The importance of social infrastructure today

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In partnership with Equitix, we examine how social infrastructure delivers stable returns while facilitating the essential public services that communities depend on

Infrastructure often inspires visions of giant skyscrapers, bridges built by Brunel, and grand Victorian hotels. But for the UK in the 21st century, it’s also considered a key driver of growth.

Nothing underlines this more than the UK government’s 10-year Infrastructure Strategy. Published in June last year, it marks a significant shift in how the country approaches long-term investment in public services and community well-being.

As part of this, the government has outlined a £725 billion plan to modernise and expand essential services, including rebuilding and refurbishment projects across sectors such as healthcare, education and justice.

The UK’s social infrastructure has become a critical pillar of the UK’s growth strategy – and one which presents an investment opportunity for the LGPS, meeting long-term financial objectives alongside tangible place-based impact.

What is social infrastructure?

In the most basic terms, social infrastructure refers to physical assets that deliver essential public services and support societal wellbeing.

These can include education spaces such as school buildings and student accommodation, healthcare facilities like hospital and GP surgeries, community health centres, assisted living accommodation for the elderly and people with mental health needs, social housing, and community facilities including libraries and sport and leisure centres.

It is important to clarify the distinction between social and economic infrastructure. While economic infrastructure underpins commercial activity and productivity, social infrastructure is defined by its core purpose – serving social outcomes such as quality of life and wellbeing.

Investment in social infrastructure is typically identified as being long-lived, underpinned by contractual arrangements with strong counterparties, such as governments and universities, and with predictable cash flows in return for ensuring asset availability.

What do investment models in this sector look like in practice?

There are various investment models in the sector, many of which are a form of public-private partnership (PPP). One such example is the private finance initiative (PFI) model.

Initially launched by the John Major government back in 1992 before being heavily expanded by New Labour in the late 1990s and early 2000s, the PFI model saw private firms finance, build and operate public infrastructure with the government repaying them over time.

Over the course of almost 30 years, PFI contracts delivered more than 700 UK infrastructure projects ranging from new schools, to hospitals, military accommodation, roads and housing.

As with other forms of PPP, the PFI model transferred delivery, cost and performance risk to the private sector, reducing risk of overrun and delays for the public sector.

Another example of PPP is the Local Improvement Finance Trust (LIFT) programme – a model involving joint public and private ownership of healthcare assets.

Set up in 2001, the LIFT programme was designed specifically for the development of quality, modern primary care and community health infrastructure with LIFT companies being owned 40% by the public sector and 60% by the private sector.

The programme is focused on localised control and alignment with community health outcomes. Just under 9 in 10 LIFT projects are in areas with above-average health needs and 40% of investment made through the programme was in the 10% most deprived local communities across England.

Scotland, meanwhile, has the Scottish Futures Trust – a non-departmental government body set up in 2008 specifically to boost future public infrastructure investment.

Scottish Futures Trust established the Scottish Hub Programme which operates across five territories where public bodies, such as NHS boards and blue light services, come together and appoint a private sector development partner to form a joint venture company – known as a hub company – to deliver new community facilities.

The initiative uses what’s known as a Design, Build, Finance and Maintain (DBFM) model.

In practice, a public sector organisation identifies a public investment need, sets out performance specifications, and then issues a tender for private sector consortia to bid, with one being selected as the preferred partner for the project.

These consortia are made up of several types of private businesses, which can include construction partners, facilities management organisations, and investors – the latter of whom provides upfront capital for the project.

Once a consortium is selected, a DBFM contractual framework is agreed which sets out key parameters such as design standards, maintenance requirements, and payment terms.

Like other types of PPP model, payments are made to the private sector that cover the cost of financing the asset, plus ongoing maintenance and service charges over the life of the project.

There are also circumstances where a private partner keeps any operational revenue generated by a project. Under the Hub model, the public sector shares project profits alongside other shareholders in line with their respective equity share.

In Wales, the Mutual Investment Model (MIM) draws on lessons learned from PFI and LIFT, with the public sector holding a minority equity stake in projects and a particular focus on social value during the construction phase.

It is understood that any new PPP model in the UK will be heavily based on the MIM approach.

Why is social infrastructure investment relevant today?

The answer flows from one central conundrum the government is desperate to tackle: the continued demand for further investment in infrastructure to meet the UK’s evolving social needs.

These include rising demand on healthcare services, an ageing population and a mental health crisis; skills gaps, regional inequalities and curriculum reform in education, a chronic housing shortage and affordability crisis; and increased pressure on social services from youth support to elderly care.

