The UK’s infrastructure gap is a funding problem – and a delivery problem

Our national infrastructure challenge is becoming harder to ignore.

A new report from the Public Private Partnership Commission (PPPC), chaired by Sir John Armitt, estimates that the UK faces a £258 billion infrastructure investment gap over the coming decade. Closing that gap through public spending alone would require an increase of around £25 billion a year by 2030 - roughly two-thirds more than current planned investment.

With support from major infrastructure companies, including AIIP member, Dalmore Capital, the report urges private capital to do more:

“The encouraging news is that the capital we need exists. Private firms already fund around half of what Britain builds. Our pension schemes hold well over £2 trillion, yet allocate a fraction of what their Australian counterparts commit to infrastructure. The money is there, it just often lacks the routes it needs to be invested.”

The huge gap is a daunting prospect at a time when public finances are already under pressure. The PPPC estimates that funding the gap through higher taxation would require around £25 billion a year of additional tax by 2030, rising to £36 billion by 2040 - equivalent to roughly £590 for every adult. Relying on additional borrowing would increase government interest costs by around £7 billion by 2030, £14 billion by 2035 and £23 billion by 2040.

The conclusion is straightforward: if Britain is serious about building the infrastructure it needs, the public sector cannot do it alone.

But the most interesting part of the PPPC report is that it does not treat this simply as a question of finding more money. It identifies a second, equally important problem: Britain has become increasingly bad at turning investment into infrastructure.

Major projects are taking longer to deliver. The report finds that delivery times for nationally significant projects doubled between 2009 and 2019, while UK rail projects take around 50% longer than the international average. Planning uncertainty, regulatory complexity and political intervention can all add cost and delay.

That matters because every pound of available capital needs to work harder.

The capital already exists

The PPPC makes an important point about where the answer could come from.

Private firms already finance around half of the infrastructure Britain builds, while UK pension schemes hold more than £2 trillion in assets. Yet only around 3% of defined-contribution pension assets are allocated to infrastructure, compared with around 14% in Australia. The problem, therefore, is not simply a lack of capital. It is the absence of sufficient routes, projects, confidence and policy stability to turn that capital into long-term investment.

This is an argument that will resonate strongly with members of the Association of Infrastructure Investors in Public Private Partnerships (AIIP).

AIIP has consistently argued that there is substantial private capital ready to invest in UK infrastructure - but that Government needs to create the conditions in which investors can deploy it at scale.

Our New Models Parameters report made the case for a new generation of public private partnerships which learns from the strengths and weaknesses of previous models. It called for greater transparency, simpler and more proportionate contracts, stronger independent oversight, better use of technology, standardised handback arrangements and periodic reviews that allow contracts to respond to changing public needs.

The PPPC report strengthens that case.

This is not about going backwards

There is an important distinction to make.

The answer to Britain’s infrastructure challenge is not simply to recreate PFI as it existed in the past.

AIIP’s position has always been that the next generation of PPPs should take the lessons of PFI seriously while retaining the elements that worked: access to long-term private capital, disciplined project delivery, whole-life maintenance and a clear allocation of risk.

The AIIP report identified 35 recommendations across seven areas designed to create a more effective model. These include jointly appointed independent certifiers during construction, greater transparency around construction, financing and facilities management costs, digital twins and better asset data, standardised handback arrangements, periodic contract reset points and a reduction in unnecessary contractual complexity.

In other words, the question is not whether Britain should choose between public and private investment.

It is how public and private capital can work together most effectively to deliver better outcomes for taxpayers and service users.

That is particularly relevant to the NHS and other social infrastructure, where the investment requirement is especially acute. AIIP’s New Models work has already highlighted the opportunity to bring private finance back into new hospital and other public building programmes, building on the evidence that PFI delivered around 90 hospitals in less than a decade and that PPP projects have generally demonstrated strong delivery performance.

Public support is stronger than some assume

There is also a political point here.

The PPPC commissioned polling which found that 61% of UK adults support greater private investment in major infrastructure projects, compared with just 13% who oppose it. Support was found across voters for the major political parties. When people were presented with different ways of funding infrastructure, greater private investment was preferred to simply relying on more borrowing, higher taxes or user charges.

That should give policymakers confidence that the debate does not have to be framed as “public versus private”.

The public wants infrastructure to be built. They want it built well. And increasingly, they understand that achieving that will require more than government balance sheets alone.

The opportunity for Government

The PPPC report arrives at an important moment.

The Government has set out ambitious plans for infrastructure, economic growth and the renewal of public services. But ambition only matters if projects can actually be financed and delivered.

The £258 billion figure is therefore more than a funding gap. It is a challenge to the way Britain plans, procures and delivers infrastructure.

For AIIP, the answer is clear: Britain needs a new settlement for public private partnerships.

That means creating a reliable pipeline of investable projects; providing greater policy certainty; reducing unnecessary complexity; strengthening transparency and accountability; and ensuring that risk is allocated to the party best able to manage it.

It also means being willing to use private finance where it can demonstrably improve delivery and value for money - including in areas such as hospitals and other social infrastructure where the investment need is greatest.

The PPPC is right that the capital exists.

AIIP’s message is that we now need to design the models, institutions and conditions that allow that capital to be put to work - and to ensure that every pound invested delivers the maximum possible value for the public.

That is how Britain can move from talking about an infrastructure gap to actually closing it.