Rachel Reeves has been discussing the possibility of using private finance to fund the £9bn Lower Thames Crossing, sparking discussions about the potential return of Private Finance Initiatives (PFIs). PFIs were commonly used during Tony Blair’s Labour government but have faced criticism for potentially being more expensive in the long run.
A PFI involves a long-term contract between a private entity and a government where the private sector designs, builds, finances, and operates a public asset and its related services. While the Labour government has expressed interest in using private sector funding to improve the country’s infrastructure, particularly in road, energy, and water projects, the specifics of how this will be implemented remain unclear.
A report from the National Audit Office in 2018 revealed that privately financing public projects could cost around 40% more than relying solely on government funding. This could result in taxpayers having to pay nearly £200bn to contractors over the next 25 years. Former Labour MP Meg Hillier criticized PFIs, leading to a halt in their usage in the same year.
The current Chancellor is proposing a different model for PFIs, which may include capping returns for investors or having independent regulatory oversight. Despite the controversy surrounding PFIs, some believe that reintroducing them could help address the issues faced by Britain’s infrastructure projects, such as high costs and delays.
Projects like High Speed Two (HS2) have been funded using public money, while others like Battersea Power Station have leveraged significant private capital. Private sector funding allows the government to share the costs of delivering projects and is seen as a way to bring efficiencies and focus on lifetime costs.
The Lower Thames Crossing project has faced challenges due to its lengthy planning application and increasing budget. The proposed tunnel under the River Thames has seen its costs rise to £9bn from an initial £5.5bn estimate. Experts suggest that shifting such projects to the private sector could be more feasible in densely populated areas like London and the south-east of England.
However, critics argue that private investment in large infrastructure projects could lead to higher tolls and charges for the public. There are concerns about long-term revenue guarantees, competition, and traffic impact. While road pricing may be easier to introduce in projects like the Lower Thames Crossing, the long-term financial implications of PFIs remain a point of contention.
The main issue with PFIs is that private investors often seek substantial returns, leaving public entities with significant debt in the long run. Some hospitals and schools have faced financial difficulties due to PFI repayments, raising questions about the true cost-effectiveness of these initiatives.
As Rachel Reeves navigates the challenges of economic growth and limited government funds, the potential use of PFIs presents both opportunities and risks for the Labour Party’s future infrastructure projects.
