UK’s 10 Year Infrastructure Strategy: The first, not the final act

• This government has made a strategic bet on infrastructure to drive economic growth. The Spending Review revealed government’s capital spending plans and what sorts of infrastructure projects it plans to invest in. And last week, the 10 Year Infrastructure Strategy shifted the focus to attracting private investment and improving project delivery.   
• There is not much shiny and new (with some key exceptions) in the 100-page infrastructure strategy, as it largely consolidates existing policy, and the big-ticket items were released beforehand. But the real tests are whether the strategy: (a) is clear about the problems it’s trying to fix, (b) sets out a reform programme that is of sufficient scale to turn the dial, and (c) will hold for the long term. Against these tests, the strategy performs makes significant progress.   
• The strategy reads as the first rather than the final act. ‘What’ the UK’s economic infrastructure priorities are is now (largely) clear, but ‘how’ they will be delivered requires stronger definition. As NISTA works at pace to provide this clarity, there will be opportunities to shape policy, funding models and delivery.   

UK faces an infrastructure gap that constrains growth and the transition to net zero

The 10 year strategy and funding allocations are designed to address the structural weaknesses facing UK infrastructure: low, volatile investment levels and all-too-common project over-runs.   

Significant deficiencies in this country’s economic infrastructure act as constraints on growth: slow electricity grid connections, inadequate transport systems in our largest regional cities, failure to build any major water reservoirs in England in the last 30 years, and too many properties at risk of flooding. This underperformance is in part a function of overall underinvestment compared to many competitor countries. To close the economic infrastructure gap, investment will need to increase to at least £70 to £80bn per year over the next 20 years.[1]

The second challenge is that infrastructure costs in this country are too high, and they have been so for decades. The root causes include a lack of clear strategic direction, poor front-end planning, an inefficient consenting regime and ‘green tape’, and constrained supply chains. The size of the prize is significant: improving the budgeting, specification, design and delivery of infrastructure could translate to reductions of between 10 and 25 per cent in outturn costs across a portfolio of projects[2].

We are all planners now

The strategy reflects this government’s embrace of strategic and spatial planning. A place-based lens can help to match growth opportunities in, say, housing or industry with infrastructure requirements and join-up decision-making. The version on offer has quite a top-down flavour with a new national infrastructure pipeline and spatial tool, as well as the creative allocation of central government grants across the regions, rather than bottom-up based on full-fat devolution. As the new spatial framework takes shape, it is critical to decide how the trade-offs between the growing number of local, regional, national and sectoral plans and priorities will be resolved.

Public investment spending will settle at a high level with infrastructure priorities set

The Spending Review set out an extra £100 billion in public investment, compared to the previous government’s stated plans. This is meaningful in scale at around 1% of GDP annually. Over the parliament, the big picture is of a roughly stable investment budget as a share of the economy, with investment settling at a high level by recent UK standards.

Energy and net zero are big winners on capital spending, with an average annual real terms growth in spending of over 15%. The announcements on nuclear, CCUS and GB Energy confirmed that climate mitigation has been replaced by energy security and growth/jobs as the justification for low-carbon subsidies. However, these numbers include a growing switch between grant-based capital spend and financial transactions, suggesting that some beneficiaries of government’s Warm Homes Plan – to support the roll-out of heat pumps and energy efficiency measures – will receive credit, rather than direct financial grants.

Transport capital spending will grow in real terms but does rather less well than energy, despite its arguably greater growth benefits. The main change to DfT’s capital budget appears to be a reallocation of capital spending from HS2 to other projects. This has enabled increased funding to enhance the local transport networks of England’s largest city regions – a policy designed to address the long-standing problem that the effective size and productivity of places like Manchester, Leeds and Birmingham are constrained by a combination of inadequate public transport and insufficient, low density housing.

While the capital number for roads investment (£24 billion) in the Spending Review covers both strategic and local roads, discussions are ongoing to agree the next five-year roads investment strategy (RIS3) that will set out the priorities for the strategic network. Improving the condition of our roads is one area where infrastructure spend could make a noticeable difference to people’s lives before the next election. Critically, government provisioned further public funding for Lower Thames Crossing to set the scheme on the path to securing private finance.

The infrastructure strategy prioritises the completion of important in-flight rail schemes, including HS2 to Birmingham, the Transpennine Route Upgrade and East West Rail. Funding has also been earmarked to take forward a longer-term plan – to be announced in the coming weeks – to prioritise and address the biggest capacity and connectivity challenges in the North.

