Speech

Chief Secretary announces government's new approach to PF2 infrastructure investment

Chief Secretary to the Treasury, Danny Alexander speaks to an audience of industry and business representatives, at a Centre Forum infrastructure event.

• From: HM Treasury and The Rt Hon Danny Alexander
• Published: 16 October 2013

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

• Location: Centre Forum, City of London
• Delivered on: 16 October 2013 (Transcript of the speech, exactly as it was delivered)

Thank you Stephen.

And thank you everyone for making it along to this event.

I바카라 사이트™ve been coming to speak at events here in the City for three and a half years now as Chief Secretary.

But it바카라 사이트™s only recently that I바카라 사이트™ve been able to come to these events and say 바카라 사이트“ with some confidence 바카라 사이트“ that the British economy is on the mend.

By no means fully recovered, but it바카라 사이트™s on the way back.

Last week, the IMF revised UK growth up by more than any other G7 economy.

It has been a long, hard road.

And there바카라 사이트™s a long long way to go yet.

But I바카라 사이트™m sure that everyone in this room바카라 사이트¦

Everyone in the City of London바카라 사이트¦

Will recognise that if we want to deliver long term growth.

Then we also have to deliver a long term infrastructure plan for this country.

This is a city that wouldn바카라 사이트™t be as successful as it is today바카라 사이트¦

If people hadn바카라 사이트™t invested in its infrastructure in the past.

If the Victorians hadn바카라 사이트™t decided to engineer an underground railway line 150 years ago바카라 사이트¦

Or indeed if the Romans hadn바카라 사이트™t thought to build a bridge here centuries previously바카라 사이트¦

This city 바카라 사이트“ and this country 바카라 사이트“ can바카라 사이트™t be expected to maintain that success in the future, unless we invest in its infrastructure today.

Read the government바카라 사이트™s response to its consultation on a new approach to public-private-partnerships.

For too long under the previous government, and governments before that, we seemed to only look towards one city, and one industry, for economic growth.

Between 1997 and 2010, the north-south economic gap widened바카라 사이트¦

To the point where 바카라 사이트“ by 2006 바카라 사이트“ the output of just the financial services sector in London had overtaken the entire economy of the North East of England.

But growth is happening now across all sectors.

In the second quarter of this year 바카라 사이트“ for the first time in nearly three years 바카라 사이트“ all four output sectors바카라 사이트¦

Manufacturing, services, construction and agriculture바카라 사이트¦

Grew in the same quarter.

And growth is happening across the country.

We need to work hard to continue this trend.

So, that should one sector 바카라 사이트“ or one region 바카라 사이트“ experience a sudden decline or shock바카라 사이트¦

As happened in the financial crisis바카라 사이트¦

Our economy will be in a much stronger position to absorb it.

The United Kingdom has always been known as a country that has led the way in infrastructure.

And our bravest and best remembered politicians have always supported the right projects.

One of my political heroes 바카라 사이트“ William Gladstone 바카라 사이트“ opened the Metropolitan Line in 1863.

And even had his coffin carried on the tube en route to his funeral.

[But] In the last few decades the reputation of our infrastructure has slipped.

And that was because our political leaders too often prioritised short-term wins, over long-term investment and growth.

That바카라 사이트™s something this government is changing바카라 사이트¦

And that바카라 사이트™s why 바카라 사이트“ back in June this year 바카라 사이트“as part of the Spending Round, I announced the most comprehensive, ambitious and long-lasting capital investment plans this country has seen.

Laying out £100bn of investment right through to the end of the next parliament.

Finding the funds for these projects:

• largest programme of rail investment since Victorian times
• greatest investment in our road network since the 1970s
• fast online access for the whole country

Hasn바카라 사이트™t been easy, and we바카라 사이트™ve have had to take hard decisions to find savings elsewhere, moving funds from resource to capital.

Now that sentence - 바카라 사이트˜moving funds from resource to capital바카라 사이트™ 바카라 사이트“ sounds quite dry바카라 사이트¦

But in practise, it means making decisions that affect the amount of money Departments can spend on day to day activities and services.

So that the savings we바카라 사이트™ve made can be reinvested in our infrastructure.

We바카라 사이트™re doing this because 바카라 사이트“ as a coalition 바카라 사이트“ we are certain that this is the investment our country needs.

