Written evidence submitted by Global Infrastructure Investor Association (GIIA) (PFI0007)

Introduction

The Global Infrastructure Investor Association (GIIA) is the membership body for the world’s leading institutional investors in infrastructure and advisers to the sector. Collectively, our members are responsible for $2tn of infrastructure assets under management distributed across 70 countries and six continents. They have substantial and diverse investments in the UK, including renewable energy, water, telecoms, ports, and airports, totalling some £273 billion.

The UK faces an increasingly competitive global race for private capital amid looming net zero commitments and ambitious economic growth objectives. Unable to match the significant fiscal incentive packages offered to investors in both the US and EU, the UK must instead compete for international capital on the quality of its policy and regulatory environment. There has never been a more important time to attract and drive new investment into our critical domestic infrastructure. Unlocking the untapped potential of private capital will ensure we are able to keep pace with an ever-evolving set of climate and societal expectations without further increasing the UK’s public borrowing requirements, as well as delivering the government’s economic growth objectives.

The GIIA’s bi-annual pulse survey of global investor sentiment highlights the barriers that must be addressed, most notably a lack of clarity on funding models and limited visibility of the project pipeline in the UK.[1] These findings reinforce the urgent need for government to re-establish a clear and investible public-private partnership (PPP) model to attract long-term capital at scale.

This submission acts as a high-level position statement on behalf of the infrastructure investor community, in response to the House of Commons’ Public Accounts Committee call for evidence on the government’s use of private finance for infrastructure.

Executive Summary

• The UK Government is increasingly an outlier in not fully utilising private finance to deliver public infrastructure. Public-private partnerships (PPPs) continue to be used widely elsewhere in Europe (including a rapidly growing market in Ireland), North America, Asia and the Middle East. At a time when infrastructure build out — both economic and social — needs to ramp up significantly to meet UK public policy objectives, not fully utilising private finance risks the UK’s potential in becoming a major infrastructure market attractive to investors globally.
• The Government’s planned infrastructure pipeline will not command investor confidence without clarity on approved delivery models, and specifically a commitment to develop a new approach to utilising private finance, expertise and innovation. Without this, investors will not have confidence in a future programme of credible opportunities for which they can scale up their UK capacity and supply chains. Alongside supported models, investors also need to see the UK Government rapidly rebuild its capacity to develop, deliver and manage these projects alongside private-sector partners.
• Models of private finance in infrastructure used across the world have adapted significantly since the 1990s. PPPs are not one-size-fits-all. In the UK, lessons have been learned and improvements made over time, first in the development of the PF2 model by the Coalition Government and subsequently in the Mutual Investment Model (MIM) in Wales and Scotland. The latter is a best-in-class approach that has facilitated the development of, among other projects, a new cancer centre (Velindre) in Cardiff.
• Evidence from PPP projects overwhelmingly shows that they tend to deliver projects on time, on budget and that assets are maintained to a high standard throughout their lifetime. Moreover, where deployed appropriately, they can deliver significantly better value-for-money outcomes compared to publicly financed projects, even when taking into account a small structural premium on comparable debt costs. Crucially, this approach also transfers appropriate risk, such as costs arising from unforeseen construction issues and longer-term changes in maintenance costs, from Government to the private sector.

Context

1. In December the Government published its “Plan for Change”, which set out the key objectives and milestones to which the Government would work throughout the current parliament.[2] This included a commitment to “kickstart” economic growth, a major part of which was reform, including of the planning system, to support the delivery of major infrastructure projects. Specifically, the Government committed to “fast-tracking planning decisions on at least 150 major economic infrastructure projects”.
2. To this end, the Government is progressing the Planning and Infrastructure Bill through parliament, which aims to accelerate the planning process for major projects. It is also expected to publish a 10-year infrastructure strategy around the time of the Comprehensive Spending Review in June. This follows a government working paper on its approach to the infrastructure strategy, published in January.[3] A key part of this strategy is expected to be the publication of a project pipeline.
3. In April the Government formally established the National Infrastructure and Service Transformation Authority (NISTA), a merger of the Infrastructure and Projects Authority (IPA) and the National Infrastructure Commission (NIC). In related areas of social infrastructure such as healthcare, the Government is also expected to publish a 10-year plan, which is expected to include its approach to capital investment.
4. In March the National Audit Office (NAO) published a comprehensive review of its historical work on private finance in infrastructure.[4] This report provided 12 lessons for the Government to consider in using private finance for public infrastructure in future, including how to support investor confidence. Recent analysis, including by the Future Governance Forum thinktank and the NAO itself, points to large-scale investment need across UK economic and social infrastructure.[5]
5. The UK Government is increasingly an outlier in not fully utilising private finance to deliver public infrastructure. The UK was historically an innovator in the use of private finance to deliver public infrastructure. This changed over time as the UK abandoned its previous approach but failed to develop a new alternative, despite commitments by the previous Government to do so. As a result, other markets across the globe have taken the lead. Below is a sample of recent and current PPP projects across North America, Europe and Australia.

