Everyone knows that Britain needs a major infrastructure upgrade. Over 40 years since the first privatisation kicked off, none of the core infrastructure networks is fit for purpose. From potholes and road congestion to the failing railways, the inadequate energy networks, the leaking pipes, sewers spilling out sewage, and stretched flood defences, to mobile not-spots, the scale of the upgrades needed is very large.
Getting any of this sorted in Britain takes much more time than it should and costs more than in many comparative countries. From the debacle and embarrassment of HS2 to the fact that it takes nearly as long to fix a bridge over the Botley Road in Oxford as the First World War lasted, and significantly more than a decade to build a nuclear power station, getting anything done in Britain is at best slow. Some things just don’t get done at all. Heathrow’s runway is worthy of a Viking saga. There are exceptions such as the Elizabeth Line and the Thames Tideway, but they are all too rare.
Britain leads the world in the costs of infrastructure. HS2 is nearly £1bn per mile, Hinkley and Sizewell nuclear power stations together are going to come to around £100bn (that’s an astonishing £16bn per GW), and Heathrow’s runway might start with an opening estimate of around £40bn. In water, the cost of new reservoirs, tanks and storage and upgrades at Britain’s sewerage works and fixing the leaks is going to be way over the opening number of £100bn. Upgrading the electricity grid looks set for at least £70bn before cost overruns. These cost overruns for the grid, for water and sewerage, nuclear and for Heathrow may well turn out to be much more than the average overrun for global infrastructure projects of around 30%. Most of the above are probably going to be projects delivered in the 2040s.
All this is very bad for the economy and for economic growth, but it is probably not widely recognised just how bad it actually is. Few recognise the link to Britain’s poor productivity. The costs of electricity are already amongst the highest in the developed world. Energy in Britain costs more than four times what it does in the US, and at least twice the cost in China. How British industry is supposed to compete on world markets is hard to fathom. To make Britain work, workers need access to workplaces, and they need high-quality fibre communications connectivity. Goods and people need to get to market. Business needs reliable water and wastewater provisions. A glance at the chasm between the ambition to be a world AI superpower and the problems for a data centre to get access to a grid connection and enough firm power, as well as the constraints on water supply, hints at the further problems ahead.
For Britain to succeed there would need to be a radical shift in gear on infrastructure and infrastructure investment. Every incoming Prime Minister and Chancellor since the 1970s has recognised this and promised to crack the problems. The latest pair is no exception. Yet none delivers, and the signs are not good for the rest of this Parliament.
The question is how to achieve this radical transformation; how to have a “can do” not a “can’t do” approach.
Taking decisions to live within our means
The first step is to take decisions that are more than wish lists and performance politics. Such decisions have to have at their core a credible answer on where the money is going to come from. Politicians want to get elected and they like to be liked. The No. 1 priority for the latest PM is “affordability”. If not cheap energy, he wants cheaper energy. Ditto for water, both for households (voters) and for industry. Unless you believe that net zero is going to significantly reduce energy bills (which it won’t, as the system costs are so high), and unless you believe that net zero is going to deliver home-grown energy and bolster economic growth (which it won’t, not least because the supply chains for renewables are almost entirely foreign), locked-in high electricity prices through to 2040 are going to provide a major barrier to growth.
High costs do not go away because the deckchairs are rearranged between the Treasury and various customer classes. How, then, does this government get lower costs (and hence lower prices), whilst at the same time getting more investment? Since the investment is almost all foreign, how do foreign investors (and the foreign companies delivering the investments) get their money back and a decent return?
Lower prices don’t reduce costs, but they do squeeze revenues – or they mean higher taxes and borrowing by the Treasury to pay for it all. With the highest tax burden since the Second World War, there isn’t much room for tax rises on the scale needed to pay for all of the above. On the contrary, there may be even less, if the government wants to pay for social care, provide ever more money for the NHS, and fund a big increase in defence spending. More borrowing runs into the bond markets, and the fact that Britain already has amongst the highest gilt prices amongst the developed economies points to the lack of credibility. The PM might not want to be “in hock to the bond markets”, but he is.
There is an inevitable conclusion: there is no fantasy option of lower bills and a major infrastructure upgrade. Affordability can only be improved is if it is for some and not the many and is an explicit distributional policy. Even this hope is swamped by the need to rebalance prices between consumers (voters) and industry, to be internationally competitive. This could be done by switching most of the fixed and sunk system costs of the electricity system, and the contracts for difference (CfDs) for renewables and Hinkley nuclear power station, onto domestic customers – which would then mean very much higher retail bills. Quick fixes, like trying to break the link between electricity and gas prices, do not make the costs of gas go down. Even if the link is broken, the lost revenue to generators has to be made up elsewhere.
