Our financial situation is as difficult as it was three years ago
Chaos in the financial markets, a rapidly diminishing appetite from banks to lend to projects, and the sudden exit of an England rugby manager. Is this 2008 all over again?
That’s the view of Richard Threlfall, UK head of infrastructure and construction at KPMG, who claims that in the last two months the lending markets have moved from “stable to chaotic” - with the struggle to close deals now as hard as it was three years ago.
So is nothing changing? There are signs of movement. The government, thankfully, appears to have realised the increasingly pressing need to access new sources of finance for construction projects - which is essential if it is to deliver the infrastructure that the UK so clearly needs. Chancellor George Osborne’s confirmation this week that he would launch a review of PFI in December was an acknowledgment that, even though the government finds the reliance on traditional PFI unpalatable, it needs to find a way of involving private investment in public building projects. And the fact that the reform will seek to include a wider range of financing sources than are currently available, including pension funds, is another good sign for those who are witnessing the continued reluctance of traditional lenders to return to the market.
However, the scope of the review, as outlined by the government, may also take you right back to 2008. The problems that the chancellor this week linked with PFI - including a lengthy and expensive procurement process, a flawed balance of risk and reward to the private sector and a lack of transparency - are the same ones the Tories have been complaining about since they were in Opposition. Osborne says he wants to rectify them, so given almost 18 months in power, surely he has some idea what he wants to do about them?
If so, then this week’s “call for evidence” on PFI gives us no clues. The government has said that it will not propose a new model, but will open-endedly seek advice on how one could work. And, of even greater concern, no time frame has given for the end of the review. The closest that Lord Sassoon, the commercial secretary to the Treasury, would come this week was to indicate he would be “disappointed” if a further consultation was not launched within a year.
This all sounds worryingly like PFI reform could be heading for the long grass - which would be catastrophic news. A fast review, resulting in a credible reform of PFI, could go a long way to restoring lenders’ confidence enough to kickstart a pipeline of construction and infrastructure projects. But a lengthy process risks taking away their appetite for the sector altogether - and right now, that is something that construction, and the UK, cannot afford.
Sarah Richardson is Building’s deputy editor