Given that PFI remains the love child of the New Labour era and the rather neglected awkward teen of the coalition and Tory governments, the announcements from shadow chancellor John McDonnell in Brighton should not be seen as surprising.
In terms of reviewing current contracts, the Treasury has been reviewing the performance of individual contracts for some time now.
Risk allocation between the parties has been seen, by both sides, as tilting aspects of project performance and management more closely to public sector employers.
Given stated objectives of bringing contracts “back in house”, nearly all PFI contracts contain specific provisions to deal with early termination of contracts and payment of financial compensation in such circumstances. Employment law and other regulatory aspects of such changes would also be hugely complicated and require extensive (re)negotiations.
Any policy to bring existing PFIs to an end would need to factor in these kinds of costs and challenges – a feature which has been recognised in the changes of language on Labour policy around, for example, the nationalising of rail franchises.
Given the current levels of market activity and continued absence of the chancellor’s “pipeline” of PF2s, some may struggle to see any major difference that a blanket ban on future PFIs would bring.
It’s a salutary reminder that the SNP government in Scotland made a similar pledge to halt all PFIs (under different market conditions) and after some reflection devised its own alternate ‘not for profit’ model, which nonetheless recognised the important role that private investment can play in infrastructure projects.
“Like it or not, PFI have delivered a range of social and economic infrastructure which probably would not exist, but for the engagement of project finance solutions”
Like it or not, PFI and its variants have delivered a range of social and economic infrastructure for the UK which probably would not exist but for the engagement of project finance solutions.
Private finance, not just from banks but pension funds – including those of local authorities and public sector employees – are increasingly looking at the very limited category of assets in which to invest.
Appropriate long-term investment represents an extremely important market and supplement to paying for projects directly out of UK plc’s capital funds.
PFIs have been, and continue to be, very important to jobs in the construction and services industry.
Jon Hart is a partner, PFI and infrastructure, at Pinsent Masons