a better future

Do modern economies still need a mix of public and private infrastructure investment?

The fallout from Carillion dramatically underlines the need for the entire infrastructure sector to repair the broken trust between the private sector and politicians.

Outsourced businesses will undoubtedly be required to deliver and manage assets, but precisely how this arrangement might be structured remains less well understood.

We mustn’t forget the goal of better public outcomes

Without open dialogue between the private and public sector, there is the risk that an ideologically driven policy could overlook the fact that the fundamental aim of public-private partnerships is to deliver better outcomes for the public.

However, more clarity and discussion could make this an opportunity for policy makers and shareholders. If, by transferring these assets back to the public sector, we are able to deliver a better outcome for the public then, of course, this should happen. But it must be a decision made on this basis rather than simply being the result of dogma.

The question of private infrastructure investment

Many, however, are, understandably, still asking the question: should modern economies still have a mix of public and private infrastructure investment?

In my view there is no doubt that the answer to this is ‘yes’. Every developed economy now realises that, while the state has an important role to play in delivering and maintaining vital infrastructure there is still a place for the transformative possibilities of private infrastructure support.

Fundamentally, strong partnerships between government and the private sector guarantee a range of procurement and delivery tools are available to deliver public sector infrastructure policy. Such relationships provide the financing sources and, most importantly, a range of funding options that support the available public purse. Crucially, this ensures that the necessary and desired level of long term investment in infrastructure is consistently achieved.

This is particularly important in critical infrastructure sectors such as water, energy and transport in which the levels of public support either no longer exist or are being reduced.

Infrastructure must keep up pace with the changing world

With the global population expected to reach 9.7bn by 2050, the scale of the infrastructure challenge simply cannot be met by public sector financing alone. The combined impact of population growth, climate change and urbanisation, which in 30 years’ time could see some 70% of the global population living in cities, means that we need to rethink our current infrastructure investment plans. McKinsey estimates that the world will need to invest around $70 trillion by 2035 just to meet the United Nations’ Sustainable development goals.

The knock-on impact of austerity has been huge

The UK is also facing major and ongoing pressures in terms of providing sufficient public funding to meet its economic driving ambition for infrastructure investment. The post-financial-crisis austerity programme has seen savage cuts to public spending across both central and local government leading to huge pressure on maintenance and renewal of the public realm.

The consequential knock-on impact of these cuts has been to undermine community and social cohesion, reduction in skills and training. Focus on austerity has too often created and over-emphasis across public sector procurement on lowest cost and lowest risk at the expense of value creation.

Massive investment through public asset privatisation

The early-80s government-led programme of public asset privatisation seen across water, energy and communications has seen these regulated industries roll out hundreds of billions of pounds worth of investment over the last three decades.

It is an investment programme that, underpinned by strictly regulated public payment terms, continues today, with over 50% of the £480bn national infrastructure spending pipeline to 2020/1 coming from the private sector and with private companies providing skills to maintain and operate the publicly-owned rail and road networks. The water industry, for example, has been transformed, investing to meet the growing demands of new legislation while delivering customers with unlimited drinkable water for as little as £1 per day.

According to the National Infrastructure Commission’s latest Needs Assessment report, delivering its recommendations to transform the UK infrastructure will require a combination of public and private financing. “Financing itself is not in short supply,” it says. “However, state financing institutions can help to encourage private investment and catalyse activity in new markets.”

Making the case that the private sector creates better public outcomes

Convincing voters about the value of the current procurement and asset management model means not only explaining how it translates infrastructure vision into reality, on time and within budget, but also, most importantly, helps build sustainable businesses and create jobs. Specifically, how investment in infrastructure by the private sector can bring about greater social value to the communities in which and for whom they operate.

We need to focus our efforts on helping politicians recognise that the most important consideration when planning and delivering infrastructure is identifying what will provide the best outcome for customers and taxpayers - explaining why the private sector, underpinned and challenged by a strong regulator, creates better public outcomes than an ideologically- driven public sector-led solution.

Read our green paper ‘what is the future of UK infrastructure development and finance’ which is the first in a series to stimulate thinking, discussion and action across the industry.

Join the debate online #futureofinfrastructure

Amey PLC United Kingdom 04/03/2019 11:37:00