• United States. In 2021 the New Terminal One PPP contract at JFK Airport in New York was awarded, building the airport’s largest international terminal, which is expected to be operational from 2030.[6]
• Canada. Successfully developed over 200 PPP projects. Key to its success has been strong public-sector expertise at both federal and provincial levels.[7]
• Australia. Differing deployment of PPPs across states, with Victoria historically favouring social infrastructure, including the new 500-bed Footscray Hospital in Melbourne, which is expected to open this year.[8]
• Netherlands. Over 2010-20 the Dutch government ran a major PPP programme expanding and improving major roads around Amsterdam.[9]
• Ireland. Increasingly active market, with recent projects in primary healthcare, social housing and courts. A large €2 billion project for the Dublin Metro is expected to be launched later this year.[10]
• Czech Republic. Currently an active €1.5 billion project being procured for the D35 highway between Bohemia and Moravia, which follows the previous D4 road project.[11]
• Belgium. In late 2024 the Flanders regional government tendered for three new major highway PPP projects around Brussels.[12]

6. This underlines the fact that today the UK is starting from a very different position compared to previously. There is a highly active and competitive international market for PPP projects in which the UK will need to demonstrate its credibility versus markets in which there is a strong recent track record of project delivery. The developer and construction market has also consolidated significantly in recent years, which means that without strong investor confidence about future project opportunities the supply chain will remain constrained.
7. Even within the UK, central government has been an outlier in not adopting approved approaches to using PPPs for public infrastructure. In Wales, the Welsh Government developed its Mutual Investment Model (MIM), taking best practice from previous approaches and learning the lessons of the past. This has enabled the development of £1.4 billion of projects across roads, schools and a new cancer centre in Cardiff.[13] The Scottish Government has also committed to using a similar approach as it develops the A9 road between Perth and Inverness.[14] The Midland-North West Rail Link (MNWRL) proposal developed by a consortium with the support of the Greater Manchester and West Midlands mayors also shows appetite to pursue major projects as PPPs in England.[15] The UK Government would not be starting from scratch in developing a new approach and should draw on recent experience and expertise across the devolved administrations
8. The Government’s planned infrastructure pipeline will not command investor confidence without clarity on approved delivery models The Government is right to seek to build up a public pipeline of infrastructure projects in order to provide visibility over future opportunities to investors and supply-chain companies. However, the credibility of any pipeline is contingent on identifying meaningful delivery models for projects. For some, such as in the regulated utilities sectors, this is already clear, and a small number of other projects may benefit from a regulatory asset base (RAB) approach, supported by government guarantees. Public investment will also continue to play a major role. However, beyond these, it is not yet clear how projects in many sectors would be delivered. Developing a new PPP approach, building on recent best-in-class precedents in the UK and internationally, would be a major contribution to building a credible pipeline that makes the UK a highly attractive infrastructure market globally.
9. In some countries where a public pipeline has already been developed there has been a tendency, for political reasons, to keep projects on the list despite no realistic prospect of projects progressing in the short term. It may therefore be useful for ownership of the project pipeline to be managed by an independent body outside of direct political influence in order to maintain its credibility.
10. Despite their undoubted importance, new PPP models will not be sufficient alone to build a credible project pipeline to attract international investors. It is also important that substantial public-sector capacity is (re)built in order to ensure that deep expertise and knowledge of PPP markets exists internally. In most markets governments retain an expert unit at the centre that oversees, advises and supports public authorities in developing PPP projects. Historically, UK public authorities also sometimes under-resourced their own contract management teams, which contributed to some instances of relationships deteriorating. Active management is required on the part of both public- and private-sector partners in future. Investors want to work in a balanced setup where there is equal expertise on both sides of the negotiation in order to reduce future risks of disputes.
11. Models of private finance in infrastructure used across the world have adapted significantly since the 1990s. As the Treasury and NAO have consistently acknowledged, and as the broader evidence base demonstrates, PPPs typically deliver projects on time, on budget and maintain assets to a high standard over their lifetime.[16] This is in sharp contrast to some recent high-profile publicly delivered projects. Nonetheless, lessons have inevitably been learned as hundreds of PPP projects have been completed globally over the past 30 years or more. The key issues to be addressed adequately in any new approaches are as follows.

• Flexibility. PPPs have typically been structured as 25-30 year contracts. This has had a number of advantages, including generating efficiencies from long-term planning of asset management. However, it also creates a risk that assets cannot easily be adapted to changes in service need or wider economic and societal shifts that can be difficult to foresee. Much of this can be addressed through better relationships and better resourced contract management teams, but it may also be preferable to pursue shorter contract terms of, say, 10-15 years. Another mitigation is the exclusion of some services that were historically included in contracts where public authorities wish to retain direct control over their procurement. Contracts also need to be simplified to provide scope for adaptation while ensuring investors’ visibility of returns for good performance.
• Transparency. Public-sector authorities have often had greater information rights than have been fully utilised, which again is the result of insufficient resourcing of contract management teams. Nonetheless, many transparency concerns can be addressed through the procurement process itself or, where the Government desires, in taking small public equity stakes in projects.
• Risk transfer. There is today greater understanding of the balance of risks that should be transferred to the private sector and those that are best borne by the public sector. It is important to recognise that while the Government’s overall approach to risk allocation needs to be consistent each project will have bespoke characteristics that require tailored arrangements. The costs and complexity of the procurement process is a key aspect of risk allocation, with much greater need today to reduce upfront bidding costs in order to retain competitive tension. In all projects, the public sector will always retain some risk, as full risk transfer will either be unrealistic or increase financing costs to a prohibitive level.
• Relationships. Insufficient emphasis has historically been placed on the partnership aspects of PPPs. Every detail and eventuality can never be foreseen in a contract, especially over decades. This places a premium on both public- and private-sector partners investing in relationships to ensure contracts are operated sensibly and that both sides make reasonable accommodations as issues arise. The vast majority of mid-contract changes requested by public authorities are small and accommodated at reasonable cost.[17]

