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CLC lobbies for private finance revival

The Construction Leadership Council (CLC) open letter sets out measures that it says could add £45bn a year to the UK economy but boosting construction industry productivity. Among the recommendations is a revival of exploiting private finance for public infrastructure to keep the costs off government books.

The letter, signed by 16 members of the CLC, has been sent to the leadership of both the Conservative and Labour parties and is “intended to offer non-partisan guidance on closing the industry’s productivity gap and maximising its contribution to the UK economy”.

One person's 'non-partisan guidance' is another person's lobbying.

Much of this "non-partisan guidance" is familiar construction industry lobbying: publish a 10-year infrastructure plan and stick to it, implement the Construction Playbook consistently on government projects, tighten up on prompt payment, planning reform, and introduce a presumption in favour of development on small sites.

The signatories are also asking for more tax breaks for research & development. They want the next government to promote the build-to-rent sector by increasing subsidy levels by £9bn-14bn.

Most interesting is the call for more “flexibility in the fiscal rules”. It recommends: “Open a conversation with industry to further explore the role of private finance to deliver some of the currently government funded projects in the pipeline in order to deliver the infrastructure the country needs whilst staying within an affordable fiscal limit.”

Polls suggest that the 2024 general election will see a transition from a Conservative to a Labour government. The last time that this happened, in 1997 was when the original private finance initiative (PFI) really took off.

PFI had begun life under the Thatcher/Major Conservative governments as a way of passing the risk of cost overruns to builders – an extension of DBFO (design, build, finance, operate) procurement. It was used for projects with direct revenue streams, like the Dartford/Thurrock toll bridge. The bridge builder collects the tolls until the costs (plus a generous profit) are recouped.

PFI was then turbocharged (or corrupted, depending on viewpoint) by the Blair/Brown Labour governments for a far wider array of projects, including schools and hospitals, where the only revenue stream that could be constructed was for building maintenance, janitorial and catering services. The primary motive now was cutting capital spending, not passing over construction risk. While assets got built, health trusts and education authorities were locked into crippling 30-year deals with the likes of Carillion and Interserve. After the collapse of Carillion, the whole charade was exposed as an off-balance accounting trick that proved more expensive in the long wrong – buying infrastructure on the tick, with financial intermediaries and money lenders taking huge cuts of public money. Cameron's government switched from PFI to a slightly more transparent PF2 in 2012 and then in 2018, learning from Carillion, said they'd never touch it again. 'Private finance' is today a politically toxic term.

The preferred way of getting the private sector to pay for public infrastructure today is the regulated asset base (RAB) model that has been used to pay for the Thames Tideway super sewer. Thames Water customers have already been paying for the new sewer in their bills, upfront. In the jargon, RAB enables investors to share some of the project’s construction and operating risks with consumers, lowering the cost of capital (reducing financing costs).

The Nuclear Energy (Financing) Act 2022 paves the way for the RAB model to be used for Sizewell C as well.

Were history to repeat itself, Labour chancellor Rachel Reeves would be picking up that legislation and sending it in as many directions as she can get away with, just as Brown did with PFI.

Mace chairman Mark Reynolds, the industry-side chair of the CLC, said: “Whatever the result of the election in July, the fact remains that the construction industry offers any incoming government the biggest opportunity to create sustainable economic growth and unlock the potential of peoples, places and projects all over the country.

“The CLC is asking politicians of all parties to take this opportunity seriously, review our recommendations and ensure that businesses all over the UK are given the certainty and confidence they need to invest in a brighter future for the sector.”

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