Going public

Hospitals, schools and road projects worth almost £10m have been hamstrung by a lack of bank finance. This new money may help to save companies and their workers. And whatever the critics say, the government had little choice.

That’s not to say it can start doling out cash tomorrow. First of all, an “arm’s length” unit will have to be created within the Treasury, and that hasn’t got any staff yet; it will eventually recruit about 15. But the spirit is certainly willing: the Treasury has pledged to put up the cash needed to get £8bn-worth of schemes off the ground this year.

There are concerns over the government acting as client and banker – this is not the PFI we’ve known. In fact, the private finance initiative has essentially become the public finance initiative. The government begs to differ, of course. The Treasury unit will operate like a commercial bank; it will lend at the same loan rate as they do, so the debt can be sold on once the financial sector recovers. This allows the government to argue that the principle of private finance is intact. What’s more, the initial cash is coming from surplus Whitehall budgets (which is a tale in itself) so it won’t add to government borrowing just yet. Finally, the government points out that it is not providing equity, only debt finance. So if the construction budget rockets then it’s still the private sector that will pick up the cost, not the taxpayer. Compare this with traditional horror projects such as, say, the Scottish parliament.

Whether this will be a big enough reason to hold onto the PFI as the state’s preferred procurement route once this mess is over is less certain. It depends on how quickly the economy recovers and whether PFI projects can be made more attractive to the wider financial market of institutional investors and pension funds. The argument that it kept the cost of projects off the public balance sheet is no longer tenable. Also, if the builder of a PFI scheme goes bust, the banks may still have to sort out the problem, but as most of the money is coming from the taxpayer, the taxpayer is ultimately shouldering some of the risk. And you can see why critics such as the Lib Dems and the Tories are questioning the wisdom of a procurement route that requires the taxpayer to fund the capital works, and then forces it to pay through the nose for what amounts to a 30-year hire purchase scheme. At the moment this looks like the economics of the madhouse, which means it fits in nicely with the times we’re living in. The difference is that the outcome should be a new school or hospital – not a former banker with a yacht in the south of France.

Does he know something we don’t?

Just when you thought housebuilding was all about accountancy and refinancing loans, along comes flamboyant Steve Morgan and spices things up. The Redrow founder looks poised for a boardroom coup to regain control of his former company, after buying up 29.9% of the shares. He’s not the first former leader to make a triumphant return – cast your minds back to David Bucknall at Bucknall Austin in 2003 – but Morgan is clearly confident that he can do a better job than the current management. The question is: is he being ruled by his head or his heart? Anyone who can sink millions into a football clubs is clearly not purely rational. But Morgan is one of the canniest housebuilders of his generation. Maybe he just fancies a challenge... or has he made a timely pounce because he senses the market has hit rock bottom?