Report to look at private investment in UK roads

The UK government is undertaking a feasibility study to look at ways of utilising private investment to improve Britain’s roads network. The study, which will report back in the autumn, is expected to consider more tolls, shadow tolls and other types of funding.

A feasibility study looking at new ownership and financing models for the UK’s roads network is being carried out by the Treasury and Department of Transport and will report its findings in the autumn.

Further details are due to be unveiled in a speech later today from UK Prime Minister David Cameron, who will call for private investment from pension funds, sovereign wealth funds and other investors. The speech will come two days before the announcement of the UK’s Budget on Wednesday.

Media reports suggest that the government is receptive to tolling, but only for new rather than existing roads. Another option is shadow tolls, whereby private operators are paid by the government according to traffic volumes rather than by the motorist.

Likely to prove controversial is Cameron’s linking of transport to the water industry. The BBC said that Cameron will ask: “Why is it that other infrastructure – for example water – is funded by private sector capital through privately owned, independently regulated, utilities…but roads in Britain call on the public finances for funding?”

This is a sensitive subject, since the perception of water privatisation held in some quarters is of large companies that made excessive profits while the cost of services rose significantly. On his Twitter account, Edmund King – president of motoring services firm the AA – said: “Agree need investment in roads but water model not great – high profit, higher bills.”    

The roads announcement is of a piece with the UK government’s determined focus on economic infrastructure, which has seen it push ahead in the face of strong opposition to the £33 billion (€40 billion; $51 billion) High Speed Two (HS2) rail network linking London and Birmingham, which is scheduled to open in 2026.

By contrast, the Conservative/Liberal Democrat coalition has been heavily critical of the previous new Labour administration’s Private Finance Initiative, which was the standard procurement model for social infrastructure such as schools and hospitals.       

Private infrastructure developers and investors will await with interest further details of the plan, which comes on the back of Chancellor George Osborne’s so-called ‘Pension Finance Initiative’ – a scheme to get UK pension funds to fund UK infrastructure to the tune of £20 billion.

It emerged last week that pension capital is expected to be channeled through a new vehicle called the Pension Infrastructure Platform (PIP), effectively a general partnership that will charge no more than 0.5 percent in management fees.