So. Farewell then PFI, what next for infrastructure finance?

Elisa Van Waeyenberge, Benjamin Bowles & Kate Bayliss


The UK’s infrastructure needs investment. From potholes to HS2, public concern and media interest in our infrastructure sector are rising. Yet it is unclear, how this investment will be financed. The private financing initiatives of PFI and PF2 have been scrapped and post-Brexit Britain will no longer have access to infrastructure funds from the European Investment Bank (EIB).


Macroeconomists focus on the impact of infrastructure investment in terms of output and productivity. Yet the origin and structure of the associated financial flows are less well understood. Yet they can have significant macroeconomic implications.


Our project for Rebuilding Macroeconomics looks at the emerging solutions as the UK Government consults infrastructure experts on possible financing options. We consider the impact of new financing regimes on the kinds of infrastructure being built and the stability of such approaches. What are the likely effects on those who ultimately fund the infrastructure: tax payers and service users? Finally, we consider financing innovations that could create more sustainable and socially just forms of infrastructure.


Developed in the 1990s, PFI financing offered governments the chance to build infrastructure with upfront finance provided by the private sector which was then repaid by the state – with a significant mark-up – over the following decades. Its use expanded rapidly during the 2000s but began to decline after the 2008 financial crisis.


Parliament became increasingly critical of the high costs and fixed contract terms. Local authorities were locked into payments over decades, sometimes paying for services that were no longer required. Liverpool City Council, for example, is paying around £4m a year for Parklands High School which is now empty. The school cost £24m to build but total charges to the Council will amount to around £47m by the end of the PFI contract.


In 2012, a modified version was launched, known as PF2, but usage slowed, from an average of 55 deals each year in the five years up to 2007/08 to just one in 2016/17. Following yet another critical report from the National Audit Office and the collapse of one of the biggest PFI construction companies, Carillion, the Chancellor announced in October 2018 that PFI and PF2 would be abandoned.


Yet, the Government remains strongly wedded to private finance in some form or another. The Chancellor in 2018 indicated that half of the UK’s existing infrastructure pipeline will be privately financed. But the question remains as to what specific form this will take. In March 2019, the Chancellor’s Spring Statement launched a public consultation on “How best to support private investment in infrastructure”.


Private financing raises a complex set of issues. The agents involved have competing and contested objectives, and prevailing narratives are not always borne out by reality. Private finance appears to reduce public deficits and debt but it creates long-term and often contingent fiscal liabilities. From PFI and PF2, there is little evidence that the private sector is more efficient than the state in financing infrastructure.


The supply of private finance is depicted as a market, but this is strongly shaped by the government. Whatever financing mode prevails, infrastructure funding ultimately stems from the same sources: taxpayers and/or end users. Where these sources are used to generate returns to shareholders, the distributional effects of financial flows require careful scrutiny. Infrastructure finance, then, is not simply technocratic but reflects shifting political, financial and economic imperatives and power relations.


Our research project takes an interdisciplinary approach, combining economics and anthropology to unpack the complexities of private infrastructure finance and the macroeconomic implications of different financing structures. A number of schemes are already in place to support private sector investment, aside from PFI. This project will investigate the ways in which these arrangements navigate the tensions between the priorities of investors, the needs of end users and the (often multifaceted) role of the state, as well as the extent to which these schemes differ from the PFI model.


We will explore the ways in which private financing options emerge from within the government apparatus and question the analytical and policy paradigms that govern these trajectories. We are interested in the cultures of expertise that prevail, the norms of policy practices to which these give rise and the resulting roles and outcomes for different stakeholders.


Infrastructure is vital for addressing regional and other social inequalities. However, outcomes emerge not just from the physical investments but also from the ways in which these are financed and funded. Private infrastructure finance connects tax payers and end users with global private capital in ways of which they are mostly unaware. This project understands financing decisions as fundamentally political with important real-world consequences. Given the current hiatus in funding schemes, this is a crucial time to critically reevaluate how the UK pays for its infrastructure.

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