The UK should resist calls for infrastructure public ownership

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

The writer is founder and managing partner of I Squared Capital

I listened on Monday with great interest at the UK government’s International Investment Summit, as ministers, investors and the best of British business shared their plans on how to reinvigorate the economy through infrastructure investment. They certainly face a challenge. In the UK, infrastructure is frequently the subject of public frustration. Something has to change. As the government considers reforms and how to fund much-needed upgrades to roads, water, public transport and digital services, there are three key lessons from my home country, the US, that could inform their approach.

The first is that the UK model works. It needs updating, not a complete overhaul. This is a timely issue given the crises surrounding Thames Water and the growing calls to move away from private ownership in the water sector, and perhaps infrastructure more broadly.

The US has resisted infrastructure solutions that the rest of the world has adopted, especially those involving the private sector. In the US, 90 per cent of the water sector is publicly owned by cities, municipalities, or regional authorities — roughly 50,000 entities in total. According to the American Society of Civil Engineers, the state of this infrastructure is far from ideal. Clean water infrastructure earned a grade of C+ and wastewater infrastructure a D+. Two million Americans don’t have access to clean drinking water.

Airports tell a similar story. In Europe, over 40 per cent of airports have some level of private ownership, while in the US, nearly all are government-owned. Their rating? Also D+.

The second lesson from the US is that believing a government can spend or tax its way out of an infrastructure shortfall is wishful thinking. Private capital has to play a role. The US’s $1.2tn infrastructure bill, for instance, covers only a third of the funding required simply to restore the nation’s systems. It does not include the cost of building the new ones so desperately needed to spur economic growth. With a US budget deficit exceeding 6 per cent of GDP and debt to GDP over 120 per cent, there is no appetite to invest further.

Here lies the third and final lesson for Britain: until the 1930s, much of the US’s infrastructure was privately owned and operated. The Depression and second world war created conditions where greater government intervention made sense. But the temporary shift has since fossilised, largely due to inertia and ideology. The UK should avoid making the mistake of turning its back on privatisation altogether — it’s not always the solution for every situation but it can be highly effective in many cases. 

In my recent book, Build, I argue that the US needs a new model to invest in infrastructure — one that includes the private sector through public-private partnerships. The US should look to examples from the UK, Europe, Australia and even China, where such partnerships are already in place. 

No serious advocate of privatisation suggests it should be embraced blindly. These are complex legal arrangements that succeed or fail based on regulatory provisions, financing mechanisms and enforcement. But thanks to decades of experience and advancements in technology, the partnerships can now be structured, monitored and enforced more effectively than ever before.

The truly grim reality is that governments cannot afford the infrastructure needs of the coming decades. This includes protecting national security, making infrastructure more resilient to climate change, developing new power generation systems to support renewable energy, integrating battery storage and meeting the growing energy demands of artificial intelligence technologies. 

What I heard on Monday was a focus on opportunity and maximising the UK’s strengths. Ultimately, practical, long-term solutions are more likely to come from thoughtful reform that applies real-world lessons, engages the private sector and utilises private capital. Ideological slogans can be politically expedient but they are not going to reinvigorate the UK economy in the way that it wants or needs.