HOW GOVERNMENT COULD TAP INTO THE PRIVATE SECTOR TO BRIDGE THE INVESTMENT GAP

The rail network in the UK is more than just tracks and trains; it’s a catalyst for economic prosperity, community connectivity, and environmental sustainability: a crucial element in addressing grander challenges like productivity, decarbonisation and levelling up. As the passenger numbers grow and the government sets forth ambitious targets, including the removal of diesel-only trains and achieving Net Zero by 2050, substantial investment in rail infrastructure is becoming a pressing need.

However, at a time of constrained fiscal space, relying solely on public funding is no longer an option to meet these demands. With the UK’s rail industry at a critical juncture, it is time to harness the potential of private investment to reduce the upfront cost of building the rail infrastructure that can deliver for passengers and freight both today and in the future. RIA has recently published a discussion paper on How can the UK railways secure more private investment?

Deploying private investment to support transformative projects is far from a novel idea. From the Metro Tunnel Project in Australia to the federal motorways in Germany, public-private partnerships are used around the world to build transport infrastructure. In the UK, private finance is being successfully used in the rolling stock market, securing over £4.5bn of investment over 20162022 1 and significant parts of today’s freight network have also been privately developed.

In contrast to the rolling stock market however, there is very little private finance or funding in other parts of the railway, despite repeated government policy commitments to increase this. Data from the Office of Rail and Road shows just 10.5% of investment in new infrastructure is from private sources, with the majority in rolling stock, and a small amount of investment in stations and track and signalling2. Pockets of private investment exist in the wider network - an inspiring instance is the Docklands Light Railway extension to Lewisham by the private sector, an asset which around 25 years later is passing back to Transport for London, having been largely privately funded, but now something that is there for future generations.

A rough estimate of the UK rail infrastructure investment gap, provided by Global Infrastructure Outlook, is a £4.12bn annual gap (equivalent to about 0.15% of UK GDP), rising to £112bn cumulatively over time 3. Leveraging private finance could help bridge the widening gap and facilitate much needed renewals and enhancements needed on the UK rail network.

To unlock the potential of private investment in the rail sector however policy makers must address several challenges. The current complex and opaque system lacks the transparency and certainty that the private sector requires. We outline four key asks of the UK government to overcome these challenges:

1. A clear government policy on rail and private investment: There is currently no coherent government policy that provides the market with the clarity and certainty it needs to attract more private sector investment in the UK rail network. Establishing a clear policy will provide a framework for private investors and encourage their participation.

2. More pathfinder projects and standardised approaches: Rail infrastructure projects can be complex, which can involve a range of bespoke risks, for both public and private sectors, which means that investment schemes often need to be bespoke. Introducing projects that serve as proof of concept using less complex schemes could provide frameworks to replicate for future investments. More pathfinder projects and standardised approaches must be implemented to streamline the investment process and foster innovation in the sector.

3. Intelligent market engagement and a targeted review of procurement practices: There is a real opportunity to harness private sector innovation, but to unlock this the public sector must effectively engage with the private sector. This requires the public sector to effectively collaborate with the private sector, adopting an “intelligent client” approach to procurement and considering the costs incurred by private entities during the bidding process.

4. Fair comparison of the costs and benefits of private finance with public borrowing: A successful railway needs to look at the whole life cost of its decisions. To ensure the comprehensive evaluation of costs and benefits in private finance compared to public borrowing, the government should enable a fair comparison.

With successful examples within the UK and around the world, there is no shortage of evidence that well-managed public-private partnerships can successfully deliver infrastructure projects. The UK government must demonstrate genuine commitment and adopt a fresh mindset if we are to explore more imaginative approaches for constructing rail schemes. There is a real opportunity for government to tap into the expertise and resources of the private sector to bridge the investment gap and propel the rail network towards a more sustainable and efficient future.

1. https://dataportal.orr.gov.uk/media/2162/rail-industry-finance-uk-statisticalrelease-202122.pdf

2. https://dataportal.orr.gov.uk/statistics/finance/rail-industry-finance/table-7290-privatesector-investment-in-the-rail-industry-excludes-network-rail-investment/

3. https://outlook.gihub.org/countries/United%20Kingdom

David Clarke Technical Director