of PF2 was to end that discord and find a model that could appease at least some of the critics.

However, Treasury committee chairman Andrew Tyrie has been clear that PF2 still fails to address some of the biggest concerns that the MPs had about PFI. That might go some way to explaining why there has been such a lack of new projects being delivered through PF2. As Health Secretary Jeremy Hunt revealed recently, he has been taking his time approving the proposed North Tees hospital PF2 because he doesn’t want to make the ‘mistakes’ made under PFI.

It is perhaps confusing, then, that another of PF2’s problems is blamed on the lack of a pipeline. The committee says the failure to bring new investors into the infrastructure arena is in part down to the government’s failure to bring forward a strong list of projects to excite the investor community. While this may be true, if the MPs are so concerned about the value for money of the new model, surely it is right that ministers have not in fact brought forward a host of schemes?

And therein lies one of the biggest problems faced by the partnerships industry – and the future of PF2: politicians, it seems, don’t have to be consistent. A year out from the next election, it’s far better for them to be popular.

Despite the negativity, sources close to the Treasury insist there is still something to look forward to from the PF2 world, with suggestions that the next Autumn Statement will be the time for some new announcements. A new round of deals just six months out from a General Election, perhaps – though how many will get through a new government is anyone’s guess.

And I leave you with this comment from Spence: “We have said Sandwell hospital will proceed as a PF2 scheme going forward. We haven’t made any announcements about any other PF2 schemes as part of the Spending Review. There will be further announcements in this space.” The date of this comment? 9 July 2013. And we’re still waiting.

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The political consensus on PF2 has been lost, but has anyone noticed?

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