When the chancellor George Osborne announced the arrival of private finance 2 in December 2012, it was a welcome shot in the arm for the industry. But, despite a rush of initial publicity, PF2 has had a quiet start to life.
PF2 was billed as a new approach to public and private partnerships that moved social infrastructure funding away from the discredited private finance initiative model.
However, for most of the past 12 months, contractors have been working out the best way to grapple with the mechanism responsible for providing up to £700m in funding for the schools sector.
“It’s strange that the Treasury isn’t keen to roll out PF2 more widely… why not apply this approach to other projects that are in desperate need of private finance?”
Three bidders have been shortlisted for the right to manage the aggregator model – the vehicle charged with procuring private funding for the Priority School Building Programme – and an announcement on the preferred manager is set to be made this summer.
Long-term question mark
In principle this is a solid approach for identifying institutional interest. However, there is a risk that this is where the government’s foray into private funding mechanisms starts and ends.
While PF2 has led the way in taking the strain off the Department for Education’s capital expenditure, its lack of wider application across other parts of Britain’s social infrastructure in equal need of government attention is concerning.
“The fact that the government appears reluctant to exploit all the available levers of finance is disappointing”
Construction doesn’t exactly want for alternative funding mechanisms (Tax Increment Financing and Local Asset-Backed Vehicles for starters), but given it’s already being applied to the schools sector, it’s particularly strange that the Treasury isn’t keen to roll out PF2 more widely.
The tendering process for Britain’s first PF2-funded hospital is set to take place in the West Midlands in April, but in the meantime why not apply this approach to other projects that are in desperate need of private finance?
In the run-up to the election and with further efficiency savings to be made, surely it’s in everyone’s interests to ensure a greater proportion of spending falls onto the shoulders of the private sector?
“The current bidding process shouldn’t be set up as a litmus test as to whether PF2 is repurposed for use across other infrastructure projects”
Whatever happens, the current bidding process shouldn’t be set up as a litmus test as to whether PF2 is repurposed for use across other infrastructure projects, especially not at a time when there is a huge amount of pressure to realise the potential of the National Infrastructure Plan and other government initiatives.
Separate to this, and with the DfE keen to attract other forms of investment in social and economic infrastructure, it’ll be interesting to see whether the de-risking of private finance that could come from a more diverse pool of investors takes place.
The fact that the government appears reluctant to exploit all the available levers of finance is disappointing, in that it scuppers a chance to boost private sector confidence in English and Welsh social infrastructure.
This confidence could potentially enable these tools to be used to help not only great swathes of PSBP schools, but also those institutions that didn’t make the list of 261 institutions to receive funding back in 2011.
One thing’s for certain: the wheels of the system are moving slowly, and the investment community will need to wait for at least a few more months for the clarity they need to commit – patience will need to be a virtue.
Stephen Beechey is managing director for education and investment sector at Wates Construction