And, while various PPP models have enabled large-scale infrastructure without public capital, it was announced back in 2018 by then-chancellor Philip Hammond that the UK government would no longer be using PFI for new infrastructure projects.

This effective moratorium on the use of PPP models to fund essential infrastructure has only served to increase the need for an effective solution, given the chronic lack of investment that has followed.

For example, the original PFI programme delivered nearly 100 hospitals in less than a decade throughout the early 2000s. By comparison, the non-PFI New Hospital Programme announced 6 years ago has so far only delivered a handful of projects, and based on current projections, is only expected to deliver around 45 hospitals over a 25 year period.

Despite the so-called ‘end of PFI’ in 2018, there are still more than 500 long-term contracts that remain operational – most of which start to expire throughout the 2030s, presenting both a challenge and an opportunity for the future of social infrastructure.

While most PFIs are well maintained due to prescriptive and ongoing operational requirements, as well as strict criteria for asset condition at the point of hand back to the public sector, managing the transition of these assets into 100% public ownership could represent a significant cost challenge to government.

During the current parliament, approximately 150 PFI contracts with a capital value of £6 billion are set to expire and be handed back to the public sector. This equates to approximately 20 to 30 assets being handed back per year. Without sufficient preparation and appropriate expertise to manage the hand back process, there is a risk of serious disruption to essential public services, particularly in healthcare, education and housing.

At present, there’s currently no consistent government policy to address this. However, rather than viewing this as a problem to be solved, investors are seeing this as an opportunity to catalyse innovation, fresh investment, and even more effective delivery models.

Social infrastructure in the pipeline

Out of the UK government’s headline £725 billion commitment to infrastructure, at least £9 billion has been earmarked for renewing public estates – with a primary focus on “reversing decades of underinvestment” by addressing maintenance issues at schools, hospitals, and courts.

The aim is not just about physical upgrades but also the creation of resilient, equitable communities by facilitating access to opportunity, civic participation, and regional regeneration.

The UK government also aims to stabilise the infrastructure pipeline, giving investors and delivery partners the confidence to engage in long-term, investable projects – a priority that certainly aligns with the priorities of the LGPS.

The 10-year infrastructure strategy hints at possible use of PPP models for funding projects related to decarbonising the public estate, as well as neighbourhood health centres and other primary care infrastructure.

The strategy leaves open the possibility that PPP models could be considered on a broader basis, but subject to consideration on a case-by-case basis.

In light of the UK government’s Mansion House Reforms, which of course pushes LGPS to make ‘local’ investments, the time is right for a new wave of social infrastructure investment – as long as there is an appropriate and attractive funding model.

With the LGPS managing more than £400 billion in pension assets, the government is encouraging greater investment in productive assets such as affordable housing, healthcare facilities, and education infrastructure.

Work by The Good Economy reinforces this, with their report – developed collaboratively with both LGPS pools and administering authorities – setting out a framework to guide the development of local, place-based investment strategies.

The report argues the UK needs a strong domestic economy rooted in inclusive, long-term growth – and positions social infrastructure as a key vehicle for achieving this.

How can social infrastructure investment support both communities and portfolios?

The will, need, intent and necessity are clear, but how do these projects play out in practice and what benefits do they offer for an investor’s portfolio?

Overall, the delivery of social infrastructure via PPP models can be recognised for its ability to facilitate access to critical services at large scale while providing predictable, stable returns for investors.

Such critical projects are recognised by Equitix, who has the largest number of social infrastructure assets in the UK market. Their portfolio companies support communities by providing over 12,000 healthcare beds, 80,000 school pupil places, 15,000 social housing dwellings, over 16,500 student beds and 1.4 million streetlights.

The New Papworth Hospital in Cambridge is one such example that supports both communities and portfolios. This is an asset in Equitix’s social infrastructure portfolio which was funded through the PFI model and became operational in 2019, providing specialist heart and lung care, as well as being a transplant centre of excellence.

It is an asset that is operated in partnership with the Royal Papworth Hospital NHS Foundation Trust NHS, Skanska, OCS and Equitix – making it a true PPP. The concession runs until 2048.

Equitix has a much greater involvement in owning critical healthcare assets across the UK, with further examples including the Capital Hospitals project in London and Forth Valley Royal Hospital in Larbert, Scotland.

Capital Hospitals is a PPP involving The Royal London and St Bartholomew’s Hospital which are operational under concession until 2048, while Forth Valley is a 30-year concession notable for being one of the most advanced and well-equipped hospitals in Europe.

Pritchatts Park, a £200 million transformation project, delivered through a long-term partnership between Equitix, Equans and the University of Birmingham, has created a state-of-the-art, low-carbon student accommodation campus that meets both the evolving needs of students and the wider community.

