Pensions deterred by UK government’s PFI stance

A survey has highlighted that, despite having an appetite for UK infrastructure, pension funds are being dissauded from investing by the government’s unclear position on the Private Finance Initiative.

A survey carried out by schemeXpert.com and Pension Week, which interviewed 44 pension scheme managers, investment directors and trustees, found they had appetite for investing in UK infrastructure. However, it also found enthusiasm being sapped by the coalition government’s criticism of the Private Finance Initiative (PFI) and resulting uncertainty about how British infrastructure will be funded in future.

If enthusiasm mixed with wariness is how pensions view infrastructure investment, it’s no real surprise. After all, this appears to accurately reflect the government’s own position. In a recent speech to the National Association of Pension Funds, Mark Hoban, financial secretary to the Treasury, said: “Infrastructure investment has the potential to offer those secure, sustainable and strong returns that investors are looking for.”

However, some members of the government have been harshly critical of PFI, the UK’s standard model for infrastructure procurement. Most recently, health secretary Andrew Lansley said: “The truth is that some hospitals have been landed with PFI deals they simply cannot afford. Like the economy, Labour [the previous governing party] has brought some parts of the NHS [National Health Service] to the brink of financial collapse.”

Given that the PFI programme was accelerated under the Labour administration, it’s a useful stick with which to beat the opposition party. However, it has led the government to be accused of opportunism – and of attempting to deflect criticism away from government cuts. In response to Lansley’s comments, one NHS executive told the Independent newspaper: “To suggest that our financial problems are about PFI is nonsense. The problems that we face are about having to cut our budgets by 4 percent every year for the next four years.”

National Audit Office figures reveal that, from 2000 to 2008, between £4 billion and £5 billion of PFI projects were signed off per year. The peak year was 2006, with £7 billion of PFI deals getting the green light. But since 2008, only between £1 billion to £2 billion of deals have been given the go-ahead. 

With social infrastructure still requiring large amounts of private funding, there is uncertainty over whether the government will discover that it likes PFI after all or whether it will seek to replace it with a new model or models. Until then, as the schemeXpert.com/Pension Week survey appears to suggest, pensions will not match their enthsiasm for infrastructure with ramped-up commitments.