The UK has a large — and growing — infrastructure deficit. A conservative estimate puts this at £300bn of extra investment needed over the next decade, but it is almost certainly much higher. The problem is not only poor-quality existing infrastructure. We are on the cusp of several decades in which investment and project delivery needs to ramp up dramatically to meet our ambitions on net zero, economic growth and regional prosperity. This means not just making up for lost time but embarking on a major programme of new infrastructure investment. At such a critical moment, the government needs all available tools on the table. That is why, in a new report for FGF, we have proposed the government adopt Infrastructure Investment Partnerships (IIPs), a new approach to public-private partnerships.
Progressive administrations worldwide continue to deploy PPPs successfully
Progressive governments across the world continue to deploy public-private partnerships successfully. These include the Biden administration’s Infrastructure Investment and Jobs Act in the US, the Labor administration’s community (or “precinct”) PPPs in the state of Victoria in Australia and the Welsh Labour government’s pioneering use of the Mutual Investment Model (MIM). They all show what a pragmatic approach to infrastructure financing can deliver: new hospitals, schools and other infrastructure that can save lives and transform them. In this context, the UK government is an outlier in not having any kind of public-private partnership model in its toolkit. We recommend making three changes to remedy that.
A new infrastructure procurement framework
First, the government should devise a new infrastructure procurement framework, setting out which delivery models for major infrastructure projects can be used in principle, by which public authorities and for which types of projects.
This would give a green-light to public authorities — whether central government departments, agencies or combined authorities — to begin developing projects, or repurposing existing ones. It would significantly reduce the length of time it takes to get projects approved. It would also make infrastructure project development more transparent by making clear what the government does or does not support, and in which circumstances.
A new public-private partnership model: Infrastructure Investment Partnerships
Second, within this framework, the government should adopt a new model of public-private partnership for major infrastructure projects: IIPs. There must be clear safeguards to ensure affordability. IIP projects should be deployed more strategically than some public-private partnerships were in the past, aligned with a mission-driven approach to government and industrial strategy. There must be a community benefits pillar — contractual commitments on jobs, training and use of local supply chains — in every project, and IIPs should be an option available to regional as well as national government. Contracts must be properly and actively managed by both sides to ensure value for money and high performance standards, and disputes should be properly regulated.
Regeneration Infrastructure Investment Partnerships
Third, within IIPs, the government should develop a sub-model called Regeneration IIPs to maximise the economic and social impact of core infrastructure. This approach has been pioneered in the Australian state of Victoria, where the Labor administration has developed what they call a “precinct” approach. This involves using core infrastructure investment – in, say, a hospital – as an anchor around which supportive and complementary public infrastructure — such as childcare, pharmacies or key worker housing — is developed, alongside some commercial development. Enabling private sector partners to develop the commercial potential of parts of these sites, within government-set parameters, provides them with an upside that makes projects more attractive and reduces the cost of the public infrastructure, improving taxpayer value for money.
The real choice is often not “public or private” but “private or nothing”
Some may argue that private finance is simply unnecessary, and that productive, growth-enhancing investments can be financed through the public purse. Even if IIPs are adopted, public finance will remain overwhelmingly the main means of financing public infrastructure. However, the government faces very real fiscal constraints. These will both limit the extent to which public finance can provide the necessary capital for infrastructure projects and may incentivise the government to limit overall capital spending to make the sums add up. Agree with the fiscal rules or not, it is likely that the choice will not be “public or private” but “private or nothing”. As the National Audit Office said in recent weeks, “there are plenty of examples of good practice to help new [private finance] schemes avoid [historical] problems”. As long as value for money remains a central consideration, then adding IIPs as a new tool in the government’s toolkit could be critical in helping to break the UK out of its current chronic cycle of underinvestment.
