(Bloomberg) -- A former Labour health minister warned that the UK government will struggle to deliver new hospitals and other major infrastructure through the private sector unless it establishes a resolution framework for more 150 legacy private finance initiative contracts due to expire in the current parliamentary term.
Relations between public-sector bodies and private providers of services to schools, prisons and hospitals are breaking down, with legal action and a lack of clarity over follow-on contracts putting critical services at risk of disruption, John Hutton, a member of the House of Lords who chairs the Association of Infrastructure Investors in Public Private Partnerships, told Bloomberg.
PFIs were devised in the early 1990s to build public infrastructure while keeping the cost off the government books. From 1997, Labour stepped up the program, which saw long-term management and maintenance contracts awarded to cover upfront building costs. It was finally scrapped in 2018 after the arrangement was found to be very poor value for money.
A total of 154 PFIs are due to expire over the next five years with National Health Service trusts and local authorities increasingly taking PFI providers to court as the end point approaches.
Hutton, who held various cabinet roles in the last Labour government, said the breakdown in relations was a “ticking time bomb that needs to be defused” and that “partnerships have been replaced with punch-ups.” A Treasury report last year found that relationships on expiring contracts have become “toxic.” The AIIP was set up by investors last year to address the rise in cases going to court. Its members account for 60% of the PFI market by capital value.
Hutton said it is important the government resolves the disputes or it risks losing the confidence of investors in the UK. Keir Starmer’s Labour government is pinning its plans for growth on private capital because the government has little money to spend itself. Chancellor of the Exchequer Rachel Reeves has argued that her fiscal inheritance is the worst since World War II.
The government is looking at new forms of public-private partnerships to deliver its hospital and other infrastructure plans. “It would be very unwise for this growing sense that PFI is not going well to gather momentum,” Hutton said. “The expiry hand-back process has to be done better because otherwise it could compromise the government’s long-term plans for attracting private investment.”
“We are running the risk that unless this problem is properly addressed, investors will conclude that the UK is not the space they want to invest in. The backdrop is too difficult, too litigious. There are many other jurisdictions in the world that are managing PPP better than we are now. Which is ironic because we invented it in the UK.”
The AIIP said central government needs to establish a collaborative framework to deal with disputes.
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