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Pressure will grow on Government to find PFI and PF2 successor in 2020

  • Market Insight 18 December 2019 18 December 2019
  • UK & Europe

  • Infrastructure

It has been over a year since former Chancellor Philip Hammond, somewhat surprisingly, announced the end of PFI and PF2 during his budget speech on 29 October 2018, although he also said that public-private partnerships would continue.

Pressure will grow on Government to find PFI and PF2 successor in 2020

After another year of treading water over Brexit, 2020 could be the year that the government is finally able to turn its attention to finding a replacement for PFI and PF2.

In its Infrastructure Finance Review consultation in the Spring, the government welcomed models that would provide greater transparency and could demonstrate that the benefits brought by using private capital would outweigh the additional cost to the taxpayer. The successful on-balance sheet proposal would be based on and judged by the value for money guidance, would avoid crowding out private investment and would demonstrate consistency with wider government initiatives. It is expected that the results consultation will be released in 2020.

Through last week's election result, Prime Minister Boris Johnson has secured a strong mandate to push through Brexit, and also to deliver on the Infrastructure promises in his manifesto. One issue he will need to consider is the replacement of the funds from the EU-linked European Investment Bank (EIB), which has lent €118 billion to the UK since 1973. 

The EIB has given investors the confidence to invest in higher-risk new-build projects and has provided market capacity on larger projects. The UK currently lacks any institution that can provide similar vision and strategy. Without access to the EIB, the government will need to attract non-traditional investors to fill the gap, and new and existing loan and guarantee schemes will need to be developed and broadened, so as to be made more attractive. 

With Brexit now even more clearly on the horizon, and a Government with a mandate to deliver on election promises which includes significant infrastructure expenditure, particularly in those regions where traditional Labour voters have switched to Conservative, the Government is going to need to ensure it can quickly plug the gap left by PFI and PF2 and the EIB.

Read the rest of our projects & construction predictions here.

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