There is a lot of nervousness in Wales about the use of private finance to fund public sector projects. That is understandable, particularly given the way that PFI deals have been discredited for providing an inferior service, hitting the terms and conditions of staff and actually imposing a bigger financial burden on Government than traditional financing methods.
It is for this, as well as ideological reasons that the One Wales Agreement specifically rules out the use of private finance for the health service and all but rules it out for other services as well.
It is also the reason why Plaid Cymru Assembly Member, Leanne Wood told Plenary on 20th January that:
There could be an easy and short-term solution to provide finance to maintain, upgrade or build new NHS buildings. As David Melding said earlier, in England, money has been provided through private finance initiatives or through public-private partnerships in order to carry out this work. Plaid Cymru believes that raising finance in this way is wrong for a number of reasons. The experience of such schemes has taught us that, in the long term, the amount of money paid from the public purse to finance private finance initiatives is far higher than the amount that would have been spent in the public sector. With PFI there is a high risk of compromising on quality and of staff terms and conditions being downgraded. PFI creates a long-term debt, which can cut into future spending and compromises the financial flexibility of future Governments. I am glad therefore that the One Wales Government has been reluctant to be seduced by the private finance initiative, despite the fact that lump sums of cash would be useful now to carry out the work that needs to be done.
I responded that we need to be pragmatic about this:
We need to find the best way forward. If we can find a way forward that involves private sector money or voluntary sector money but without accruing huge costs, we should take it. For example, you can generate capital receipts by the sale of surplus land, or, as ‘One Wales’ states, raise money on the bond market, which is private sector money drawn down to spend on this sort of thing. Therefore, there are pragmatic ways forward that do not incur the costs to which Leanne referred. That flexibility and pragmatism is the way forward.
I think that this is a sensible approach and so, it seems does a Plaid Cymru Minister, who is currently working on a scheme to attract private money so as to provide ore affordable housing:
According to Inside Housing the Deputy Minister for Housing, Jocelyn Davies is considering establishing a housing trust to pump private money into the social housing sector:
Peter Hughes, head of commercial lending at the Principality Building Society, confirmed one of the most ‘innovative and attractive’ options being discussed was the Welsh Housing Investment Trust, which would raise at least £100 million.
Mr Hughes will outline the principles in the first housing review in Wales to be launched by the Chartered Institute of Housing on 11 February.
Mr Hughes said: ‘Perhaps now is a good time for a strong institutional rented market. It you go back to the early 1990s and 2000s, everyone was interested in buy to let. It’s obviously not the market it was.
‘What may be needed now is not people who hold five or six or a dozen properties but institutions that are prepared to invest seriously.’
Banks, capital markets and possibly the Welsh government would feed money into the trust.
Mr Hughes said it would need at least £100 million from diverse sources put into it.
The trust would buy properties and housing associations would manage them.
‘This model works because of the mix of rent from the broad portfolio of properties in the trust,’ Mr Hughes said. ‘It gives sufficient income for the requirements of the trust.’
The hope is it would also kick-start the building industry giving ‘certainty for the exit for a developer’ in the current depressed market, Mr Hughes said.
He added the advantage with capital investors, such as life insurers and pension trusts, was that they put money in for the longer term. They would invest for 30 to 35 years compared with banks likely to put in money for 10 to 15 years, Mr Hughes explained.
In the review, he also points out the initiative has already got some ministerial support and is being looked at in more detail.
This is precisely the sort of practical approach I was advocating and the Minister is to be congratulated for taking the bull by the horns and pressing on with it. She is also to be praised for ignoring the siren voices within her own party and doing what needs to be done to deliver the commitments in the One Wales Agreement to which she signed up and which so far are falling short of what was promised.
The question now must be, if the government can do it for housing, why cannot they do it for health so as to make a start on dealing with the £500 million maintenance backlog in our hospitals?
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