Some Jekyll, mostly Hyde

Two UK ministers, two conferences and the disturbing message that business-friendly governments are not a panacea to private capital’s freedom to invest in infrastructure.

On the final day of our Global Summit in Berlin last month, Graham Stuart, the UK’s under secretary of state at the Department for International Trade, addressed the crowd and told them his government’s “aim is to create an environment where private infrastructure investment can thrive”.

It was a pitch rather expected from a minister working at the government department tasked with filling the hole left by EU trade when the UK eventually leaves the union, but a welcoming one nonetheless, particularly given the renationalisation noises made by his opposite numbers led by Jeremy Corbyn.

Barely a week later and another UK minister was addressing a group of infrastructure investors. This time it was the turn of Robert Jenrick, exchequer secretary to the Treasury, at the UK Infrastructure Policy & Investment Summit, in London, who spoke of the government wanting to “champion private finance” in infrastructure and ensuring it “remains a pillar” in the financing space.

However, contrary to the pitch offered by his colleague Stuart, Jenrick provided a more sobering approach. He warned the industry that the “egregious practices of the past must be consigned to history” and pointedly said that while the government will continue to use the PF2 programme, this will be done “wisely where it’s clearly in the interest of the taxpayer”.

It was a far cry from the vows made by John McDonnell, the shadow chancellor, to bring all PFI contracts “back in-house” and labelling the scheme a “scandal”, but was a stark warning to those hoping for the Conservative government to play Dr Jekyll to Labour’s Mr Hyde.

Indeed, beyond the headline figures widely reported following the UK’s National Audit Office’s January review into PFI and PF2, one of the most interesting results was that nine out of 10 government departments surveyed said they would be interested in buying out their PFI deals should the funding be available. Essentially, a not too dissimilar approach to Labour, just without the hostile rhetoric and somewhat indifference to public finances.

Others at the summit questioned if the government is confident or content with the private investment model, while Geoffrey Spence, Lloyds Bank’s global head of infrastructure and the former chief executive of Infrastructure UK, said private finance faces an “existential crisis”.

The issue was perhaps best summed up by Adrian Jones, director of infrastructure debt at Allianz Global Investors, who said that “all politics has moved slightly away from private investment in infrastructure”. Some of this, he explained, has been in reaction to current climates while, some because governments believe they can deliver certain projects themselves.

Put differently: the plates have shifted from the good favour previously afforded to private investors – regardless of the stripes of government – with no sign of them shifting back anytime soon.

Many of the managers deploying capital in the UK tell us that it’s not Brexit that keeps them awake at night, rather the prospect of Corbyn and Labour attaining power, and the associated risks to their investments from that outcome. That’s natural, of course, given his promises to become the owner of their assets. However, that’s simply the outcome if the step change demanded by the current government and the relevant regulators is not heeded.

We heard in Berlin from managers and investors that the industry needs to change the way it interacts with both governments and public. “Egregious” or otherwise, the practices of the past must be consigned to history.