Leveraging private finance for public infrastructure: Shaping future PPP models

The UK Government has acknowledged there is a place for private finance in funding tomorrow’s public infrastructure – now it will wish to identify the best way of achieving this.

Many of our schools, hospitals, prisons and transport systems require upgrading, while building 1.5 million homes and 150 nationally significant infrastructure projects over this parliament are key economic growth missions of the Labour administration. 

Yet with constrained fiscal headroom and a challenging economic landscape, crowding in private sector funding will likely be part of this strategy. 

This is where new public-private partnership (PPP) models will be required. As part of our commitment to being at the forefront of tackling society’s biggest issues and connecting our clients across the public and private sectors, we are leading the conversation on this issue.

What are PPPs? 

There have been several previous PPP models used by the government to finance public infrastructure projects. 

The most well-known was the Private Finance Initiative (PFI), which supported more than 700 public infrastructure projects with a capital value exceeding £56bn in the late 1990s and 2000s, before its closure in 2018.

Other programmes have included PF2, Design-Build-Finance-Operate (DBFO), Mutual Investment Model and Non-Profit Distributing Model.

PPP schemes not only alleviate pressure on the taxpayer, but can bring other benefits such as:

• Improved operation and efficiency by adopting technology and innovation used within businesses.
• Long-term value created through appropriate risk sharing throughout the whole life of the project.
• Projects delivered on time and budget through incentivisation of private sector partners.

Why are we talking about PPPs now?

In its infrastructure blueprint, UK Infrastructure: A 10 Year Strategy, and the 2025 Autumn Budget, the government said it will explore leveraging private finance for some social infrastructure.

However, the infrastructure strategy stated PPPs will only be considered for projects and sectors where there’s a revenue stream, appropriate risk transfer and value for money for taxpayers.

This would primarily comprise community healthcare facilities, such as 250 neighbourhood health centres that have been proposed via the 10 Year Health Plan, and certain green energy schemes under public ownership. In the Budget, the Treasury opened the door to potentially expanding PPPs for its new towns programme.

However, we believe this remains a relatively narrow application and risks missing out on the opportunity provided by private finance to deliver an ambitious building strategy.

How are we leading the conversation on PPPs? 

We are working with the Confederation of British Industry (CBI) to help shape the future of PPPs in order to finance infrastructure renewal across the country. 

Our strategic partnership with the UK’s largest business organisation involves a research project that will culminate in a joint report that can be used to advise Whitehall policymakers on which new models could be deployed if the government is to partner effectively with the private sector. 

These models will take lessons from the perceived drawbacks of earlier schemes by implementing changes such as greater flexibility, transparency and better value risk transfer.

Our wealth of experience in advising on PPPs, and our 50-50 split between private and public sector clients, means we are well-positioned to provide input on the legal apparatus required for a new PPP programme.

Through this project, we are working with the CBI’s Infrastructure Working Group, which comprises more than 60 businesses that operate across the UK to bring deep industry knowledge of infrastructure financing and delivery.

We will jointly engage key government departments, including the Treasury, National Infrastructure and Service Transformation Authority, Office for Investment and National Wealth Fund.