Spring Statement reaction: Finding infrastructure funding alternative is critical

Industry leaders have welcomed the chancellor’s intentions to consult and search for a new model of funding infrastructure in the future given the demise of private finance initiative (PFI) contracts.

On just another day in parliament when Brexit was never far away from discussions, the chancellor Philip Hammond attempted to provide some optimism for the sector.

Delivering his spring statement in the House of Commons today, he promised to look for a new approach in supporting private infrastructure investment once the UK leaves the European Investment bank.

It was back in October when Hammond first announced he would be abolishing PFI contracts, in the wake of Carillion’s demise which brought the funding model in for criticism.

Jonathan White, UK head of infrastructure, building and construction at KPMG, said firms would welcome the chancellor’s review, not least for the government’s commitment to being more flexible in the way they are financed.

“The UK has led the way on financing models in the past and the consultation will put the onus on businesses in the sector to help find new ways of fuelling investment in infrastructure," White added. "This in turn will have a real benefit for the infrastructure market and help to attract investment into the UK. Everyone benefits if the industry has more certainty about the way in which projects will be funded and structured in the future.”

While, Jason Millett, Mace's COO for consultancy, said: "Given the demise of PFI, finding a new way to fund Britain's infrastructure is of the utmost importance. It's right that the private sector should contribute, but we need to be certain that whatever the new model is, it encourages sustainable, long term growth and doesn't undermine an industry that already faces serious challenges around margins and risk management.”

However, Stephen Tobin, an infrastructure expert and partner from law firm Pinsent Masons, believes changing finance models is not enough while there is not the appetite from private stakeholders. Tobin said: “Consultations are all well and good, but they cannot be used as an alternative to active engagement with the industry – playing about with finance is not really the issue. What’s lacking is not the appetite and interest of private stakeholders, but political will to give more attention to bringing forward projects and consistently recognising the value of private finance solutions as part of a spectrum of different ways of financing infrastructure.” 

David Barwell, chief executive, UK & Ireland, AECOM, said: “We welcome Mr Hammond’s commitment to a three-year spending review prior to the summer recess. Although, with the caveat of this only taking place after an EU exit deal we’re not celebrating just yet. It’ll also be a significant test of the government’s resources to both plan for Brexit and prepare for a spending review in such a tight timeframe. When the review does take place it will be interesting to see how, or if, the chancellor will use multiyear budgets to formulate his spending plans. Such plans have enabled the supply chains of some departments, such as Transport, to respond in the knowledge of certainty of funding. Wider adoption of this approach could build confidence across other departments and their supply chains."

Elsewhere, Hammond reiterated the government’s commitment to publishing a comprehensive national infrastructure strategy in which it set out the government’s priorities for economic infrastructure and responding to recommendations in the National Infrastructure Commission’s National Infrastructure Assessment.

The chancellor also pledged £717m from the £5.5bn Housing Infrastructure Fund to unlock up to 37,000 homes at sites including Old Oak Common in London, the Oxford-Cambridge Arc and Cheshire.