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12 November 2018
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Reputational Risk

Chancellor Philip Hammond’s ‘abolition’ of PFI was directed at a local constituency, but it has garnered worldwide attention
Reputational Risk

Last week, I had the pleasure of attending the Canadian Council of Public Private Partnerships (CCPPP) annual conference in Toronto.

Speaking to a variety of public and private sector officials from around the world, including several Latin Americans, Canadians and those from the UK, the first question that people asked me was always the same:“What is happening to PPP in the UK?”

Chancellor Philip Hammond’s announcement that he would “abolish the use of PFI and PF2 for future projects” was clearly directed at a local constituency.

Over the months since Carillion collapsed at the start of this year, pressure has been building – largely driven by the ideology of the Labour Party – on the use of private finance for infrastructure projects in the UK, to the extent that any mention of ‘PFI’ or ‘PF2’ has become almost impossible without phrases such as ‘discredited’ or ‘exorbitant’ attaching to it.

Hammond had been expected to announce a ‘review’ of private finance, in an effort to show that the UK government was taking seriously the criticisms of the model and seeking to prevent another Carillion-style collapse. And while the Budget documents did refer to plans for a review of infrastructure finance to take place later this year, it was a single line buried dep into the government’s interim response to the National Infrastructure Assessment.

Indeed, it’s still far from clear who knew what and when about Hammond’s announcement, with a number of sources suggesting that officials across different departments were blindsided by the decision to abolish PF2, given that they had been working on plans to use the model – and discussing these plans with industry experts – as recently as the Friday before the Budget.

So with government departments scrambling to keep up, industry experts pointing out that the government simply cannot deliver all of its infrastructure plans without PF2, plus the looming Comprehensive Spending Review next summer, it is perhaps easy to see why many in the UK market are pinning their hopes on the review of infrastructure finance.

However, those outside the UK do not see all these machinations taking place behind the scenes. Instead, they see a Chancellor of the Exchequer announcing that his government will no longer use the private finance model that the UK gave to the world. And they see an Opposition that wants to go even further by repealing at least some of the deals already done.

Given that the UK has done a lot of heavy lifting on exporting this model across the world over the past decade and more, it is perhaps no surprise that questions over the UK’s involvement in the market are being raised.

As if to highlight the absurdity of the situation, Hammond’s announcement came while officials from the Chinese government were in the UK on a fact-finding mission regarding the use of private finance.

The UK is in real danger of becoming something of a laughing stock on this topic. Having been such a strong proponent, and shown the way to many other countries around the world, there is an air of disbelief that the country is now ditching the model – especially as other markets such as Canada and Australia have had great success, without anything like as much negative feedback from the public.

One panellist in Toronto was asked for their thoughts on the UK PFI situation, and their response highlighted the exasperation of other nations, as they expressed surprise at the announcement but also suggested the UK was rowing back on that with plans for a review.

In essence, there is a great feeling of uncertainty about the UK and what it wants to do when it comes to the financing of infrastructure.

And it contrasts sharply with a state like Canada, where plans to take the PPP model forward are entrenched within its new Infrastructure Bank, and demonstrates a clear path forward for the country’s ambitious infrastructure programme.

When I spoke to him in Toronto, CCPPP president and chief executive Mark Romoff expressed his disappointment in the UK’s apparent desire to disown the model – but also recognised the potential opportunity that it presents to Canada.

As Hammond looked to score some cheap political points at the expense of his rivals in Westminster, he may have been better served lifting his eyes up to the global community. The damage done to the reputation of the UK’s approach to infrastructure investment could seriously affect the approaches taken by some of the major companies in the sector, especially when there are countries like Canada all too eager to welcome them with strong pipelines of real opportunity.

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Chancellor Philip Hammond’s ‘abolition’ of PFI was directed at a local constituency, but it has garnered worldwide attention

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