This leads to the very unpleasant and inconvenient truth: we are living beyond our means, in that we are consuming without paying for the costs of maintaining the main infrastructure and utility systems and to achieve policies like net zero 2030. We are not paying to fix the leaks, not paying to stop the sewage spills and not paying for the consequences of addressing the pollution that we are causing. That goes for energy and transport and communications and much else. Put simply, the bills do not add up to the revenues required to ensure that we are not only good stewards of the systems we inherited; we should also be paying to maintain them for the next generation to inherit, and be making up the backlog.
Nationalisation doesn’t solve the problem
Nationalising the utilities does not solve this. The money to do so would still have to be found. Plans to expropriate investors might appeal to the progressive left, but it would be wise to pause and think through the consequences. Once in the public sector, infrastructure maintenance and investment would have to compete for money with the new focus on a national care system, free for all, the preservation of all the social benefits that Labour backbenchers are so keen on, a major increase in defence spending, the ever-rising costs of the NHS, and the third-highest government expenditure commitment: paying the interest on its debt.
Privatisation took the utilities out of the comprehensive spending reviews and the budgets constrained by the fiscal rules to try to hold down the government’s borrowing costs. Nationalisation puts them back inside these straitjackets. Inside the public sector, they will lose out, as they always have. Money has to be borrowed, and lenders only lend if they are going to get their interest paid and their capital back – whether lending to the government directly or lending to the utility companies.
The politics of nationalisation makes the investment challenge even worse. Nationalisation of the railways was swiftly followed by agreeing to the unions’ pay demands (and especially to their wishes to limit the roll-out of new working practices), and to freezing rail fares. Higher costs, lower productivity (because of the restrictions on new technologies) and lower revenues are not the route to addressing the sorry state of the railways.
Properly maintaining our infrastructure is possible, and, in theory, it could be done in the public sector. We did it for the great reconstruction of the infrastructures after the Second World War, and largely out of current bills. We did the right thing: we paid as we went. It is only from the late 1980s onwards that, to avoid customers paying for the necessary upgrades, we moved to pay-when-delivered and, with it, the great financial leverage of the core networks. Up until the end of the 1970s, the building of nuclear and coal power stations was funded largely out of current revenues, as were the new water assets. The Victorians did it too, with some municipal debt. The economy in 1850 was less than 20% of its size today, with about half the population, and yet it created the great infrastructure investment for water supplies to Manchester and Birmingham, and carried through the great railway developments. France in the 1970s and 1980s built over 50 nuclear power stations, when its economy was much smaller than Britain’s is today. The great economic transformations of Germany, Japan, South Korea, Taiwan and now China built great infrastructure from much poorer baselines.
It is all very possible in either the private or the public sector, so why can’t we do it now? The answer is that they all paid for it; we are not doing so and the government wants lower bills. It has a simple conclusion: we would all have to pay, and hence our living standards would be lower.
Relying on the kindness of strangers – our foreign investors – exposes the contradiction between lower bills and higher maintenance and investment. Foreign investors can add up the scale of the capital expenditure (CAPEX) ambitions, on the one hand, and the politics of lower bills, on the other. They might kid themselves that the particular investments they make will be fine – something else will have to give. But in aggregate it does not add up. Take all of the £718 billion in the March 2026 NISTA pipeline,[1] add in the full housing costs and defence. Add to this uncertainty the precarious position of public finances and the highest costs of borrowing, and the extra labour costs from the increases in employer National Insurance, in the minimum wage and the new workers’ rights, and then add in the very high energy costs, and the necessary bills have to be pushed ever higher to entice foreign investors. After all, they can always invest elsewhere. There is no magic nirvana around the corner of lower costs and lower prices and more investment. Something has to give.
If it is to be through government funding (given the borrowing constraints), then the way out is to reduce current government spending to make room for the infrastructure investment. Could this be done? In theory, yes of course. Welfare spending could be cut. This is not something the current government is likely to achieve except at the margin. A lot of health costs, and social care costs, could be shifted onto the beneficiaries, or at least those who could pay. Even education costs could be shifted onto consumers via private insurance, direct charges and private education contributions. All of this is theoretically possible, but the notion that this government would contemplate any of this is absurd. On the contrary, the PM and his party are more, not less, statist. Hostility to private education is an example, as is the public sector unions’ hostility to private provision in the NHS. The underlying reason is that these shifts would make some (and indeed quite a lot of) people worse off, and especially the public sector supporters of the current government. Their standards of living would go down – the opposite of the PM’s drive on affordability.