The project entails more than 1,200 student beds, including 496 new energy-efficient rooms and 734 refurbished rooms, as well as 13 fully accessible rooms. These rooms are heated entirely by air-source heat pumps, drawing electricity from 100% renewable sources, as well as rooftop solar PV generating more than 100,000 kWh of energy annually.

Supporting Equitix’s asset management approach, the intelligent use of data and analytics is helping play a role in assessing opportunities to further enhance asset performance in areas such as decarbonisation.

Equitix has worked in partnership with AtkinsRealis, a consultancy firm with expertise in infrastructure and decarbonisation, to assess decarbonisation options across segments of its social infrastructure portfolio.

The proactive assessment of cost and carbon impact arising from refurbishment projects helps to prioritise where potential investment is required as part of delivering even more affordable, secure and resilient critical services.

The 10‑year infrastructure strategy is notably silent on the potential to extend existing PPP concessions. Yet across the industry, there is a growing view that this option deserves serious consideration. Extending concessions could help smooth the operational and financial risks associated with handback, reducing the likelihood of service disruption. It may also offer a pragmatic mechanism for unlocking further investment, operating alongside the new generation of PPP models.

From an investment perspective, social infrastructure continues to be appealing as a source of stable, predictable cash flows. This is primarily because social infrastructure assets such as hospitals and schools are underpinned by long-term contracts with public sector counterparties and remain operationally essential, regardless of market cycles.

Added to this is the fact that many social infrastructure contracts are explicitly indexed to inflation – offering built-in protection during periods of rising prices.

As unlisted, real asset-backed investments, social infrastructure tends to have a low correlation with equities and bonds – enhancing portfolio diversification and reducing systemic risk.

Alongside this, demand for healthcare, education, affordable housing and elderly care is growing – driven by demographic shifts and public policy priorities. This, in turn, ensures long-term relevance and utility – even as other sectors face disruptions.

And there are areas ripe for continued growth going forward, most notably in housing including in areas such as social housing and student accommodation, as well as the neighbourhood health centres and decarbonisation opportunities specifically highlighted in the infrastructure strategy.

Due to evolving trends in student populations and the chronic shortage of affordable housing, purpose-built student accommodation (PBSA) is now commonly seen as a social infrastructure asset.

PBSA projects often include a ‘nomination agreement’ in which the university commits to nominate a certain number of students into specified accommodation every year. Like other social infrastructure assets, PBSA is another opportunity for investors to access stable, inflation-linked returns.

All in all, institutional capital in this sector reached £750 million in the first quarter of 2025 – with occupancy rates exceeding 97% in key cities.

This is just a small slice of the opportunities opening up in the broader accommodation sector, particularly in affordable and social housing.

The government has committed £39 billion over 10 years to expand affordable housing, with an ambition to deliver 1.5 million new homes by 2030. This has opened the door for hybrid financing models, including social impact bonds, pension fund investments, and joint ventures with housing associations.

Building a collaborative response

Social infrastructure is an exciting and much needed aspect of the infrastructure asset class, with a long-established track record of delivering successful outcomes. It sits at the intersection of public need, policy ambition, and investor appetite for predictable cash flows.

The UK government’s £725 billion infrastructure commitment has provided both the mandate and the basis for a credible investment pipeline, while an increased focus on place-based, local investment demands suitable projects to come to market.

For investors such as the LGPS, the case is particularly compelling. These are assets that deliver stable, inflation-linked returns over long time horizons, backed by public sector counterparties and insulated from the volatility that characterises much of the listed market.

Beyond the financial mechanics, social infrastructure investments speak directly to the broader obligations and ambitions that pension funds carry – delivering for members while investing in the communities in which they live and work.

The ingredients are all present. Government commitment exists, but needs to go further. LGPS obligations point in the right direction. And projects like the New Papworth Hospital demonstrate that these investments deliver when they get off the ground.

The challenge is that the PPP pipeline has not yet developed the scale or structural sophistication that institutional investors need. While it is encouraging that the moratorium on new PPP has been lifted with the 10-year strategy, it is widely acknowledged that it needs to go further. The government needs more ambition to achieve its goal: to deliver the desperately needed investment into social infrastructure.

What exists is promising – genuine local demand, pockets of real activity – but without a coordinated PPP programme of comparable ambition to what has gone before, it remains fragmented and difficult to access meaningfully.

That is not a problem fund managers or the LGPS can solve alone. The question the market now needs to answer is who will take responsibility for developing PPP pipeline opportunities to the level of sophistication that investors require – and until that happens, the gap between ambition and deployment will continue to persist.