12. Evidence from PPP projects overwhelmingly shows that they tend to deliver projects on time, on budget and that assets are maintained to a high standard throughout their lifetime One of the major benefits of PPPs is to provide time and cost certainty to public-sector authorities on project delivery. This is attributable to a number of factors. Risk for day-to-day cost and time over-runs during the construction phase of projects is transferred to private-sector partners. This both reduces public-sector exposure to these risks and creates financial incentives for private-sector partners to stick to agreed schedules and budgets. This is a high-accountability approach that evidence has frequently shown can deliver better outcomes than equivalent public-sector projects (see below).
13. Where used appropriately, PPPs can also deliver significant value-for-money savings for taxpayers. This often comes from private-sector expertise in designing lower-cost assets over their long-term operation — which may differ from a lowest upfront cost approach — and deploying commercial expertise in managing those assets. Even accounting for slightly higher financing costs compared to government borrowing, this approach can result in significant savings and better value for money over the lifecycle of infrastructure assets.
14. There are many examples where PPP approaches have been shown to deliver value-for-money savings versus a public-sector comparator, including the following.

• Homes Victoria (2021 - present). The housing authority in the Australian state of Victoria agreed a PPP for a 1,100+ unit housing development that is majority social and affordable homes under a “ground lease model”. Homes Victoria’s comparison with a comparative public-sector approach showed 33% savings on the first phase, attributable partly to innovation in property designs that led to lower expected construction costs.[18]
• Footscray Hospital, Melbourne (2021). Also in the Australian state of Victoria, the state health building authority agreed the development of a new A$3 billion hospital in west Melbourne in 2021. Compared to a public-sector equivalent, a PPP approach was expected to deliver estimated savings of 15%.[19]
• Germany schools PPPs (2024). A rigorous academic study by Mainz University comparing 990 conventional school buildings in Germany and 41 PPP school buildings found a 34% saving on lifecycle costs in the PPP projects, attributable to a significant saving on construction costs arising from 30% shorter delivery times and better energy management.[20]
• Australia/New Zealand social infrastructure (2020). A study by Infrastructure Partnerships Australia and the University of Melbourne found 10 out of 12 social infrastructure projects were equivalent to or better than a public-sector equivalent.[21]

Previous historical work in the UK shows similar results.[22]

15. PPPs will not be the best approach to take in every instance. However, where they are used appropriately, this and other evidence demonstrates that they can deliver significant value-for-money gains for taxpayers
16. As many of the earliest PFI contracts come to an end, there has recently been growing discussion of the state of assets at hand back. The previous government commissioned the White-Fraiser Report to explore hand back issues and concluded that a reset was required, highlighting instances of under-resourcing of contract and relationship management by both public and private sectors.[23] This accords with our members’ views, with better investment in relationships key to making these arrangements work in the long term. As the Government considers future approaches to PPPs, it must ensure better resourcing and investment in contract management capabilities within public authorities, ideally supported by a central centre of excellence. There is also a desire on the part of investors for contracts to be simplified in order to ensure clarity of expectations and accountability.
17. It should also be noted that the best recent evidence on the quality of assets at hand back is overwhelmingly positive. A 2020 National Audit Office report, which surveyed 75 public-sector contract managers found that 71% expected assets to be handed back at or above the stipulated level, with 17% unsure.[24] While there is a tendency to focus on the small number of examples where relationships have broken down, we would urge committee members not to lose sight of the fact that in the vast majority of cases these arrangements are working well.

Conclusion

18. The Government has set out an ambitious infrastructure agenda, linked to its economic growth mission. This is expected to be fleshed out in more detail as part of the forthcoming 10-year infrastructure strategy, in which the Government is expected to articulate more fully its view of the role of private capital. As we have set out above, PPPs continue to be used widely in markets across the world, helping to deliver vital economic and social infrastructure that otherwise may not have been developed. As the UK Government looks to develop a credible project pipeline to attract international investment, it is crucial that supported models of private finance are included. Lessons must be, and have been, learned about how to make these arrangements work as effectively as possible in future. But the evidence is compelling that private finance tends to deliver projects on time, on budget and maintain assets to a high standard while, crucially, delivering better value-for-money for taxpayers.

28th April 2025