A private conversation

Shadow chancellor John McDonnell’s plan to scrap PFI contracts in favour of nationalised infrastructure, unveiled at the Labour conference on Monday, was immediately slammed by critics as sending Britain back to the 1970s; the decade that, with perhaps unfortunate symbolism, shaped the Brighton conference centre in which McDonnell stood.

McDonnell’s plan – which he billed as the move Labour delegates “had been calling for” – went further than the party’s previously announced aim to stop signing new PFI contracts, to bringing even existing deals back “in house”. Labour briefings suggested that the policy really meant all contracts would be “reviewed” but the party still expected the bulk to come under national control. The cost of the move was leapt on by critics, with the sum put at around £60bn for NHS projects alone.

It may be tempting to dismiss Labour’s plan as a fantasy of an opposition that will never see power; but Labour’s gains in the last election mean that their policies can no longer be readily dismissed – both in themselves and for the pressure they may bring to bear on the present government. Meanwhile, the extremely bad name PFI has got among the public, and also among some members of all three main parties, means that the funding method is unquestionably facing huge pressure. So, what would be the implications of a PFI-less Britain?

It may be tempting to dismiss Labour’s plan as a fantasy of an opposition that will never see power; but Labour’s gains in the last election mean that their policies can no longer be readily dismissed

For McDonnell, and swathes of the population, ending PFI would kill off the culture of excessive profits that has become associated with the funding mechanism since its inception in the 1990s. McDonnell claimed that the UK’s PFI bill would amount to £200bn “over the next few decades”, while stories about the scale of profits made by PFI investors abound. While the government introduced some changes to the initiative under its PF2 model that enable the public sector to share in returns, the fact that a new pipeline of projects expected in early 2017 is still yet to materialise indicates that the funding mechanism is still dogged by controversy, even within Whitehall.

But set against this is the scale of the need for social and economic infrastructure renewal in the UK, compared with the public finances available to do it. Even if Labour were to embark on a huge nationally funded building programme, to completely ignore private investment would cut off potential for significant benefits that could be delivered to the public sector, and indeed already have been through PFI. Private money can fund hospitals, schools and transport schemes that otherwise, in all likelihood, would never be built.

The Scottish government, which scrapped PFI in 2008 in favour of a “non profit distributing” model of public private partnership under the Scottish Futures Trust, has attempted to achieve a balance between these two pressures by striking deals with private companies that see returns capped, with any extra profit being returned to the public sector in the form of investment in further infrastructure schemes. It’s a neat model, and could have wider application in the UK – but, with many similarities between it and PFI, whether it would be distinctive enough politically for the current Labour leadership is questionable.

As well as leveraging private investment to increase public facilities, another plus side to PFI has been the emphasis it has driven on whole-life efficiency of buildings. A big – and well-publicised – problem of early PFIs in particular was that this was not reflected in operational savings to the public sector (cue yet another retelling of the tale of the £300 lightbulb). But from a construction perspective, the funding method has driven a focus on designing and building with the lifecycle costs of a scheme in mind, in terms of energy efficiency in particular.

But set against this is the scale of the need for social and economic infrastructure renewal in the UK, compared with the public finances available to do it

With the advent of Building Information Modelling, and its potential to link a building’s construction with its asset management, this trend is growing among projects, however they are funded. But the adoption of BIM at this level is still a long way from being mainstream, and if a future government were to stop the use of private investment in public projects, which represent a huge slice of the UK’s construction work, there have to be serious concerns over how quickly further innovations would be driven forward without pressure from commercial investors.

None of this is to say PFI, and more generally the role of private investment in infrastructure, does not need serious reform – it does. With just six deals signed since PF2 was launched in 2012, it would be hard for even a Conservative government to claim it was working. But to ignore the role private investment can play in creating the billions of pounds worth of infrastructure projects the UK needs, particularly on large-scale schemes, would be throwing the baby out with the Brighton bathwater.