Budget fall out as ministers warned lost time costs jobs

Senior construction industry figures have hit out at the government’s apparent lack of urgency in locking down private funding for public construction projects, following last week’s Budget.

Disappointment at the chancellor George Osborne’s failure to shed light on the future of PFI in particular was compounded when construction minister Mark Prisk told delegates at the Ecobuild conference in London that no contractors had raised concerns with him about the hiatus in PFI projects.

This is despite the fact the UK Contractors Group made the future of PFI, which has been undergoing a Treasury review since December 2011, central to its submission to the government in advance of the Budget.

A call for evidence on how to reform PFI closed on 10 February, and Osborne had been expected to give an update on the Treasury’s thinking in advance of a full response in the summer.

We need decision not deferral. Every time you defer a decision you cost jobs

Paul Drechsler, Wates

As of November last year, there were 50 PFI projects in procurement, with an estimated capital value of £6.3bn.

However, since the review, the opening of the PFI-led £2bn Priority Schools Programme has been delayed until at least September, and there are thought to be no new PFI schemes being developed.

In February the UK Contractors Group said there was “great concern” among UKCG members that delays in tackling PFI policy were threatening key infrastructure investment decisions. But Prisk claimed last week he had “not had [concerns] raised with me by any major contractor” about the hiatus.

Paul Drechsler, chief executive of contractor Wates, said: “We need decision not deferral. Every time you defer a decision in this industry you cost jobs.

“We can’t have hundreds of people sitting on the bench waiting months and months for decisions. This is the best industry for creating jobs in this country rapidly.”

The future of PFI is tied up in a wider debate about the best way to attract the private finance needed to pay for the £200bn of new infrastructure planned over five years, whether procured under PFI or not.

Speculation on the future PFI model has focused on profit sharing or profit capping models, whereby the public sector could be assured that payments to PFI contractors aren’t simply underwriting super-profits.

Efforts are currently focused on attracting institutional investors into the market, with Osborne saying the Treasury was on course to raise £2bn from a consortium led by the Pension Protection Fund to pay for infrastructure projects by the start of 2013.

Last month Building reported that this initial £2bn investment could be leveraged to £4bn, but this still falls well short of the £20bn pledged in October’s Autumn Statement.

Further institutional commitment is thought to be being held up by pension funds’ unwillingness to invest during the risky construction phase of an infrastructure project. Solving this requires either the government or contractors to underwrite more risk, either of which would involve a higher cost to the public sector.

Nick Prior, head of infrastructure at accountant Deloitte, said: “Government has to accept the funding implications of this, but politically that’s going to be difficult to do given what it has been saying about PFI.”

Kevin Bradley, head of Public Private Partnerships at Davis Langdon, said there was a “Mexican stand-off” between institutions and the government. “A lot of senior politicians have left no doubt they’re anti the PFI model. There have been legacy deals signed, but there’s no new pipeline coming through.”

Budget 2012: Still waiting …

  • PFI - an update was expected on the future of PFI;
  • Tax increment financing - Nick Clegg committed the government to introduce TIF in September 2010. Despite committing £150m in the Budget, nothing will be in place until 2013/14; and
  • Land auctions - in the Budget 2011 the government said it would introduce land auctions to help bring forward development. In the 2012 Budget it said two pilots will be ready by the end of 2012, but limited to public land.