14 November 2019


24 February 2017

Power Play

The UK government's political strength could have come at just the right time for the PPP market

As rumours swirl and a growing level of confidence emerges in the PPP market over the UK government's Budget on 8 March, the recent by-elections could offer another reason for optimism in the industry.

As we have reported, there is now a strong expectation within the PPP industry that a good pipeline of projects could emerge from the Budget, with Chancellor Philip Hammond potentially ready to offer far more than the handful of projects that accompanied the first wave of PF2 projects under his predecessor, George Osborne.

And the success of the Conservatives in the recent Copeland by-election, where the party became the first government to take a seat from the opposition in a by-election since 1982, means that the political uncertainty that has dogged the PPP market in the UK since 2010 may now be coming to an end.

Osborne, of course, made huge political capital out of attacking the PFI model and its use under Labour, which always meant he was in a difficult position when it came to the use of the 'reformed' PF2 model.

But what also made life difficult for the UK PPP market was the fact that, as one of the most politically motivated chancellors of recent history, Osborne was acutely aware of the potential for his use of PF2 to be attacked by an increasingly left-wing Labour party. Not only that, but for much of his time in office, he was working with the Liberal Democrats, who were instinctively uncomfortable with the notion of privately financed public infrastructure.

No such concerns now fetter Hammond. Indeed, after the Copeland disaster for Labour, it could be argued that there is now no realistic opposition for the Tories in Westminster. While the Scottish National Party might try to claim that mantle, that party's championing of the non-profit distributing model means it is not in a strong position to criticise the government using a reformed version of PFI.

Not since 1997 has the future of British politics looked so one-dimensional. After all, the potential of a UKIP surge to compete with the Tories also looks over following its own failure to win the Stoke by-election.

This is important for the PPP market. As we are constantly reminded, investors love certainty, and it was only during the long period of Labour rule around the start of the millennium that such political stability was in place to allow PFI to flourish.

If Hammond is serious about getting PF2 properly off the ground, he is unlikely to have a better opportunity than at this year's Budget, from a political point of view. So it is perhaps no surprise that the industry is feeling optimistic about what might come.

There is, however, one potential reason to keep the champagne on ice, for the moment at least.

Such was the success of the Conservatives in Copeland – and Labour's decimation, only clinging onto power in Stoke with a reduced majority – that talk has already, and perhaps inevitably turned to the possibility that Theresa May could soon call a snap election. May, it must be remembered, has never actually won an election as leader (not even within her own party), so the temptation to strike while her brand seems strongest must surely be strong.

And although if she were to make such a move, all expectation are she would return with a much more substantial majority, the short-term disruption to developing and delivering a new pipeline of PF2 deals would surely be an irritation for the market.

After seven years of waiting, many are hoping all the delays are finally over.


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Power Play


The UK government's political strength could have come at just the right time for the PPP market

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