PPPC report: UK needs to unlock private finance to fill £256bn infrastructure gap
The first report of the Public Private Partnership Commission publishes its first report today as reported in the Financial Times
Britain needs to spend two-thirds more on infrastructure than it currently plans to deliver what it needs - including new reservoirs, schools, prisons - that means we have a £26bn-a-year gap in public investment
Closing the gap through tax would cost the equivalent of £590 a year for every adult by 2040; closing it through borrowing would add £23bn a year to the national interest bill
The capital to close the gap already exists - pension funds hold over £2 trillion - but they lack the routes and political will to be invested
New polling: six in ten of the public back greater private investment in infrastructure, one in ten oppose, with support across every party
Every adult in Britain faces the equivalent of an extra £590 a year in tax to pay for the roads, railways, hospitals, power lines and reservoirs the country needs - unless the Government unlocks more private investment according to a major new report overseen by Sir John Armitt.
The first report of the Public Private Partnership Commission, The State of Play, finds that Britain's infrastructure pipeline, ambitious as it is, falls far short of the needs identified by the National Infrastructure Commission in their expert assessment.
Meeting those needs would require spending roughly two-thirds more over the next decade than is currently planned - an extra £258bn of public investment, or £26bn a year, if the current public/private split is maintained.
The Commission's modelling - overseen by a former government Chief Economist Andrew Morrison - and recent sensitivity in the bond markets shows the public purse cannot carry that alone. Funding the gap through taxation would mean raising around £25bn a year in extra tax by 2030, rising to £36bn a year by 2040 - roughly £590 per adult per year.
Funding it through borrowing would add around £7bn a year to the Government's interest bill by 2030, £14bn by 2035 and £23bn by 2040, leaving the fiscal rules in danger.
That comes at a time when public sector net debt has risen from 35% of GDP in 2007 to around 95% today, the tax burden is at its highest since the Second World War, and debt interest - were it a government department — would be the fourth largest in Whitehall, behind only Health, Work and Pensions, and Education.
The Commission’s report argues that the money to close much of the gap already exists. Private firms already fund around half of what Britain builds, paying for 53% of new infrastructure in 2025. UK pension schemes hold well over £2 trillion, yet defined-contribution schemes allocate only around 3% to infrastructure, against roughly 14% among their Australian counterparts. The constraint is not the quantity of capital but the routes, rules, political will and institutions that let it be deployed.
The report also finds that the public is far more open to private investment than some in Westminster assume.
Independent polling by Merlin Strategy for the Commission finds six in ten (61%) of UK adults support greater private investment in major infrastructure projects, against just one in ten (13%) opposed, with majority support among Labour, Conservative and Reform UK voters alike. Offered the choice between more borrowing, higher taxes, user charges or greater private investment, respondents chose private investment.
Sir John Armitt, Chair of the Public Private Partnership Commission, said:
"The UK faces a fundamental choice. Do we want to deliver the infrastructure that the public expects and the country needs, or don’t we?
Anyone who believes the taxpayer and public sector can close that gap alone has not looked at our public finances. Debt interest would be the fourth largest department in Whitehall. The tax burden is at its highest since the Second World War. Governments of every colour have run up against the same reality, and in the end reality always wins.
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 but sometimes lacks the routes and effort it needs to be invested.
The need is clear. The capital is waiting. The question is how Britain turns one into the other and starts building again."
Alistair Ray, Founding Partner and CIO at Dalmore Capital, said:
"There is no shortage of British money and no shortage of British need, what we must do is connect the two. Thames Tideway Tunnel was delivered on time and on budget.
It is still paying the UK pension funds that invested in it a predictable, inflation-linked return today - precisely what pension funds should want more of.
With a steady pipeline of investable projects, British pension funds won't need much persuading to keep more of Britain's infrastructure in British hands."