A new generation of public-private finance must be explored if the UK is to address its infrastructure deficit that is constraining economic growth, says analysis published by PwC.
PwC’s Transforming infrastructure investment: A private finance perspective report explores the imperative to expand the UK’s spending power on infrastructure and outlines potential models for a new generation of Public-Private Partnerships (PPPs) to leverage private sector investment capacity and expertise.
PwC spoke with over 50 stakeholders, including debt and equity funders, contractors and public sector stakeholders, to explore the opportunities and barriers for a renewed PPP model.
The research highlights strong market appetite for a new UK PPP model which is attractive, investible, deliverable and politically sustainable. This includes the UK setting out an ESA 10 compliant PPP model building on well-established precedent, such as the Welsh Government’s Mutual Investment Model (MIM). Further, the Government should commit to a stable and sequenced pipeline of infrastructure activity to deploy the model.
In addressing the UK’s infrastructure deficit and pressure on social infrastructure, the report recommends a two-wave approach to infrastructure delivery – wave one delivering low-complexity, high-need social infrastructure projects with replicable design features, such as community healthcare, key worker accommodation, schools and colleges. A further wave could deliver more complex infrastructure including acute hospitals – once the Hospital 2.0 model has been demonstrated successfully within the National Hospital Programme – and nationally significant mega-projects akin to Thames Tideway.
Nick Lane, infrastructure specialist and public sector director at PwC said: “The UK’s infrastructure investment gap is now too wide, and too pressing, to be addressed through public capital alone. Without decisive action, the UK is growth constrained with faltering productivity and public service delivery - while much-needed projects remain indefinitely stalled.
“By targeting sectors where delivery is scalable and service requirements are stable - such as primary care and education - we can accelerate investment and drive immediate economic benefit. Over time, a maturing model can expand to support more complex infrastructure, from hospitals to nationally significant mega-projects.
“The forthcoming Spending Review is an opportunity for departments to reassess their revenue budgets (RDEL) and identify opportunities for ‘spend to save’, ‘spend for return’, and ‘spend to unlock’ initiatives. By doing so, departments can help to prioritise and sponsor resilient investment programmes that are well suited to revenue-based financing models, enabling critical infrastructure to be delivered without relying solely on capital budgets.”
While Westminster placed a moratorium on availability based private finance models in England in 2018, the devolved status of the Welsh Government allowed for the development of an alternative approach. The Welsh Government developed the Mutual Investment Model (MIM) - a targeted evolution of traditional PPP structures such as PF2 (England) and NPD (Scotland) that enables private capital investment in public infrastructure while remaining compliant with ESA10 accounting rules - and it has now delivered over £1bn of investment in transport, health and education infrastructure. The Scottish Government also adopted MIM in 2019 as the preferred model for revenue financed infrastructure investment, with the £2bn A9 road programme identified for the first rollout.
Dan Whittle, corporate finance associate director at PwC, added: “It’s clear that many stakeholders we engaged with feel the blanket moratorium on PFI has had unintended consequences. There is a strong view that public-private finance has a valuable role to play as a strategic tool to close the UK’s infrastructure gap, particularly at a time when we are constrained by fiscal rules.
“There is no need to reinvent the fundamentals of the PPP model. What must continue to evolve is how we implement this model with refined risk allocation to reflect the current appetite of the market, smarter contract management, and a genuine partnership approach.”
