“There is no magic money tree” – CBI says purely public UK infrastructure is a fantasy
Key Points
- CBI chief executive Rain Newton-Smith has said the government should create a new framework to embrace private partnerships to fund infrastructure.
- She said delivering infrastructure for growth with purely public funding was a 'fantasy', and that there was no 'magic money tree'.
- Private Finance Initiative (PFI) has proven divise in government and among the public, with some studies showing it leaves taxpayers with a bad deal.
The Confederation of British Industry (CBI) has urged the government to lean into private-public partnerships and drop its skepticism over private finance having a hand in public infrastructure.
Speaking at an event in Leeds on Tuesday 19 May, CBI chief executive Rain Newton-Smith said that government should establish a stable, credible model for private investment in public projects and move past ‘outdated debates’ on the topic.
The UK has made good progress on planning reform and has launched a new infrastructure strategy, but Newton-Smith said that “plans alone don’t pour concrete” and delivering this infrastructure would require confidence and partnership from the private sector.
“We don’t have a consistent, reliable model for private capital to partner – with public projects,” she said.
“Only private investment can do that. Especially in a threadbare fiscal environment – delivering with public money alone is a fantasy. There’s no magic money tree.”
Under the PFI model, private firms build, finance, and operate public infrastructure in exchange for long-term, regular payments from the government.
PFI has been criticised as wasteful and a bad deal for taxpayers in the long term. According to research from the IPPR, PFI will cost taxpayers £80 billion for just £13 billion of assets by the time all the contracts are paid off.
But Newton-Smith argues that Britain’s hesitancy to open new PFIs is the country balking from the partnerships that can actually deliver the growth it craves.
“For too long, this government and its predecessor have been afraid of a ghost – and it’s called PFI,” she said.
“I think now is the time to face that fear head-on. In the last 8 years since we blocked new PFIs in England, over 1,000 new PPPs have successfully reached financial close around the world.”
“Our competitors in the US, Canada and Australia have reformed PPP models that work. Clear pipelines that bring in investment and turn out results – on time,” she said.
“This is one of the biggest opportunities we’re missing.”
The cost of infrastructure and the public interest
While PFI has been looked upon with little favour from the government in recent years, it is clear that funding new public infrastructure projects through government investment alone is fraught with its own difficulties.
The government simply does not currently have the budget headroom required to embark on long-term infrastructure projects on the scale that would deliver the growth required to significantly expand its economy.
HS2, the government’s proposed railway line that initially planned to connect Manchester, Birmingham, Leeds, and London has been regularly scaled back as its costs mount.
The price tag for the HS2 railway network now threatens to reach £100 billion, and 14 years after it was approved, it still remains under construction.
Conversely, the British public looks to be more open to the idea of nationalised industry than in past years, and the government plans to consult on nationalising British Steel, along with its ongoing nationalisation of British railways.
Opening infrastructure to public operation is not a golden bullet for service delivery, either.
As an example of public infrastructure that was made available to the private sector, Thames Water has proven to be both unable to meet its delivery requirements or to turn a profit, resulting in its collapse and the need for the taxpayer to step in to solve the issue.
