The Regional Effects of Experience with the Private Finance of Transport Infrastructure: Some Evidence from the UK

Private finance of transport infrastructure, either through direct private provision or through public-private partnerships has developed rather further in the UK than in most European countries over the past two decades. It is appropriate to consider what lessons can be drawn from this experience. In particular, does the emphasis on private finance lead to a bias in the spatial allocation of investment and what are the consequences of this. The paper discusses a theoretical framework which identifies the importance of the contractual structure for private finance. This shows how in the presence of asymmetric information it is difficult to achieve the expected shifting of risks to the private sector. Given the complexity of such contractual structures, although transactions costs become more transparent, they may also be expected to be higher than in a vertically integrated public sector provider. The benefits may thus depend on the private sector being able to manage the process of investment and introduction into service more efficiently than traditional public sector transport providers. This paper reviews the UK experience in terms of developments of the national air, rail and road networks and local public transport (especially light rail systems). The paper highlights the variety of methods of introducing private finance and assesses these against the criteria of risk bearing, transaction cost reduction, and efficiency in delivery. The key problems are identified as relating to the treatment of network effects and the vertical separation of infrastructure and service (unbundling). The framework is then used to assess the extent to which private sector provision impacts on regional development either positively, by advancing the provision of infrastructure which can provide wider benefits, or negatively by becoming a drag on future development by imposing higher costs of infrastructure usage and maintenance. It becomes clear that a distinction needs to be drawn between infrastructure which is mainly used for intra-regional transport and that which has an inter-regional or international dimension.