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Buried in the supporting documents of last December鈥檚 pre-Budget statement was an announcement that could turn out to be the single most important policy change of the year. The creation of Infrastructure UK 鈥� the merging of a number of different bodies with the Treasury鈥檚 PFI team 鈥� could herald a radically different approach to the financing and planning of infrastructure in the years ahead. Instead of looking at piecemeal ways to fund individual PFI and PPP projects, the new organisation has been charged with plotting a 40-year course for the country鈥檚 infrastructure.

The man at the Treasury ultimately responsible for it all is Ian Pearson, the economic secretary. We meet a few short weeks before a Budget which, as well as presumably kickstarting an election campaign, will also contain some serious policy. Included in the chancellor鈥檚 speech will be Infrastructure UK鈥檚 diagnosis of where the country is at in terms of infrastructure 鈥� road, rail, energy, utilities 鈥� and what needs to be done to get it on track. Most speculation has focused on the potential setting up of a government-backed 鈥渋nfrastructure bank鈥�, but there is also the possibility that moves will be made to bring institutional money 鈥� mainly pension funds 鈥� into the sector. So how does Pearson see these changes coming about?

The amount needed to fill the gaps in UK infrastructure is estimated at anything up to 拢500bn over the next 10 years. Despite Pearson鈥檚 claim that Labour has marshalled a public and private investment of 拢1.25trillion (拢1,250bn) in infrastructure in the UK over the past 13 years, the holes aren鈥檛 hard to spot. Predictions that the country鈥檚 energy network will struggle to meet demand from 2016 onwards are the most obvious signs of a crisis in this area, but equally pressing is the need to update existing infrastructure to meet the government鈥檚 incredibly ambitious carbon emissions target. Add to that the expressed desire of all political parties to bring the UK in line with continental Europe with a new high-speed rail network, and the scale of the challenge is clear.

Pearson is frank about it. 鈥淲e all know that much more needs to be done,鈥� he admits. 鈥淚鈥檝e always believed that to compete successfully in the long term we have to have a world-class infrastructure.鈥� So far, so much motherhood and apple pie. But at least Pearson can fairly claim to have a governmental track record that speaks of an understanding of these issues. His first major assignment was as Northern Ireland minister (2002-2005), where he pushed through the province鈥檚 infrastructure strategy. As trade minister he did a large amount to sell the PFI model internationally, and, possibly most significantly, he signed off construction of the 拢2.2bn Thames Tideway tunnel as environment minister in 2007.

But that was then. We鈥檙e in a different world now, with a ballooning public debt and private financing markets that have lost all appetite for risk. Surely talk of building 拢500bn of infrastructure is exactly that 鈥� just talk? Pearson disagrees: 鈥淥ver the next 10 years,鈥� he says, 鈥渨e can actually do even better in what鈥檚 going to be a tight fiscal environment. That鈥檚 got to mean using government capital resources as efficiently as possible. It鈥檚 going to require ensuring we鈥檝e got the right environment for private sector investment in infrastructure, and it鈥檚 going to need innovative funding mechanisms.鈥�

The most widely speculated upon innovation, following a story in 好色先生TV in January, has been the idea of an 鈥渋nvestment bank鈥�. 鈥淚 can safely tell you we鈥檙e looking at a number of options,鈥� he says, 鈥渋ncluding some form of state investment bank. I鈥檓 very clear there is a need to ensure the right financing mechanisms are in place to deliver the infrastructure we need.鈥�

What this means, in non-politico speak, is that we are likely to see some form of financial institution announced to support infrastructure, but it probably won鈥檛 take the exact form of a bank 鈥� in part because of the regulatory implications that would have, and in part because of a sense that banks aren鈥檛 the most popular institutions with the electorate right now. Pearson admits that Sunday newspaper speculation that the government has been studying the model of KFW in Germany 鈥� a bank set up under the Marshall plan to reconstruct the country after the Second World War 鈥� is correct, but cautions against reading too much into it. 鈥淲e need something directly appropriate to the UK鈥檚 circumstances,鈥� he says. So for the moment, exactly how the institution will work is being kept under wraps.

However, government sources suggest Infrastructure UK鈥檚 Budget report will include five key recommendations. As well as the bank that isn鈥檛 a bank, there will be recommendations about how to get pension funds in particular to invest in infrastructure. Before the credit crunch, pension funds used financial instruments called monolines to control the risk of investing in infrastructure schemes. Monolines were effectively wiped out by the crash, so pension funds, which will only generally invest in triple-A rated schemes, have largely exited the market. Officials are clear that the setting up of some other kinds of intermediaries that allow pension funds to reduce their risk, particularly during the construction phase of infrastructure projects, is high on the agenda.

The obvious concern though, about all these plans, is what happens under an alternative government. Tory shadow chancellor George Osborne has been making noises about restricting the PFI model, saying schemes haven鈥檛 ended up transferring enough risk to the private sector, but Infrastructure UK seems to take the continuance of public-private partnership vehicles as a given.

Pearson isn鈥檛 so worried about this 鈥� he thinks Tory noises on PFI are just electioneering, and that PPPs will continue under one name or another with any government. But he is concerned about the Tories鈥� proposals for the planning system, particularly the possibility of giving neighbours of a development the ability to appeal decisions. He says: 鈥淚 have some strong concerns about whether it would produce gridlock when it comes to major infrastructure projects.

I鈥檓 just not convinced they鈥檝e thought this through properly.鈥� It鈥檚 a fear shared by many in the construction industry.

The exact details of the infrastructure package in the Budget will not be known for a couple of weeks, and the extent to which they will be supported by an incoming Tory administration is likewise unknown. But it is surely rather heartening that, through Pearson, an administration as long in the tooth as this one is at least willing to look at trying things differently.