It’s not just the current PM and the Labour government; the Conservatives in office took a remarkably similar approach. The COVID borrowing has never been paid back. Their past and current policy promise is also cheap energy. Part of the reason the water industry is in the state it is in is because of the political pressures over the decades since privatisation (under Labour and Conservative governments) to hold prices down.
Saving more
The gap between the costs of major infrastructure upgrades and affordability has a further twist. In all the great growth models referred to above, there were high levels of domestic savings. The citizens of Germany, Japan and especially China saved. These savings came out of forgone consumption. Contrary to the Keynesian dogmas that have pervaded Britain and the US, saving really did lead to investment, which really did lead to economic growth. Keynesians in the Anglo-Saxon world believed that investment caused savings and that economic growth was driven by high aggregate demand, and for them high consumption. The Germans, the Japanese and the Chinese didn’t, and all had key state banking sectors whose job it was to channel domestic savings into domestic investment. None matched the financial centres of Britain and the US and the great financialisation of their economies that went with it.
British savings persistently fall short of what is required. Could the British voters be persuaded to accept lower standards of living through higher utility prices and greater savings? This seems a very big ask, and especially when the government is bent on raising taxes on savings and wealth. Higher capital gains taxes are in practice already wealth taxes because they are unindexed. The changes to the pension taxation regime reduce the incentive to save for a pension, and if National Insurance is extended to retired people, it will deter pension savings further whilst at the same time reducing the incentive to carry on working. Inheritance tax encourages spending not bequeathing, something Keynesians might like for its boost to aggregate demand, but in practice a further disincentive to savings and the business sector.
Taking a systems approach
A second step is to plan and coordinate infrastructure on a systems basis. Right now we do little, if any, system planning. Part of the privatisation agenda for the utilities was to break them up into their component parts and introduce competition wherever possible – hence the competitive markets in energy supply, metering and connections, and hence the contracting model on a project-by-project basis for large infrastructure projects. Hence, too, the competitive model for mobiles and broadband, without properly providing for universal coverage and universal services, and even for water.
Amongst the many faults in the way privatisation was set up and subsequently regulated, the atomisation of utilities, to be in effect just ordinary competitive markets, stands out as an enduring mistake. The electricity and gas networks, the water and sewerage networks, and the rail and road networks have core system natural monopolies.
Examples abound of the consequences. Instead of planning and coordinating the electricity grid to shape the location of new electricity generation, it was set up as a passive player, connecting up new generation where the generators wanted to go. It was not proactively encouraged to plan out an offshore electricity grid. The result is that many new wind farms are in the wrong places, and have to be constrained off even when generating. A competitive set of offshore bilateral grid links is the very expensive consequence. Competitive provision of metering, through energy supply companies, has been a disaster, still not complete years after the target date and well behind the European countries, almost all of whom treated metering as part of the distribution monopolies. There was no plan, by design.
Elsewhere, where competition was good at the outset at getting mobile and broadband coverage going, Britain now lags most of its competitors, and the everyday experience of mobile not-spots, the failure to get a signal on trains and the patchy nature of broadband cover reflects this. River catchments are not the core focus of water and sewerage regulation. When it comes to airports and runways there is no planning of the capacity for the South East as there once was.
The scale of the investment requirements dictates that there needs to be coordination of investment and over an extended time period. This requires system planning, including a core catchment approach in water and a whole-energy system approach.
Some of this is getting belatedly recognised, though without the necessary means to achieve it being put in place. The disaggregated competitive model for networks is baked into the institutions and corporate structures put in place at privatisation. System-based infrastructures need system-based regulation, in support of system-based planning. OFGEM, OFWAT and the ORR are not the appropriate way of doing all this, and it is not surprising that the utility-style regulation has helped to produce the sorry outcomes that bedevil Britain’s infrastructure.
None of this implies that competition is not important. On the contrary, in the system-based approach, there is fierce competition for the works necessary to meet the system plans. Competition is intense for the contracts to build power stations, upgrade sewers, maintain pipes and wires, and provide broadband and mobile services. It is competition to deliver required system outcomes, not disaggregated competition determining the outcomes themselves. In a systems regulation model,[2] competition is all the more intense, and because the systems have plans, it is much less wasteful too.
