In March, the Government provided an update on its New Towns strategy following its response to the New Towns Taskforce report of September 2025. But there is a major unanswered question: how will the infrastructure needed to support these New Towns actually be financed?
The Infrastructure Challenge
Roads, rail, utilities, schools and other infrastructure must be built before homes are occupied, creating a substantial financing challenge. It has been estimated that the infrastructure cost per New Town of 10,000 homes is in the region of £4bn. Some of the New Towns are expected to have more than 40,000 homes, which will drive up infrastructure costs considerably. Furthermore, infrastructure often has to be delivered at a larger scale to generate a positive net present value for the project. My own estimates (from assessing projects across city-regions where demand for housing is high) indicate upfront infrastructure costs are likely to be between £4bn-£13bn.
Although there has been no specific announcement on how the Government is planning on funding and financing the seven announced New Towns, it did announce its infrastructure strategy in June 2025. This implies the use of a mixture of Government grants, as set out in the Spending Review, alongside Public Financial Institutions such as the National Housing Bank (NHB).
The core problem for any Government trying to fund infrastructure is to solve for the “maturity mismatch problem”, and to do it without damaging the public finances. New Towns require billions of pounds of investment upfront, but many of the revenues they generate only arrive over decades.
Various solutions to this problem have been successfully deployed since the 19th century, when public corporations issued long term debt backed by identified hypothecated cash flows to pay back the bond holders.
A Proven Financing Model
For example, 40-year bonds were issued by the Metropolitan Board of Works to finance Bazalgette’s sewer system for London. The Central Electricity Board in the 1920s issued debt at similar maturities to pay for the National Grid. The post-war New Towns borrowed at 40-year maturities from the Public Works Loan Board during the 1950s and 1960s.
This method has been copied widely across Europe since. The Oresund Bridge linking Denmark and Sweden issued debt with a payback period of 50 years, building out between 1995 and 2000. When Paris embarked upon the Grand Paris Express (a major project to improve public transport and open up new areas for housing) in 2010, they issued debt of up to 40 years.
In all these cases, the infrastructure was delivered swiftly and bondholders were paid back from long term hypothecated revenue streams. Typical revenue streams include land value capture from selling plots with planning permission, business rates and revenue from car parks, affordable housing, transport and utilities.
This approach also improves the public finances. It delivers infrastructure (which is vital to boosting productivity growth) while not placing any claims on future tax revenues. Instead, because these projects generate their own long-term revenues, they can repay the borrowing that was required to build them. This reduces the need to issue sovereign debt, maintaining lower government borrowing costs for current government expenditure.
Why the Government’s Strategy Falls Short
Despite the successful use of this mechanism to build large swathes of the UK’s infrastructure, governments since 1992 have pushed for a combination of government grants in conjunction with loans and subsidies to enable private projects to get off the ground. But this approach struggles to solve for the “maturity mismatch problem” (where projects have high short-term costs with longer term revenue streams) – hence the Rachel Reeves’s decision to propose a Public Private Partnership for New Towns. This approach will come up against significant barriers.
First, the increased capital investment earmarked in the 2025 Spending Review for Ministry of Housing, Communities and Local Government (MHCLG) and Department for Transport (DfT) already appears to already be allocated: the bulk of the additional MHCLG grant will support the Social and Affordable Homes Programme while £15.6 billion has been allocated to transport for Northern elected mayors. Hence, it is highly unlikely to be allocated to New Towns.
Second, there is very limited fiscal headroom for the Government to issue more gilts. With Government debt to GDP close to 95%, gilt investors are increasingly wary of further issuance given the declining demand for gilts. This is one reason why gilts have become so volatile in the face of external shocks – and also explains why so few European governments use this approach for infrastructure.
Third, although the Government’s Infrastructure Strategy allocated £16bn of financial capacity to the NHB (a mixture of loans, equity and guarantees) the Treasury’s own forecast for the use of Financial Transactions (Table B4) from now until 2029-30 indicates MHCLG will only use £5.4bn of capacity, while the Department for Transport will use none. The Government only expects to use a third of the capacity of the NHB. This will also mean the amount of private sector capital that can be crowded in will be significantly lower, and insufficient to allow a PPP approach to work. There is also little evidence that similar arrangements through Private Finance Initiatives have delivered good value for money in the past.
The current approach is therefore wholly unsuited to delivering the upfront public infrastructure the New Towns need if they are to be successful. There is not sufficient grant funding available, and the Government’s public private partnership (PPP) does not work at scale by the Treasury’s own admission. Where the PPP approach can work is for small-scale private projects that need a government subsidy to get off the ground. An example is the redevelopment of Brent Cross, where the developer was provided with a £100m subsidised loan alongside a £500m grant and a £140m Homes England loan to enable more than 6,000 new homes. But it would not work for 40,000 homes.
A Better Way Forward
This is why a group of investors managing about £2 trillion in assets wrote to Rachel Reeves in February, expressing their interest in buying public corporation debt to pay for New Towns including along the OxCam arc. These bonds provide good returns for investors, will help drive productivity growth, and place less pressure on the public finances, as they are self-funding.
Yet rather than doing what has worked well elsewhere, and in the UK in the past, the stated approach will struggle to scale, place greater pressure on the public finances and keep gilts volatile during periods of stress. Unless the financing model changes, the Government risks repeating a familiar pattern: ambitious plans that never achieve the scale originally promised.
This article is reproduced here with the kind permission of the Bennett School of Public Policy, on whose website an original version appeared in April 2026.
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