The UK is heading towards an infrastructure spending shortfall of £700bn by 2040, with £1.6tn of projects currently unfunded, according to a report by EY-Parthenon, EY’s global strategy consulting arm.

The report – Mind the (investment) gap: funding and delivering capital projects amidst fiscal constraints – attributes the funding shortfall to a combination of economic headwinds.

It finds that persistently high levels of inflation, rising cost of capital and expanding government balance sheets following Covid-19 have significantly increased the cost of capital projects while leaving many governments with less money to spend.

In the UK, for example, there are £1.6tn of unfunded programmes and projects up to 2040. According to EY analysis, only around £900bn of these will be covered by government funding under the current fiscal outlook, leaving at least a £700bn shortfall.

Based on EY projections, meeting the remaining shortfall without government spending would require private sector investment...