Long Read: Britain needs more infrastructure investment – but it also needs better returns from every pound
A major new report from Oxford Economics has laid bare the scale of the UK's investment challenge. But its findings, endorsed by some of the UK’s biggest infrastructure providers, also point towards an equally important question: how can Britain get a better return from the money it invests?
The UK's Investment Shortfall, published in September, finds that the UK has invested less as a proportion of its economy than almost every comparable country for more than a quarter of a century.
In 2025, UK investment stood at just 18.9% of GDP, compared with an OECD average of 22.5%. Oxford Economics estimates that if the UK had simply invested at the average rate of its G7 peers since 2000, cumulative investment would have been around £1.9 trillion higher.
That matters because investment is ultimately about productivity. More and better capital – from machinery and technology to transport networks, hospitals and schools – allows people to be more productive and supports higher wages and economic growth.
Oxford Economics estimates that closing most of the UK's investment gap by 2040 could increase the productive capital stock by £379 billion, increase labour productivity by 1.3% and leave GDP 1.7% permanently higher than it would otherwise have been. Average household disposable incomes could eventually be around £1,540 a year higher.
More private investment will be essential
The report makes another important point. The Government cannot close this gap through public spending alone.
Public investment is already expected to average around 2.6% of GDP during this Parliament – its highest sustained level in more than four decades. But with public debt high and pressure on public services continuing to grow, Oxford Economics concludes that the great majority of additional investment will have to come from the private sector.
For the UK's infrastructure debate, that should be a significant finding.
The question is not whether public or private investment is preferable. Britain needs both. The real challenge is creating structures capable of mobilising private capital while delivering the best possible long-term return for taxpayers.
That means thinking about return on investment in its broadest sense: not simply the cost of financing an asset, but how quickly it can be delivered, how much it costs to build and operate, how efficiently it uses energy, how well it is maintained and what condition it is in decades later.
Reducing the cost of building
Oxford Economics identifies the cost of delivering infrastructure as one of the principal obstacles to UK investment.
The average consenting period for nationally significant projects increased from 2.6 years in 2012 to 4.2 years in 2021. It cites National Infrastructure Commission analysis suggesting that improvements to project design, budgeting and consenting could reduce infrastructure outturn costs by 10–25%.
Reducing those costs matters enormously. A 10% reduction in the cost of delivering infrastructure does not simply save money: it means the same capital budget can deliver more hospitals, schools, transport capacity and other public infrastructure.
There is evidence that well-designed PPPs can contribute to precisely this objective.
As AIIP has previously highlighted, a 2024 comparative study of German PPP projects covering schools, administrative buildings and sports facilities found life-cycle costs 17–35% below municipal benchmarks, construction costs 15–20% lower and construction times around 30% shorter.
That is consistent with earlier UK experience showing one of the potential strengths of private finance: greater certainty over construction costs and delivery. The National Audit Office's work on PFI construction found that most PFI construction projects were delivered on time and at the cost expected by the public sector, providing substantially greater price and delivery certainty than previous conventional government building projects.
None of this means that every PPP automatically represents value for money. The NAO has also documented examples where procurement delays, financing conditions and poor project preparation have substantially increased costs – a reminder that good PPP design and effective public-sector commercial capability matter enormously.
Whole-life cost matters
There is another lesson from the Oxford Economics report that is particularly important for social infrastructure.
Infrastructure shouldn't be judged simply on what it costs on the day it opens.
Hospitals and schools may remain in use for 40, 50 or 60 years. The economically relevant question is therefore what an asset costs – and what value it provides – over its entire life.
This is where the structure of PPP contracts can offer important advantages.
The German study found that PPP assets benefited from clearer maintenance requirements, performance standards and dedicated funding for maintenance. It also found energy savings of up to 30%, with heat consumption in the buildings studied substantially below national benchmarks.
Those savings accumulate year after year.
For a hospital, for example, the cheapest building to construct is not necessarily the cheapest hospital to own and operate for the next three decades. Investing more intelligently in insulation, heating, ventilation, energy systems, digital technology and preventative maintenance can reduce operating costs while protecting the value and condition of the asset.
The same principle applies to existing PFI assets. HM Treasury's own operational PFI programme demonstrated that public and private partners can work together to find efficiencies: the Government's PFI/PPP Code of Conduct was developed around collaborative working, flexibility and operational savings, with the wider programme having already identified more than £1.5 billion of savings when the code was launched.
Certainty itself has a value
Perhaps the most interesting finding in the Oxford Economics report concerns something less tangible: certainty.
Major infrastructure requires investors to commit capital for decades. Oxford Economics finds that the UK's unusually unpredictable policy environment has itself discouraged investment.
During periods of above-average policy uncertainty, UK corporate borrowing spreads since 2000 have averaged 2.16%, compared with 1.73% during lower-uncertainty periods – a difference of around 0.44 percentage points. The report is careful to say this is an association rather than proof of causation, but notes that it is consistent with wider international evidence that uncertainty increases financing costs.
For infrastructure, even relatively small differences in financing costs can become substantial when compounded over decades.
That points towards an important principle for future UK infrastructure policy: long-term certainty has an economic value.
Stable pipelines, predictable procurement, standardised contracts and long-term partnerships can give investors and supply chains the confidence to invest in people, skills and capacity. Constantly changing models and stop-start procurement risk doing the opposite.
A new test for infrastructure investment
Oxford Economics ultimately proposes a remarkably simple test for policies designed to increase investment.
They should:
increase the return generated by each pound invested;
reduce the cost of delivering new capacity; and
increase confidence that those returns and costs can be predicted over the life of the asset.
That is also a useful test for the next generation of public-private partnerships.
The debate about PPPs should therefore move beyond the narrow question of whether private finance is more expensive than government borrowing. Government's cost of capital matters, but it is only one component of the cost of providing infrastructure over several decades.
The real comparison should be whole-life value.
How much does an asset cost to design and build? Is it delivered on time? Who carries the risk of cost overruns? How much energy does it consume? Is preventative maintenance funded? What does it cost to operate? And in what condition will it be after 25 or 30 years?
Britain's £1.9 trillion historic investment shortfall shows the scale of the challenge. With the public finances constrained, closing that gap will require government to find effective ways of mobilising private capital.
But attracting more money is only half of the answer. The opportunity presented by a new generation of PPPs is to combine additional private investment with better whole-life management of public assets – reducing costs, improving performance and ultimately delivering a greater return from every pound Britain invests.