PPPs 2.0: Private investors expected to play key role in 10-year Infrastructure Strategy
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The UK government will revive the public-private partnership model for delivering infrastructure projects, starting with Euston Station, the 10-year Infrastructure Strategy published on Thursday reveals. A special team in the Office for Investment will focus on developing demand-led investment opportunities, as pension funds are expected to invest billions in infrastructure.
Under PPPs, private sector firms design, build, finance and operate a public asset – ranging from tunnels to hospitals and energy infrastructure – achieving a profit by charging users or directly from taxpayers. The government acknowledges that PPPs caused controversy when they were deployed during Tony Blair’s time in office, the strategy document shows. In the early 2000s, Unison reportedly threatened to withdraw its donations to ‘New Labour’ over the issue.
The document out yesterday states that criticism of these earlier models often focused on the complexity and inflexibility of the contracts, as well as value for money concerns, but it said the risks and costs can be got on top of “by the careful, targeted use of PPPs for the projects and sectors where risks can be well managed”.
The government will now consider the use of PPPs where it finds there is “a revenue stream, appropriate risk-transfer can be achieved, and value for money for taxpayers can be secured”.
A host of public agencies, including the National Wealth Fund, British Business Bank, UK Export Finance, National Housing Bank and Great British Energy will play a part in the investment programme across infrastructure and housing.
Chancellor Rachel Reeves said: “We’re not just fixing buildings – we’re enhancing public services, improving lives and creating the conditions for sustainable economic growth in communities throughout the UK. This will deliver the decade of national renewal we promised Britain, and fulfil our Plan for Change goals to kickstart economic growth, and build an NHS fit for the future.”
One of the first projects financed through a government PPP will be Euston Station for HS2, for which a Tax Increment Financing-style mechanism is being looked at. A new Euston Delivery Company will be set up, working with the London Borough of Camden and the Greater London Authority to grow a commercial and life sciences community around the station and deliver affordable housing. Lendlease has plans for 60 acres of development on and around the station.
The UK central government has not made use of PPPs since 2018, but regional and local governments have done so, as has Transport for London, for example for the completion of the privately backed Silvertown Tunnel.
The Infrastructure Strategy states that taxpayer-funded models will also be considered, with a decision due at the Autumn Budget, for things like primary and community health infrastructure and public estate decarbonisation projects.
Demand-led opportunities, matched to relevant investors
To better attract private capital, the government is launching a new Strategic Investment Opportunities unit within the Office for Investment to help “identify, shape and deliver on strategic projects and programmes with significant scope for private capital and investor interest” in partnership with local areas, government departments and the National Wealth Fund.
“The team will focus on developing demand-led investment opportunities, ensuring opportunities are effectively aligned to investor demand and matched to relevant institutional investors,” the document reads.
Chief executive of buyout specialist Pension Insurance Corporation Tracy Blackwell, who sat on the government's infrastructure investment taskforce, welcomed the 10-year strategy as a step in the right direction that provides clarity, ambition and commitment.
“We welcome the clearer pipeline of projects and a renewed focus on social value, something that is of real importance for local people. The government’s wider efforts on planning reform, transparent delivery bodies, and reducing the regulatory burden will supplement this new strategy - offering a much more investable environment across the UK,” she said.
Will what's in the strategy fulfil the government's promise that it will create suitable opportunities for investors?
