I wrote on this blog two weeks ago about how PFI* schemes were struggling to get away in these difficult times – with serious implications for the government. It seems it will be much harder for Gordon Brown to carry out his Keynesian infrastructure programme than he implied a few weeks back.
The PM has claimed that he can simply shuffle forward money from existing three-year budgets to get new schools, hospitals and roads built. But what if this only helps to compensate for the draining away of PFI funding?
I put the question to the no 10 spokesman this morning – did he still expect a net increase in infrastructure projects this year – and I’m not sure I got the answer.
Here is today’s FT exclusive on the DfT preparing to shore up the £1.45bn project to widen the M25, one of the biggest PFI projects around at the moment. The government is ready to step in with hundreds of millions of pounds to stop the project’s preferred bidder (ConnectPlus) failing to secure the finance necessary from about 20 banks. Investment banks, which would usually underwrite this sort of thing, can no longer do so.
All well and good. And – in theory – the government can sell on the debt in the private markets when things pick up in a few years time. But there will be scores of projects which may not go ahead because they can’t get private backing or a similar government guarantee.
It’s looking increasingly likely that the “Keynesian drive” may be less than the sum of its parts.
* Private Finance Initiative