UK infrastructure PPPs: a new era or the end?

The UK government has ambitious plans to deliver new infrastructure, improve public services and support economic growth. However, recent commentary suggests the role of public-private partnerships (PPPs) in that future is at a crossroads.

On one hand, the government continues to develop a model for private investment in social infrastructure through the Neighbourhood Health Centres (NHCs) programme (known as Project Wings). On the other, Partnerships Bulletin has recently reported that a letter sent by HM Treasury to all government departments proposes to revise accounting treatment for taxpayer funded PPPs which could make future projects more difficult to justify from a value-for-money perspective.

A changing funding landscape

We understand that under the Treasury’s revised treatment, many future PPP projects could be treated in the same way as other capital projects with the upfront capital expenditure for the relevant asset being accounted for on the public sector balance sheet. From an accounting perspective, one of the attractions of the PPP model has been that the upfront capital costs of the asset are spread over the c.25 year lifespan of the PPP project, with revenue payments taking a much lighter toll on the public sector balance sheet on an annual basis. Although intended to improve transparency, an update to accounting treatment of this nature could place too much emphasis on the cost of private finance compared with generally cheaper public borrowing.

That approach overlooks the wider benefits that PPPs can deliver, including whole project lifecycle maintenance certainty, public sector risk transfer, efficient procurement and long-term asset management. As a result, questions are emerging about whether future social infrastructure PPPs will be able to satisfy increasingly stringent value-for-money requirements.

Whether justified or not, any such change would create uncertainty for future PPP schemes at precisely the moment when the UK government is seeking to accelerate infrastructure delivery and boost market confidence in an investible UK pipeline.

Neighbourhood health centres as a test case

Project Wings will be the first major test of the government's renewed approach to private investment in social infrastructure.

While the NHS Capital Plan reaffirmed intent to use private finance to help deliver NHCs, the market awaits the procurement and delivery detail. Some in the industry are already questioning whether the programme will become the foundation for a broader pipeline of projects or remain a one-off initiative.

However, there is clear recognition that substantial investment will be required to modernise community healthcare facilities, support the shift of services closer to patients and reduce demand on acute hospital facilities. Given ongoing public sector funding pressures, private capital may still have an important role to play.

Thinking beyond individual assets

Perhaps the most significant opportunity lies in adopting a more integrated, ‘place-based’ approach to infrastructure delivery.

The NHS Capital Plan highlights the role of health facilities as "anchor institutions" within communities. Rather than viewing healthcare, housing, transport and regeneration projects separately, there is growing interest in creating developments where health facilities sit at the heart of wider economic and community regeneration.

The concept is simple: a Neighbourhood Health Centre could be delivered alongside housing, commercial space, life sciences facilities and community infrastructure, creating a more attractive and investable proposition for the private sector. Similar models have been successfully used in transport-led regeneration projects across the world.

The importance of cross-government collaboration

For this model to succeed, greater collaboration between government departments will be essential.

Major infrastructure projects rarely deliver benefits in a single policy area. A new health facility may improve healthcare outcomes, unlock housing development, support local regeneration and stimulate economic activity. Yet the funding (and benefits) often sit across different departments and budgets.

This is particularly relevant in light of any proposed change to accounting rules. If individual departments are required to absorb the full capital cost of projects within their own budgets, there is a risk that broader economic and social benefits are overlooked.

The infrastructure schemes most likely to transform communities are rarely single-purpose assets. Co-location of development and regeneration, particularly in conjunction with low carbon energy solutions, are significantly more dependent upon coordinated planning and funding between central government departments, local authorities, combined authorities and private sector partners. Delivering these successfully will require not only innovative financing models but also greater alignment between those responsible for capital budgets and policy objectives.

The UK's long term infrastructure challenges cannot be solved by any one department acting alone. Future success is likely to depend upon creating a more integrated approach to infrastructure planning, funding and delivery. In that respect, the debate around PPPs may ultimately be less about financing models and more about how government organisations work together to unlock investment and deliver lasting outcomes for communities.

Time for take off?

The delivery of Project Wings will provide an important indication of the future direction of UK infrastructure delivery. If the government can demonstrate that PPPs can support not only healthcare infrastructure but also wider regeneration and placemaking objectives, private investment in the form of PPPs could play a meaningful role in delivering long term growth.

The challenge will be balancing affordability, value for money and public accountability while creating a framework that remains attractive to investors. Success is likely to depend not only on innovative funding structures but also on stronger collaboration across government departments and public sector bodies.

At a time when infrastructure demands continue to grow, coupled with the need to reduce the historic deficit in infrastructure delivery experience by the UK over recent decades, a coordinated and place-based approach may be just as important as the financing model itself.