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Labour peer Lord John Hutton will start on Monday as chair of a new body that will represent investors in private finance initiative partnerships in the UK, hundreds of which are coming to an end over the next three years.
Infrastructure Investors in Public Private Partnerships (IIPPP) was formed last year after investors and public authorities became locked in increasingly acrimonious disputes over the termination of private finance initiative deals involving hospitals, schools, military bases and housing projects. It aims to encourage collaboration between the two as a way of avoiding costly legal battles.
Hutton held various cabinet posts when Labour was last in power between 1997 and 2010 — a period that saw a surge in the use of private finance to build public infrastructure.
“In the past couple of decades, private capital has played a hugely important role in modernising Britain’s public infrastructure,” he told the Financial Times.
“As we look to the future, it will be important to ensure that the benefits of this collaboration between the public and private sectors can inform our thinking about the next stage of investment in the public realm,” he added.
The use of PFI was scrapped by central government in 2018 but can still be used by some devolved administrations, such as regional transport bodies. Transport for London is financing the Silvertown tunnel under the river Thames, which is due to open next year, through a PFI scheme that was signed in late 2019.
About 70 PFI contracts worth about £4bn are coming to an end in the next four years, according to the National Audit Office, rising to 300 over the next decade. Last July a report by the Infrastructure and Projects Authority on the progress of PFI hand-backs highlighted “toxic” relationships between investors and the public authorities involved, citing “shouting and aggressive conduct during meetings”.
Ahead of a general election expected later this year, Labour leader Sir Keir Starmer has laid out plans to seek greater involvement of the private sector in meeting the country’s infrastructure needs should his party win. He has set up the “British infrastructure council” featuring various leading figures from the financial services industry.
Labour said the group was exploring new financing mechanisms to deliver “viable investment models” to attract private sector funding of infrastructure projects. But shadow chief secretary to the Treasury Darren Jones has already ruled out using PFIs.
The model was launched by the then-Conservative government in the early 1990s and allowed government departments and other public bodies to sign multiyear contracts with the private sector to finance, build and manage infrastructure, including schools, before returning them to public ownership.
The financing model was eventually ditched by the Tories in 2018 after several NHS trusts required bailouts stemming from the high cost of funding the PFI schemes.
A report that year by the National Audit Office, the spending watchdog, found that taxpayers had incurred billions of pounds in extra costs for no clear benefit through PFIs, with fees alone for projects including hospitals, military bases and schools totalling £10bn that year.
IIPPP was set up by PFI investors and advisers including InfraRed Capital Partners, Dalmore Capital and Equitix Investment Management to represent the sector.
Alison Fagan, a partner at DLA Piper who is advising the IIPPP, said it was “committed to working with government to secure private investment in public infrastructure”.
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