Finally, government set out an aspirational 10 year budget for infrastructure spending (social as well as economic) of at least £725 billion. While long-term investment planning to end the boom and bust we’ve long seen in capital spending will send a positive signal to supply chains, this headline figure must be translated over time into a credible and committed project pipeline (the first iteration of which will be published in July).

The lion’s share of economic infrastructure investment will come from the private sector

Despite the public investment top-up, private capital will be needed to finance the majority of the investment to close the UK’s economic infrastructure gap. The government’s attraction strategy, amid strong global competition for capital, has three core elements: (i) providing strategic clarity and policy stability when some investors are becoming more cautious about exposure to the US market, (ii) stronger incentives to invest with economic regulation that is pivoting towards proactive network investment, and (iii) the ability to build faster and de-risk project delivery through reforming the infrastructure consenting regime and grid connections.

Investors face similar policy and regulatory dynamics in fast-growing sectors like data centres including grid connections, planning reform and security regulation. Read more here

While tested business models exist for channelling private finance into energy and water markets, there has been a gap in surface transport networks, with other countries using PPP (Public Private Partnerships) models more extensively in recent years. So, it is a significant, if guarded, step forward for government to deliver Lower Thames Crossing and Euston station through private finance mechanisms. And to signal its willingness to consider applying PPP models more widely to schemes with suitable characteristics, namely clear revenue streams and the scale/complexity, so that private sector expertise is likely to secure efficiencies in delivery and operation. Such an approach could help avoid the zero-sum situation where growth-enhancing projects do not proceed due to fiscal constraints.

Delivery, delivery, delivery

The real test of the infrastructure strategy will be how effectively the extra capital investment is spent and managed. This, in turn, raises two questions: will the government be able to get the capital out of the door and avoid big underspends? And to what extent will the capital spending bump up against capacity constraints in supply chains and the construction sector?

The political emphasis on ‘spades in the ground’ explains why a large part of the strategy (and most of what’s ‘new’ in it) is dedicated to how government intends to improve its approach to infrastructure planning and delivery. Following the mantra that ‘projects don’t go wrong, they start wrong’, the Chief Secretary is determined to improve the front-end selection and assessment of projects so that they fit with the strategy, as well as being affordable and set up properly, before they get given serious cash. But many of the proposals for ‘how’ this will happen remain fuzzy. A huge amount of responsibility for the stewardship of government’s infrastructure programme rests on the shoulders of the newly formed NISTA. While having NISTA inside the Treasury will help, it is yet to be seen how it will be given the mandate and firepower to drive system-wide change, particularly when responsibility for infrastructure projects will remain with sponsor departments.

The strategy also does not say much on the alignment between its ambitious goals and market capacity to deliver them. The build programme across sectors is unprecedented and the whole supply chain will need to gear up. The forthcoming infrastructure pipeline alongside longer-term funding will enable industry to plan with greater confidence and increase capacity. But the construction sector must invest in the skills and innovation to lift sector-wide productivity. The launch of the CMA’s market study on the same day as the infrastructure strategy was not by chance – it reflects concerns that the sector is not operating as effectively as it could.

Flint can help navigate the next steps

As government moves at pace to fill in the gaps and implement the infrastructure strategy, there are opportunities for investors, operators and construction companies to shape policy, unblock delivery barriers and seek access to finance, including to:

• Shape government’s approach to economic regulation and infrastructure policy across sectors.
• Develop and access government’s developing infrastructure financing toolkit.
• Access the increased capacity of the National Wealth Fund to support capital-intensive projects through equity, loans and guarantees.
• Shape the design of the private finance mechanisms for LTC and Euston station specifically, so they achieve value for money for taxpayers and investability.
• Identify further opportunities to use PPP models for user-funded economic infrastructure.

NISTA will be keen to develop strong relationships with the private sector, as well as with sector-specific departments and regulators. Effectiveness of engagement will depend on investors and companies coming to the table with workable proposals that bridge policy and commercial priorities. With extensive experience shaping policy and commercial decisions across infrastructure sectors, Flint is on hand to support you as you engage with government’s 10 Year Infrastructure Strategy.

This blog was written by Partner James Heath. James supports clients across a range of policy issues with a focus on infrastructure. Prior to Flint, James was Chief Executive of the UK’s National Infrastructure Commission (NIC).

[1] National Infrastructure Commission (NIC), ‘Second National Infrastructure Assessment’ (2023).

[2] NIC report on ‘Cost Drivers of Major Infrastructure Projects in the UK’ (2024).