30th October 2026
The Government is keen to attract billions of pounds of investment into Britain, with international businesses, pension funds, sovereign wealth funds and other financial institutions being encouraged to help finance major infrastructure projects.
On the face of it, this sounds like good news. Britain needs investment in energy, transport, housing, water infrastructure and other essential facilities. The Government also faces considerable pressure to control public borrowing and keep within its fiscal rules.
But there is a question worth asking: are we seeing a return to the sort of financial arrangements associated with the Private Finance Initiative (PFI), where private companies provide the initial money for projects while taxpayers or public service users meet much of the cost over subsequent decades?
The arrangements being considered today are not necessarily a repeat of PFI. However, the underlying issue is familiar. Governments can obtain investment from private sources without immediately having to find all the money through taxation or conventional public borrowing. Whether that represents a genuine financial advantage depends on who ultimately pays, what return investors receive and who carries the risks.
Why the Government wants private investment
The Government has ambitious plans to improve Britain's infrastructure and stimulate economic growth. Yet public finances are under pressure from debt interest, public service demands and the need to maintain fiscal rules.
The October 2026 Budget reaffirmed the Government's commitment to reducing borrowing while continuing to invest. It also announced additional support for public financial institutions, including £15.4 billion of extra capital for the National Wealth Fund.
These institutions are intended to use public money strategically to encourage additional private investment.
The Government says this approach can achieve more than relying entirely on the public purse. The National Wealth Fund, for example, has already committed £10.9 billion, which it says has helped mobilise £21 billion of private finance.
The attraction is obvious. If a relatively modest amount of public money can encourage much larger sums of private investment, infrastructure projects that might otherwise be delayed could proceed.
International investors are also interested in long-term investments that provide predictable returns. Infrastructure can be attractive to pension funds and insurance companies because projects may generate income over several decades.
But attracting investment is not the same as getting something for nothing.
The lessons of PFI
Britain has already experimented extensively with private finance through the Private Finance Initiative, introduced in the 1990s and subsequently expanded.
Under PFI, private companies financed and constructed hospitals, schools, prisons and other public facilities. In return, public authorities agreed to make payments over long periods, often 25 to 30 years.
The argument was that private companies could arrange finance, manage construction and take responsibility for maintaining buildings, leaving public authorities free to concentrate on providing services.
There were examples where the arrangements delivered facilities that might otherwise have taken longer to build.
However, the financial consequences were not always attractive.
Private companies generally borrowed at higher interest rates than the Government could obtain. They also needed to make profits for their investors. Some contracts proved inflexible, and public bodies found themselves committed to substantial payments for decades.
The House of Commons Public Accounts Committee highlighted the continuing consequences in its July 2025 report.
There are still 665 PFI and PF2 contracts in operation, with public bodies expected to make payments totalling approximately £136 billion up to 2052-53.
Around half of those contracts are due to expire within the next decade. That raises another concern: whether schools, hospitals and other facilities will be handed back to the public sector in an acceptable condition.
It is a reminder that the financial consequences of decisions made by one government can remain with taxpayers long after that government has left office.
Is private finance a way of keeping borrowing off the books?
This is perhaps the most interesting part of the debate.
When the Government borrows money directly, the borrowing is recorded in public sector finances. When a private company raises money to build an asset, the accounting treatment can be different.
Depending on the ownership, contractual arrangements, control and allocation of risks, some private finance arrangements may be recorded outside conventional government debt measures.
That can make the public finances appear stronger in one particular measure, although it does not necessarily remove the Government's underlying financial commitments.
Consider a hypothetical example.
A private consortium agrees to finance and construct a £2 billion infrastructure project. The Government does not have to find the £2 billion immediately or issue gilts to finance the construction.
Instead, it agrees to make payments over 30 years.
The initial investment has come from private sources, but the Government may ultimately be committed to paying back the investment, together with financing costs and a return for shareholders.
The question is whether this is genuinely cheaper or more efficient than the Government borrowing the money itself.