Programme-based investment and capital maintenance
Creating confidence among foreign investors that interest and dividends will be paid and capital returned, alongside system-based planning, sets the scene for the private sector to do the works, even in a nationalised context. In Britain the procurement strategies have tended to be case by case, based upon the sort of cost–benefit analysis embedded in the Treasury’s Green Book. Each contract is for one project at a time, and the emphasis is on the lowest-cost bids for each discrete contract.
This approach has merits across the wider economy, but it is less obviously beneficial in the infrastructure systems. It is not what China does now, and it is not what France and Germany did in the great post-Second World War burst of economic growth. France planned a nuclear build programme, based on a common design, for over 50 nuclear power stations, and coordinated the development of its grid to transmit the electricity generated. Constructors were able to plan their supply chains, invest in the necessary capabilities and build up a workforce. For what was a much smaller French economy then, relative to Britain now, it was at one time simultaneously building six PWRs (pressurised-water reactors). Contrast the British approach. Governments in the 2010s wanted to build four PWRs, trying out four different designs to see how these competing different technologies might perform. The result has been awful – and predictable. Only one twin reactor at Hinkley has been under construction for a decade, might come on stream early in the next decade, and will cost around £50bn. The next one, at Sizewell, is beginning to be built, but again contractors have no idea whether there will be any further large PWR contracts.
Lessons may be learned for the SMRs (small modular reactors) – or not. Will the government let a serious programme of contracts, or will it let “a thousand flowers bloom” and see which turn out to be best in the 2040s and 2050s?
The results of the “one-at-a-time” approach have been terrible. Britain has embarked on an energy policy pathway of relying overwhelming on intermittent solar and wind, with a bit of gas, and has belatedly recognised that it needs something else. Because it is belated, it will all be too late to rescue Britain from its very high electricity costs through the next decade. Without a systems plan for energy, nuclear will all be not only much more expensive, but also much too late.
Radically cut back regulation and administration costs
All of the above would be a radical clarification of the framework for delivering the great infrastructure renewal in Britain. But it would still not be enough to make the overall programme economically plausible. This is because the costs of construction in Britain are greatly inflated by bureaucracy, excess administration and regulation.
Every government for the last 30 or 40 years has agreed on this point, and yet very little has been done to radically cut back regulation. The latest offering is the Chancellor’s commitment to reduce regulation by 25%,[3] with little or no idea of how this might be achieved. Indeed, parallel with this commitment, the government is setting about a radical expansion of regulation in the water industry, including company-by-company supervision, and regional and local government oversight, in addition to the ever-more-complex periodic reviews. In energy, regulation has expanded to require a staff of around 12,000, as additional regulatory bodies are added on top of existing ones.
This overarching and structurally growing regulatory burden is overlaid with delayed regulation of construction. Closing a road is an immense bureaucratic undertaking, as are the ESG (environmental, social and governance) and other requirements that successive governments have laid onto contracting.
The result is plain to see. On most construction sites in Britain, the overwhelming feature is how little construction actually takes place. Additional regulatory and administration costs all get added into the bid tenders, and all end up causing both longer time periods between decisions, contracting and outcomes, and much higher costs.
CAPEX realism and its consequences
With infrastructure, the consequences of failures are slow until they are not. Potholes get bigger and bigger, and suddenly roads have to be closed. Rivers gradually deteriorate and then the pollution becomes overwhelming. Droughts happen and suddenly it’s standpipes that may be needed. Out of the blue, power systems fail from cyber attacks and the instability that comes from adding lots of intermittent capacity without properly building in the system supports.
Will there be a sudden day of reckoning? Probably not, though none of the above is implausible. Continued neglect in the name of affordability (and the performance politics of prioritising short-term customer bills over investment) is undermining not just our daily experience of Britain’s infrastructures, but the British economy itself. It is a major reason why productivity is so poor. The past borrowing from the financial crisis back in 2007/08, the Covid pandemic and the energy bill subsidises when Russia invaded Ukraine (and again now) have left the government with little room for manoeuvre. Britain has been living beyond its means for a long time, and eventually it will inevitably catch up with us all. Indeed, it already is.
Every day the lack of decisions about projects makes the consequent challenges much greater. CAPEX realism is double-edged. The projects currently listed by NISTA are not all going to happen, because they are not in aggregate all affordable; but the failure to do them reduces the economic prospects and hence makes affordability even worse. More dithering is an inevitably costly strategy.
[1] See National Infrastructure and Service Transformation Authority (2026), “Infrastructure pipeline”, March 2026.
[2] See Helm, D.R. (2019), “The systems regulation model”, 12th February.
[3] HM Treasury (2026), “Chancellor John Healey’s Growth Speech 2026”, 7th September.
