How do we fix the public-private partnership?

14 Feb 2019

By Asif Ghafoor, MD Investments, Amey

In last year’s Autumn Statement, Chancellor of the Exchequer Philip Hammond announced the official death of PFI. He said that the UK government would abolish the use of PFI (along with its successor PF2) for future projects, noting that “I have never signed off a PFI contract as Chancellor and I can confirm today that I never will”.

In the same Autumn Statement, however, the Chancellor also confirmed that, with around half of the UK’s £600 billion infrastructure pipeline still set to be built and financed by the private sector, he remained “committed to the use of public-private partnership where it delivers value for the taxpayer and genuinely transfers risk to the private sector”.

While it is clear that PFI and its successor PF2 are no longer options on the table, it remains highly likely that public-private partnerships will continue to exist. Fundamentally, the private investment model for infrastructure delivery and management isn’t broken. But it does need reform and review.

The discussion about the future of public-private partnerships cannot wait – at Amey, we have been exploring these issues through public debates with public and private sector colleagues, a green paper and other engagement initiatives for the past few weeks.

We now need the public and private sectors to work hand in hand to secure investment for UK’s infrastructure. People from across both the public and private sector have lost sight of their original vision to improve outcomes for customers and have returned to a model which is all about cost and financial return. A rebalance is needed.

This rebalance will include a clearer explanation of what constitutes as good value, both in terms of social and financial outcomes; creating a more open and honest discussion is vital to ensure that both the public and private sector can invest, innovate and take advantage of the transformations being driven by new technology, artificial intelligence and data management.

Without open dialogue between the private and public sector, there is the risk that an ideologically driven policy could overlook the fact that the fundamental aim of public-private partnerships is to deliver better outcomes for the public.

Strong partnerships between government and the private sector guarantee a range of procurement and delivery tools are available to deliver public sector infrastructure policy. Such relationships provide the financing sources and, most importantly, a range of funding options that support the available public purse. Crucially, this ensures that the necessary and desired level of long-term investment in infrastructure is consistently achieved.

With the global population expected to reach 9.7bn by 2050, the scale of the infrastructure challenge simply cannot be met by public sector financing alone. The combined impact of population growth, climate change and urbanisation, which in 30 years’ time could see some 70% of the global population living in cities, means that we need to rethink our current infrastructure investment plans.

The UK is also facing major and ongoing pressures in terms of providing sufficient public funding to meet its economic driving ambition for infrastructure investment. The post-financial-crisis austerity programme has seen savage cuts to public spending across both central and local government leading to huge pressure on maintenance and renewal of the public realm.

The consequential knock-on impact of these cuts has been to undermine community and social cohesion, reduction in skills and training. Focus on austerity has too often created an over-emphasis across public sector procurement on lowest cost and lowest risk at the expense of value creation.

The early-80s government-led programme of public asset privatisation seen across water, energy and communications has seen these regulated industries roll out hundreds of billions of pounds worth of investment over the last three decades.

It is an investment programme that, underpinned by strictly regulated public payment terms, continues today, with over 50% of the £480bn national infrastructure spending pipeline to 2020/1 coming from the private sector and with private companies providing skills to maintain and operate the publicly-owned rail and road networks. The water industry, for example, has been transformed, investing to meet the growing demands of new legislation while delivering customers with unlimited drinkable water for as little as £1 per day.

We need to focus our efforts on helping politicians recognise that the most important consideration when planning and delivering infrastructure is identifying what will provide the best outcome for customers and taxpayers – explaining why the private sector, underpinned and challenged by a strong regulator, creates better public outcomes than an ideologically-driven public sector-led solution. To read the paper in full visit https://www.amey.co.uk/the-big-question/

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