Problems public bodies have encountered in delivering PFI projects during the recession are beginning to abate but the market still requires new sources of finance to ensure it remains stable, new research has suggested.
A study of the impact of the credit crunch on UK infrastructure projects, published by the Centre for Public Service Partnerships, has found that ‘conventionally procured’ projects, funded by public bodies directly, ‘have suffered the least difficulty’ during the downturn.
In contrast, the regeneration and housing sectors have been ‘particularly badly impaired’ and require further support to kick-start projects, the authors claim.
But while there are signs of the ‘green shoots’ of recovery across public-private programmes, the study urges a re-think over sources of PFI funding, particularly if local authorities are to continue to deliver affordable, privately funded projects such as new schools, hospitals and transport
systems.
According to researchers at the CPSP, based at the University of Birmingham, ‘One solution is to obtain access to institutional funding, for example, from pension funds and insurance companies.
‘In principle there is a close match between the funding requirements for PPP and PFI schemes, where affordable long-term finance is required, and the investment needs for pension funds which want long term, low risk investments,’ the research states.
Other solutions proposed by the CPSP include wider experimentation with hypothecated local taxes, such as the supplementary business rates currently being earmarked to fund London’s £16bn Crossrail programme.
Another hypothecated option endorsed by the academics is the introduction of tax incremental finance (TIF), or accelerated development zones, which draw forward regeneration investment based on projections of an area’s expected business tax revenues. More controversially, the academics also warn that ‘increased charging for services might be considered further’.
‘Whilst this could be introduced for a range of services, roads and motorways appear to be the most suitable areas. The increased use of road and congestion charging, possibly linked to hypothecated spending on specified improvements, could finance infrastructure improvements,’ they argue.
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