On 15th May 2019, Stuart Pearson, who heads up our Construction, Energy and Projects team, gave evidence to the National Assembly for Wales’ Finance Committee, in relation to the funding sources available to the Welsh Government. Today, the Finance Committee published the final version of its inquiry – just as the First Minister announces major funding for infrastructure projects across the whole of Wales.
Wales is at a crossroads. As significant regeneration projects are starting to bear fruit, retaining and attracting talent, companies and investors, we need to develop the social and economic infrastructure to support this growth, and make it sustainable. The challenge is to help improve public services, and deliver the objectives of the Well-being of Future Generations Act, despite scarce public funding.
An effective funding strategy should call upon multiple sources of funding – from conventional models to public-private partnerships – adapted to the different stages of a project’s life cycle.
To overcome its limited borrowing powers and limited capital funds, the Welsh Government designed the Mutual Investment Model (MIM). Launched by Mark Drakeford when he was Finance Minister, the MIM proposes to use private capital to fund, build and maintain public projects. In return, the Welsh Government pays a fee to the private partner, which will cover the cost of construction, maintenance and financing the project.
Two years after the model was launched, three MIM schemes are already underway – the redevelopment of the Velindre Cancer Centre in Cardiff, the improvement of the Heads of the Valleys road, and additional investment in Band B of the 21st Century Schools Programme.
To evaluate the efficiency of this new model against its alternatives, the Finance Committee has been reviewing the different funding sources available to the Welsh Government. This spring, we were invited to submit oral and written evidence. I’m pleased to see that the final report, published today, includes the views we’ve expressed, based on our experience of advising public and private organisations on large scale projects.
We see the MIM proposal as the only viable tool to help fund and deliver ambitious infrastructure projects in Wales. The North Wales, Swansea City Bay Region and Cardiff Capital Region Growth Deals only offer limited resources and the future of EU funding is uncertain, so it’s essential that the Welsh Government continues to develop its pipeline of innovative finance schemes, to complement its capital budget.
The Welsh Government has chosen to fund highways, schools and hospitals through the model. These projects are all scalable, sometimes grouped, clearly defined, and very valuable. This minimises risk for investors and brings benefits to the community. The Heads of the Valleys A465 road project, for example, represents an investment of £300 million spent on Welsh companies, creating of 140 apprentice roles.
Today, Mark Drakeford announced an extra £130m investment in priority areas, such as transport, housing and schools, alongside the publication of the updated Wales Infrastructure Investment Plan (WIIP) pipeline. The report sets out plans for £33bn investment on infrastructure projects – including all three MIM-funded projects.
It’s great to see such ambition reasserted – the ongoing challenge is to ensure that this project pipeline is supported by an equally robust funding strategy.