Next week’s Budget is rightly being talked up as one of the most significant for a generation.
In the run up, most of the focus has been on how the government will balance day-to-day tax and spend measures to tackle the challenges facing the country while staying within the Chancellor’s fiscal rules.
But the Budget is also a crucial moment for whether – and how – the government invests in our country’s creaking infrastructure: a very visible symbol of decline across our public sphere. Over the past decade or more, the UK has amassed a vast infrastructure spending deficit, both in terms of maintaining existing assets like schools and hospitals, and in terms of the increasing need to invest in new projects to meet regional, economic, energy and technology ambitions. At a conservative estimate this deficit is £300bn over the next decade – and in reality is likely much higher.
This hasn’t arisen organically, but by political choice. Too often previous governments have raided capital budgets to meet short-term spending pressures. Chancellors have bet that voters won’t miss facilities they never had. That bet increasingly looks like a poor one, with this government now feeling the impact. Voters absolutely have noticed systemic underinvestment – whether that shows up as potholes in their roads or crumbling public buildings in their town centres – and the pervading sense of national decline can be partly attributed to this political shortsightedness.
To her credit, Rachel Reeves has both unlocked more capital investment through her November 2024 fiscal rule changes – to the tune of £120bn over this parliament – and has then stuck to that in the face of challenging external circumstances, rather than falling into the same trap as her predecessors. It is not the easy decision, but it is the right decision in the long-term interests of the country.
However, £120bn of public investment is not going to cover a £300bn+ infrastructure gap. Additional private investment is going to be essential if we are to repair our crumbling public realm and seize the opportunities of the future.
Yet here too the decisions of previous administrations cast a shadow over the current one: since Conservative Chancellor Philip Hammond abandoned the use of the Private Finance Initiative (PFI) in 2018, the UK government has had no form of public-private partnership (PPP) in its toolkit for investing in infrastructure. This makes it an outlier not just internationally, but even within the UK: since 2018 both the Welsh and Scottish governments have used PPP arrangements to build new infrastructure.
The mere mention of ‘PFI’ can elicit a visceral reaction from politicians and policymakers – of left and right – and there are undoubtedly lessons to be learned from what didn’t work as PFI projects were deployed from John Major’s government in the 1990s, through their early 2000s heyday and then during their decline.
But throwing out any model of PPP on the basis of that reaction – which is often rooted in apples-and-pears comparisons between private financing and fictionalised public alternatives; or choosing a high profile failure from amid a range of more quiet success stories – leaves the UK hamstrung when it comes to trying to improve the country’s infrastructure.
It was in the spirit of seeking to move the debate forward on this topic that last year FGF called for a new model of PPP: Infrastructure Investment Partnerships (IIPs). IIPs learn from what worked (and what didn’t) with PFI, but also how the model has since evolved through iterations such as the Welsh Mutual Investment Model (MIM) – which has led to the delivery of schools, roads and healthcare projects, including most recently the Velindre Cancer Centre in Cardiff – and the Australian Labor ‘precinct’ model, which has been deployed effectively in the state of Victoria.
By learning from these past examples, we think it’s possible to reintroduce a more robust and progressive model of PPP into the government’s toolkit – one that should be used more strategically and selectively than in the past, and only where there is a good value-for-money case. By learning from the Welsh MIM and Australian precinct model, this new form of PPP can have much greater scope for social and environmental impact, be better and more proactively managed as a genuine partnership, and contribute to broader economic regeneration ambitions. We also think it should be possible for Strategic Mayoral Authorities to pursue projects via this model.
In recent months, there have been positive signs that the government is moving in this direction.
In June, it published a 10-year infrastructure strategy that committed to exploring new PPP models, starting in “primary and community health infrastructure”, and coming to a decision at the budget. Since then, the new National Infrastructure and Service Transformation Authority (NISTA) has been leading a “market-testing” exercise with industry and investors on how new models could work.
There is also a growing number of important voices coming out in support of a new model. In its budget submission, the CBI has called for even greater ambition to deliver “the economic and social infrastructure – from roads to health centres – needed to support our growth ambitions”. The NHS Confederation – the representative body for NHS leaders – has also called for a new PPP model to help address the £14 billion NHS maintenance backlog and “decades underinvesting capital” in the NHS.
If the government does give the green light, a tender process for the government’s neighbourhood health centres programme could start as soon as next summer. By the time of the next election, projects could be agreed and underway across the country. This is the prize on offer: cutting through voters’ understandable cynicism and showing them in their communities that not only is change possible, but that it is coming.
In the end, one of the toughest challenges the government faces is shifting deep-set cynicism, among investors and ultimately among voters – who believe that when it comes to infrastructure (as on so much else) the government will talk but it won’t deliver. If next week the Chancellor commits to a new model of PPPs, she will be sending an unambiguous signal that change is coming.
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If you want to find out more about FGF’s proposals for Infrastructure Investment Partnerships, read our submission to the Public Accounts Committee’s inquiry on ‘Government’s use of private finance for infrastructure’ here.
