In a report on government’s use of private finance for infrastructure, the Public Accounts Committee (PAC) is calling for a centrally-developed toolkit for public bodies in the management of risks for infrastructure projects.
The report also finds that long-term planning for investment in UK infrastructure is being held back by the lack of a credible pipeline for projects, and issues a warning about the condition of assets due to be handed back to the public sector as PFI contracts expire.
In the 10-Year Infrastructure Strategy the government sets out ambitious plans to invest in public infrastructure and admits that “a significant increase in private investment,” will also be needed.
PAC Chair Sir Geoffrey Clifton-Brown MP says: “The recently-published 10-year infrastructure strategy lays out ambitions which any government would harbour – driving growth, clean energy, delivering hospitals, schools, prisons - and encouraging private investment. As with a number of areas of scrutiny for this Committee, the government has articulated its desired destination, but in an environment where the exact route remains difficult and unclear.”
PFI expiry
For all 665 ongoing Private Finance Initiative (PFI) contracts, public bodies are to pay £136bn in charges up until 2052-53. Half of these contracts are set to expire in the next decade. The PAC’s report warns that ongoing challenges around PFI asset condition need careful management to ensure only quality assets are handed back.
The report warns of the misplaced belief that risk transfer to the private sector equates to risk management by the private sector, with an accompanying false assurance that the problem lies elsewhere. This is not always the case, as ultimately the government may need to step in if a major supplier of critical infrastructure were to fail, as with Carillion. The PAC is calling for a centrally-developed toolkit for public bodies in the management of risk for infrastructure projects.
The report highlights the importance of identifying which financing models represent value for money for different types of project. HM Treasury has yet to identify the types of financing model it will support for various project types. Doing so will allow public bodies to be clearer on how they might deliver infrastructure and encourage investor participation, drive competition and improve value for money. The PAC is also calling for a central database to be published covering private finance for public infrastructure, which does not currently exist. This would help the government spot themes and patterns in using private finance for infrastructure and deliver value for money.
Long-term planning
The PAC is also concerned that the historic lack of detailed information on forthcoming plans has exacerbated skills shortages and put the government’s ambitions for infrastructure investment at risk.
The National Infrastructure and Construction Pipeline is supposed to lay out programmes and projects for investment in the coming years to support long-term planning for organisations and investors. However, the PAC’s report finds that the value of the pipeline for these purposes is reduced. The pipeline was not published for the years 2019, 2020 and 2022, and due to gaps in data, pipelines were not comparable year on year. Information was also lacking on past performance of projects or when future ones would be delivered.
The report finds that this lack of a credible pipeline has made it challenging for organisations across both the public and private sectors to attract, develop and retain skills in the infrastructure sector. This puts government’s ambitions for infrastructure investment in jeopardy, as using private finance to support investment requires public bodies to develop and maintain specialist commercial and financial skills. The PAC’s inquiry heard that the lack of a credible pipeline has meant investment cannot be deployed, resulting in skills and labour leaving the country. The uncertain infrastructure environment in the UK has led to a weakening of the essential skills needed for successful project delivery.
Sir Geoffrey Clifton-Brown adds: “It is a truism that any investor places a high premium on reliable information, without which it is hard to proceed. Of particular importance are accuracy and certainty of contract specifications at the outset, and relative certainty that the government won’t change the contract specification at a later date. Our scrutiny has found a woefully obscured picture for any seeking to invest in big infrastructure projects in the UK, with a corresponding drain of skills overseas.
“Without a long-term, consistent pipeline giving an idea of what to expect in years to come, UK infrastructure risks becoming stony ground for any investor. Government must also move to make sure the right finance model is used for the right project, and to support all public bodies in understanding how best to manage both the contracts themselves and the risk in taking them on.”
He concludes: “If our recommendations are followed, we hope our report will act as a guide to the government to help it deliver badly-needed growth, a revived skills base, and the better-quality infrastructure this country needs.”