Infrastructure projects

To give businesses 바카라 사이트“ like many of you here today 바카라 사이트“ certainty that this isn바카라 사이트™t jam tomorrow바카라 사이트¦

That we will deliver these projects바카라 사이트¦

We바카라 사이트™ve created a long term pipeline of investment, which we바카라 사이트™ll be publishing updates on at the Autumn Statement.

By publishing this pipeline, we바카라 사이트™re aiming to provide industry with the certainty and transparency it needs바카라 사이트¦

And a greater understanding of forthcoming government funded projects, as well as private sector infrastructure.

And we바카라 사이트™ve ensured that public investment 바카라 사이트“ as a share of GDP 바카라 사이트“ will be higher on average from 2010 to 2020 then under the whole period of the last 바카라 사이트.

We바카라 사이트™re also making sure that this investment results in projects being delivered.

And since we came into office we바카라 사이트™ve already seen a number of projects delivered.

Over 30 transport schemes have been completed바카라 사이트¦

And 150 railway stations have been upgraded.

Now that 150 includes the new development at Kings Cross바카라 사이트¦

Where £500 million of public investment attracted £2.2 billion from the private sector, and has led to complete regeneration of that area of London.

Which now houses a student campus, and will shortly house Google.

In fact, of the 40m visitors each year, a quarter are not planning to travel at all.

They come just for the facilities at the station.

So we are delivering.

But we바카라 사이트™ve got a long way to go.

UK guarantees

As many businesses here in the City will know, the government바카라 사이트™s action on the deficit has secured historically low interest rates for the UK.

Our tough action has helped to keep our balance sheet strong.

And we바카라 사이트™re now using that strength in the best possible way바카라 사이트¦

To enable privately funded infrastructure projects to go ahead.

The UK government now provides guarantees on the principal and interest of loans to certain infrastructure projects바카라 사이트¦

And when I say it바카라 사이트™s a government guarantee 바카라 사이트“ that is exactly what I mean.

If the borrower can바카라 사이트™t pay, the terms of the guarantee mean that the UK government will, without question or negotiation, stand behind it.

Which in practise, means that lenders worry less about the risks of projects.

They know that 바카라 사이트“ through the UK Guarantee Schemes 바카라 사이트“ they will have the strength of our balance sheet supporting those projects to raise money.

The first of our guarantees was signed in April, which unlocked finance for the conversion of Drax power station to biomass.

And we바카라 사이트™re providing further guarantees to the Northern Line Extension, which could support 25 000 jobs in South West London.

The Mersey Gateway Bridge project, which will help to boost localised growth for Liverpool.

And we바카라 사이트™ve also offered a multi billion pound guarantee to advance the new nuclear power station at Hinkley Point바카라 사이트¦

바카라 사이트¦a project that has potential to provide power for 7% of the UK바카라 사이트™s homes as and when negotiations conclude.

A number of other projects have prequalified for the scheme and are working with Infrastructure UK 바카라 사이트“ a dedicated team within the Treasury, that report to me 바카라 사이트“ on the details of their guarantees.

There is a huge variety of projects among them, including power generation, transportation, waste management, housing바카라 사이트¦

And this not only demonstrates the flexibility of the scheme바카라 사이트¦

It also shows the potential for further growth and further projects across different infrastructure strands.

Of course, some of these projects may well find finance without our help.

That is a good thing 바카라 사이트“ but the main thing is that industry knows that we are there to stand behind them if they need support and we바카라 사이트™ve got legislative authority for projects up to £50bn.

So any project developers here today who are interested should get in touch with Infrastructure UK.

You바카라 사이트™ll be able to have a confidential discussion about how a guarantee could help with your financing plans바카라 사이트¦

And 바카라 사이트“ I hope 바카라 사이트“ it could offer you a new way of making sure your projects are delivered on the timescale you want.

PIP

But the UK Guarantee Scheme isn바카라 사이트™t the only way that we바카라 사이트™re helping projects to access the right levels of financing.

We바카라 사이트™re also supporting models that enable institutional investors to provide capital to projects.

So we encouraged the foundation 바카라 사이트“ by the pensions industry 바카라 사이트“ of the Pensions Infrastructure Platform, or PIP바카라 사이트¦

Which has been designed to provide pension schemes with the expertise and the tools they need to make long-term investments in the UK바카라 사이트™s infrastructure, in the interests of their members.

And it has reached its first milestone, with £1bn of commitments from its founding investors.