There is an important distinction between financing and funding. Financing provides the initial capital. Funding is where the money eventually comes from to meet the costs.
If taxpayers ultimately pay the bills, the financial burden has not disappeared. It has simply been spread over a longer period.
Not all private investment is the same
It would be wrong to suggest that every arrangement involving international investment is simply PFI under another name.
There are several different approaches.
Private companies can build and operate infrastructure using their own capital, taking genuine commercial risks and earning income from customers.
Regulated Asset Base arrangements allow infrastructure investors to recover investment and earn an agreed return through regulated charges. This model has been used in major energy and infrastructure projects.
Joint ventures allow the Government and private companies to share ownership, investment and risk.
The Government can also provide guarantees, loans or initial capital to encourage private investors to participate in projects they might otherwise consider too risky.
These arrangements can have genuine advantages, particularly where private companies have specialist expertise or can manage commercial risks more effectively than the public sector.
The problem arises when the Government guarantees too much of the income or takes responsibility for most of the risks while private investors retain the returns.
In those circumstances, taxpayers may end up carrying much of the financial exposure without necessarily receiving the benefits of cheaper finance.
Has the Treasury learned from past mistakes?
There are signs that the Government recognises the dangers.
The Treasury's Balance Sheet Framework, updated in April 2026, sets out guidance on when private finance should be used.
It makes an important admission: government borrowing is generally cheaper than private finance. Private investors need a return that reflects their cost of capital, risk and profit expectations.
The framework says that private finance should only be chosen where the benefits of transferring risks and achieving greater efficiency outweigh the additional financing costs.
Crucially, it also says that decisions must not be driven by the desire to obtain a particular accounting treatment or make a project appear more affordable.
On 1 October 2026, the Treasury issued further instructions to government departments on private finance arrangements. These require better recording of transactions, monitoring of costs and contract performance, and greater transparency.
This is welcome, but the effectiveness of these safeguards will depend on how rigorously they are applied.
What does this mean for Scotland?
The debate is particularly relevant to Scotland, where major infrastructure requirements compete with limited public resources.
Transport improvements, energy developments, school buildings, hospitals, water infrastructure and housing all require substantial investment.
Highland Council, for example, has significant capital investment ambitions, including the development of new school facilities. Such projects inevitably compete with other demands on council budgets.
Private investment might help bring forward some developments, but councils and public bodies must understand the long-term financial consequences before signing contracts.
A project that appears affordable in its first year could create a substantial commitment for future administrations and taxpayers.
The same applies to energy infrastructure. International investment can help finance projects that create jobs, improve energy security and generate economic benefits. But the financial arrangements must be transparent, particularly where public guarantees or consumer-funded payments are involved.
The question taxpayers should be asking
There is nothing wrong with international businesses investing in Britain. Indeed, the country needs investment and cannot expect government borrowing and taxation alone to finance every worthwhile project.
Nor should every privately financed development be dismissed because of the failures associated with some PFI contracts.
But there is a fundamental principle that should apply to every project.
The Government should choose the financing arrangement that delivers the best long-term value for taxpayers and service users, not the one that makes the borrowing figures look most attractive in the short term.
A £2 billion project does not become cheaper because a private company raises the money rather than the Treasury.
And a 30-year commitment to make payments to an investor is still a financial obligation, even if it does not initially appear in the headline public borrowing figures.
The real test is whether private investors are genuinely taking risks, bringing expertise and delivering efficiencies that justify their returns.
Otherwise, there is a danger that Britain could end up repeating some of the mistakes of PFI, with today's governments announcing new investment while leaving tomorrow's taxpayers to settle the bill.
Private investment can help build Britain's future. But it should not become a way of disguising the true cost of doing so.
HM Treasury Balance Sheet Framework April 2026
[url=https://publications.parliament.uk/pa/cm5901/cmselect/cmpubacc/821/report.html]Government’s use of private finance for infrastructure[/url]
Budget 2026