Rachel Reeves is examining how to attract funds from private investors to accelerate the government’s development of new towns in England.
The chancellor has begun talks with some of the UK’s biggest banks and investment funds about building infrastructure for new towns based on public-private partnerships (PPP) – a successor to the much-criticised Tony Blair-era private finance initiative (PFI).
Treasury officials have commissioned a research paper from the British Infrastructure Taskforce, a group of leading investors, to establish how private contracts that are likely to be extensive, covering homes and amenities, can support new town developments.
The move, first reported by the Telegraph, is expected to meet with opposition from many left-leaning Labour MPs who have criticised previous attempts to secure private funding for public infrastructure projects, especially hospitals and schools.
Many private funders have also been sceptical of signing PPP deals since the collapse of the building company Carillion, which foundered in early 2018 after cost overruns on several hospital projects.
Ministers have put forward seven sites for new towns, many of which will be built on land on the outskirts of existing cities.
They include Thamesmead in Greenwich, south London, Tempsford, a new town in Bedfordshire, and urban regeneration in parts of Leeds and Manchester. One of the seven, in Enfield, north London, appears unlikely to go ahead after the new Conservative-controlled council said plans would be refused.
Ministers have found it difficult to make headway with the project, citing planning restrictions, the high cost of materials and shortages of skilled labour.
Until now, PPP has only applied to neighbourhood health centres and projects to decarbonise public buildings after Labour prevented further deals to build hospitals and schools.
More recently, Reeves has highlighted how the Thames Tideway tunnel – a £4.6bn “super sewer” running next to the River Thames – and the project to build the Sizewell C nuclear power station have been funded through a similar model known as regulated asset base (RAB).
The highways (financing) bill, announced at the state opening of parliament in May, expanded the RAB funding model to include road infrastructure projects.
Under RAB, a private consortium finances and operates a piece of infrastructure – such as a bridge or a tunnel – and recovers its investment through a regulated revenue stream.
A Treasury spokesperson said: “The government is not bringing back the old PFI model.
“A generation of new towns is an exciting opportunity to create communities at scale, and transform the way that housebuilding is carried out in this country, unlocking economic growth.”
They added: “We will continue to consider the ways in which private finance can support the delivery of wider infrastructure ambitions including leveraging private finance to help deliver the next generation of new towns.”
Under the Treasury’s rules, announced in Reeves’s first budget, officials can account for the overall financial returns on a project over its expected lifespan, offsetting the upfront cost and allowing for more public funds to be deployed.
Last year, the Treasury set out plans to spend a minimum of £725bn over 10 years to improve UK-wide infrastructure and achieve a “national renewal”, including £16bn on new homes.
The £10bn Lower Thames Crossing, the UK’s largest planned infrastructure project after HS2, needs more than £6bn of private finance under a revised funding scheme agreed by the Treasury last year. The Treasury has yet to make an announcement about whether it has found a backer for the whole project.