High Speed 2

Of course, given some of the media coverage of recent weeks, you바카라 사이트™d be forgiven for thinking that the 바카라 사이트 were 바카라 사이트“ in fact 바카라 사이트“ only looking to finance and deliver one infrastructure project.

Just as the Olympic Park was 바카라 사이트“ understandably 바카라 사이트“ the most heavily scrutinised project of the last decade.

The North South rail link, HS2 seems set to be the most heavily scrutinised of the next.

But just as the Olympics was delivered successfully, and within budget.

So will High Speed 2.

As with the Olympics, we바카라 사이트™ve got Paul Deighton and David Higgins overseeing progress.

As with the Olympics we have set a maximum funding envelope for the project 바카라 사이트“ of £42.6 billion, plus additional funding for the rolling stock.

And as with the Olympics, I바카라 사이트™m certain that some of that investment will be returned to the Treasury.

I can understand why there have been some dissenting voices of the scheme바카라 사이트¦

This is a huge investment at any time, let alone when we are coming out of a difficult financial period.

But this is an investment that is geared for steady, long term growth for the country.

It will increase capacity on the crowded West Coast Main Line by 143%바카라 사이트¦

And bring two-thirds of people in northern England within 2 hours of the capital.

As well as dealing with a long term problem of congestion on one of our most crowded rail routes.

Those who doubt HS2 바카라 사이트“ and indeed other major projects for that matter 바카라 사이트“ need to think hard about what we would lose if we didn바카라 사이트™t go ahead with it바카라 사이트¦

Like the 100,000 jobs it will support - 70% of which will be outside of London바카라 사이트¦.

바카라 사이트¦and the £60 billion plus of benefits it will deliver to the UK economy.

If we바카라 사이트™d have listened to the critics of the past:

We wouldn바카라 사이트™t have built the M1 in the 60s,

The M25

We wouldn바카라 사이트™t have gone ahead with the channel tunnel

And we would have lost all the huge economic and social benefits that these projects have offered our country since their construction.

PF2 Reforms

It바카라 사이트™s absolutely right though, that where we do invest in our country바카라 사이트™s infrastructure, we also look to secure the best value for money.

And in that light, we바카라 사이트™ve learned from the mistakes of our predecessors바카라 사이트¦

And in particular, recognised the need to change the old, outdated PFI model.

Previously, we had a system which 바카라 사이트“ at its worst 바카라 사이트“ seemed to privatise the profit바카라 사이트¦

And socialise the risk바카라 사이트¦

With schools, hospitals and government buildings locked into poor value contracts.

But through our new approach we are:

• implementing measures to speed up and reduce the cost of procuring projects
• including a maximum time limit of 18 months from issuing the tender document to the appointment of the preferred bidder
• increasing flexibility, by making sure that services 바카라 사이트“ such as cleaning, catering and security 바카라 사이트“ are removed from contracts

In the future, the government will invest a share of the equity of all PF2 projects바카라 사이트¦

We바카라 사이트™ve consulted extensively to make sure we get a workable model that services both the public and private sector as it should.

Because this is all about partnership.

And I바카라 사이트™m pleased to tell you that from today these changes take effect.

We바카라 사이트™ve published the legal documents and the Priority Schools Building Programme is already using the model.

As a shareholder, the public sector will have a stronger voice in the management of the PF2 project company and receive a share of the financial returns.

We바카라 사이트™ve also introduced a new control total in the public finances for off-balance sheet PF2 contracts to ensure that no current government can put excessive fiscal burdens on future 바카라 사이트s.

This is a fundamental reassessment of the old PFI바카라 사이트¦

And it will provide better value for the taxpayer, better public services, and a better infrastructure too.

Conclusion

And we need that better infrastructure.

As I said at the beginning, our economy 바카라 사이트“ our businesses 바카라 사이트“ needs an infrastructure that can help us compete internationally.

We need fast transport links.

We need superfast broadband.

We need clean, sustainable energy to serve our public.

People and businesses should be able to do what they need to do, without worrying that communications and transportation will let them down.

And that바카라 사이트™s what I바카라 사이트™m keen that we make sure happens.

An infrastructure to suit the needs of future generations.

That runs smoothly, and efficiently, and cost-effectively바카라 사이트¦.

And helps our economy to grow.

It is the role of government to deliver that infrastructure바카라 사이트¦

And with the help of private investors, and the private sector바카라 사이트¦

Published 16 October 2013