Paying for Public Projects: private sources roundtable

London is no stranger to private finance and investment, and funder appetite for public projects continues, despite – or because of – Brexit and recession uncertainty. Public projects bring  secure, long-term revenue for private investors and shareholders, but for the public sector, ensuring private investors bring shared values and contribute to outcomes that serve the public good is paramount.

Throughout autumn 2019, Future of London convened a series of roundtables to review sources – public and private – used by public sector organisations to deliver regeneration, housing, and local-scale infrastructure schemes.

At the second event, kindly hosted by Montagu Evans, senior cross-sector participants discussed the merits and implications of private funding and financing, such as investment or partnership with companies including banks, insurers, pension funds and private equity firms. This follows a previous roundtable on public sources.

A Chatham House summary of the event is below. A more complete briefing – compiling findings from all three project roundtables– will be published in January.

What’s being used?

Many projects use a blend of public and private sources. For example, TfL’s Growth Fund provided £15m[i] for improvements at Walthamstow Central tube station, with the boost designed to enhance station capacity and enable redevelopment of The Mall, which attracted £200m private investment.

The balance could change with the 1% increase to Public Works Loan Board (PWLB) interest rates. PWLB loans have often formed up to 50% of financing for projects, but the increase means in many cases private funding will now be cheaper. The hike – designed to curb a sharp rise in local authority borrowing – was described by one participant as a “blunt instrument” that will make many projects unviable, impacting both responsible and “excessive” borrowers.

Inward investment

Creative projects can boost place identity and profile, attracting investment for larger schemes.

To raise funds, authorities are promoting the social and cultural capital of their areas. LB Waltham Forest’s 2019 Borough of Culture status has boosted profile and attracted investment.

Others are leveraging built assets and land to generate income. For example, TfL sold non-revenue-producing assets such as their head office to create TfL Commercial, an arms-length company worth £1.5bn.

In JVs, many public companies seek to achieve a 50% equity contribution to ensure equal commercial weight with private partners. One housing association pairs its knowledge of residents and local context with partners’ development expertise, using a 50/50 equity share to push for socially valuable outcomes.


A challenge for all public projects is that they can’t be seen to be taking risks with taxpayers’ money. Even when the risk is borne primarily by private capital, public money in venturesome projects can be a political landmine. Public sector employees are conscious of concern but in some cases are unclear about the legalities. For example, procurement teams are often hesitant to talk with potential partners ahead of a tender process, even where this would help partners deliver value.

Finance Directors can be nervous about both private funding and ambitious projects. A cautious approach to funding is prudent, but public sector nervousness can result in a blanket view of diverse options. “Private sector finance” as a term does not reflect the nuances of a huge and complex sector, within which actors have a range of motivations, risk appetites and time horizons.

Inviting colleagues from finance and procurement teams to shadow development colleagues can help, building understanding and confidence. For bidders, offering to share expertise with public counterparts can build trust and share learning.

For foreign investors, opening a dialog with UK authorities can be challenging as the source of money is closely scrutinised. Participants noted that non-profit and third sector partners are often seen as risky too. Projects offering substantial benefits to local people have been lost due to a lack of timely, effective decision-making processes and confidence.

Local political context has an impact on appetite for different approaches, scales and risk profiles. The experience of working with different London boroughs is hugely varied. Overall, it was noted that the best time to approach a borough is two years after an election: the first two years of an administration are about delivering on promises, and the latter two years look forwards. Year three is the “golden egg” for innovative projects.

With all projects, it’s important to remember: “Financing is not about signing a deal, it’s about making it work.”

Evolving markets

Over the past century, real estate has been based on a system of short-term debt and the serial trading of land. Looking forward, value is likely to be linked to income streams from an asset’s services, for example spaces for rent or businesses within the asset, rather than shifts in the market.

Funding schemes through short-term development debt is a poor fit with a more stable real estate market and value derived from services. Future models will need to align the interests of public landowners, financial partners, occupiers and the wider community to deliver long-term value. Institutional investors and some public bodies are adopting a long-term view of returns, understanding that commercial and social success are not mutually exclusive: money can – and should – be created and reinvested in projects for the public good.

How built environment practitioners perceive “public” and “private” sources of funding needs reassessing. Pension funds offer “private” capital, but the capital in question is society’s money and people increasingly want their pensions to do good things. Legal and General’s capital is “private”, but the £44.6 million invested into a partnership with LB Croydon will build 167 new homes for homeless families.

The major risk of coming decades is climate change. Bank of England governor Mark Carney has warned climate change poses an “existential threat”[ii] and published four recommendations to speed the financial sector’s transition to a low-carbon economy. Climate risk is financial risk and a 5°C warming could result in £5.4tn[iii] of losses globally – more than the total market capitalisation of the London Stock Exchange.

Projects that reduce London’s carbon footprint are increasingly attractive to investors.

This is in part fuelling the rising clout of Environmental Social Governance (ESG) criteria as major players seek socially, environmentally and economically sustainable investments. Simultaneously, the public sector must transition, and this requires spending. The former could help the latter, but projects need scale to attract investors with high thresholds.

Thank you to our participants:

Yolande Barnes, Chair, Bartlett Real Estate Institute
Hayley Collen, Director, Epiphron Limited
Graeme Craig, Commercial Development Director, TfL Commercial
Rick Gibbs, Director, Burnden Capital
Pete Gladwell, Head of Public Sector Partnership, L&G
Jimmy Huang, Corporate & Asset Management Director, Poly UK
Jonathan Martin, Director Inward Investment, LB Waltham Forest
Naisha Polaine, Senior Advisor to the Department of International Trade
Clare Reddy, Partner, Lewis Silkin
Javin Solanki, Assistant Finance Director, Poplar HARCA
Chris Twigg, Director, Inner Circle Consulting
Alex Valenzuela, Public Realm Director, South Bank Employers Group and South Bank BID
Kevin White, Partner, Montagu Evans