Research and analysis

RPC opinion: impact of Highways (Financing) Bill

Published 2 October 2026

Lead department: Department for Transport

Summary of proposal: the bill aims to support the delivery of the government’s commitments on road transport infrastructure and leverage private sector investment

Submission type: options assessment

Legislation type: primary

RPC reference: RPC-DFT-25113-OA(1)

Date of issue: 29 January 2026

RPC opinion

Fit for purpose

The options assessment (OA) identifies 3 market failures and provides suitable objectives, which follow the SMART framework. The OA has considered a long-list of 6 policy options, alongside sub options. The department has used SMART objectives and critical success factors as part of the long-list and short-list appraisal. The regulatory scorecard provides a satisfactory discussion of potential impacts on business and government priorities, but this should be further evidenced and expanded to include household impacts.

RPC summary

Rationale: Green

The OA provides a clear explanation of the underlying issue the proposal seeks to address. The OA describes 3 market failures: inefficient resource allocation, quasi public good constraints and missing markets. The OA provides suitable objectives, which follow the SMART framework, but the first objective could be improved by being more specific.

Identification of options: Green

The OA has considered a long-list of 6 policy options, alongside sub-options, but should explain further how the long-list was generated. The OA considers 3 non regulatory options at long-list stage. The OA provides a sufficient small and micro business assessment – the anticipated impact on small and micro businesses under this framework is not expected to differ materially from delivery via public provision.

Justification for preferred way forward: Green

The OA provides a proportionate assessment of the impacts, recognising that the primary legislation establishes a framework rather than imposing immediate obligations. Option 4 provides better value for money than Option 4C because it does not need a new regulator to be set up.

Regulatory scorecard: Weak

The impact on total welfare is uncertain. The department has not provided a net present social value or equivalent annual net direct cost to business. The department has used the Lower Thames Crossing as a case study to illustrate the potential impacts resulting from using regulated asset base as a financing approach. The preferred option is expected to have a positive impact on businesses and support the government’s commitment to economic growth, which requires further evidencing. As the OA references the potential for greater value for money for road users and taxpayers from the regulated asset base model, the regulatory scorecard should include impacts on households.

Monitoring and evaluation: Satisfactory

The department intends to conduct both scheme-level evaluation and system-level evaluation. If secondary legislation is brought in for this framework, a post-implementation review will be considered on a case-by-case basis.

Summary of proposal

The bill aims to support the delivery of the government’s commitments on transport infrastructure and leverage private sector investment. A regulated asset base model is a way for the government to encourage private companies to invest in big infrastructure projects such as energy, airports and water/sewerage by giving them a stable, long-term way to earn back their investment plus a fair profit.

How it works:

• an independent regulator sets clear rules (by issuing a licence accompanied by a regulatory regime) about how much money the private company can make from the project – based on their investments and an allowed rate of return
• the company is allowed to charge users (for example, through tolls or user fees) to recover the money it spent building and maintaining the infrastructure, plus a reasonable return
• the regulator checks that the charges are fair for users and that the company is operating and maintaining the infrastructure efficiently

The OA has considered 2 short-list options for intervention:

• option 4 – preferred - this option enables a regulated private sector company to finance and build new Strategic Road Network (SRN) road capacity (and existing connected roads) and to collect revenue from user charges under an economic licence - the economic licence and user charging regime would be established and regulated by an independent economic regulator - the proposed legislation will establish the Office of Rail and Road as the independent regulator and provide powers to a private sector company to charge and act as a Highways Authority
• option 4C – This is the same as option 4 with the exception that an entirely new regulator is established

Option 4 provides better value for money than Option 4C because it does not need a new regulator to be set up. No overall impacts have been monetised at this stage and the department has not provided a net present social value or equivalent annual net direct cost to business.

Rationale

Problem under consideration

The OA provides a clear explanation of the underlying issue the proposal seeks to address. It identifies the strategic importance of England’s road network, particularly the strategic road network (motorways and major A roads), and links congestion and operational constraints to economic impacts such as lost time, reduced productivity, and higher costs for users. This establishes a credible rationale for intervention.

The department sets out the limitations of the current legislative and delivery framework, explaining why existing models restrict private investment and why this matters for achieving government objectives. The OA could be improved by explaining why road transport investment may not receive adequate government priority and providing quantitative evidence on the scale of the problem, for example statistics on the lost time due to congestion.

Argument for intervention

The OA describes 3 market failures: inefficient resource allocation, quasi-public good constraints and missing markets. The department defines each of these market failures and describes them in relation to the market for roads infrastructure.

The OA includes a brief statement regarding the approaches of some other countries in Europe and Australia, but these examples could be strengthened by providing a more detailed case study for each and including a direct comparison between these markets and the UK’s.

The department has considered other UK infrastructure projects that have used the regulated asset base model. The department does well to consider the delivery risks associated with the Thames Tideway Tunnel, but would benefit from expanding the discussion of issues with other examples, such as Heathrow Terminal 5.

The discussion of fiscal constraints and risk allocation is relevant and strengthens the case for exploring alternative funding approaches.

Objectives and theory of change

The OA sets out 3 suitable policy objectives – to enable an additional route to delivery of road infrastructure, to provide clarity and transparency for private sector to invest in road infrastructure, and to provide appropriate user protections. These objectives follow the SMART framework. The department could improve the first objective by being more specific, explaining why a wholly new approach is needed and strengthen the policy objectives by providing examples of specific metrics to demonstrate the measurability.

The OA helpfully includes a diagram that outlines how the regulated asset base framework will operate when it is established, alongside a logic model. The OA would benefit from including a theory of change diagram that shows the inputs, activities, outputs, outcomes and impacts.

The department links the intervention to wider departmental priorities. The intervention supports the government’s long-term missions, as set out in the Plan for Change and aligns with the priorities of the UK Infrastructure 10 Year Strategy.

Identification of options

Identification of the ‘long-list’ of options

The OA presents 6 long-list options, alongside sub-options, and in addition to the counterfactual, but could explain further how the long-list was generated. The long list contains a broad range of both regulatory and non-regulatory options, which have been identified clearly in Table 2 of the OA.

The OA would benefit from using the Green Book’s Strategic Options Framework Filter to demonstrate how scope, solution, delivery, implementation and funding was considered when constructing the long-list.

The scope of the new infrastructure is highway capacity on the strategic road network and existing highways connected to the new infrastructure. The OA should explain why existing highways not connected to new infrastructure are out of scope.

Consideration of alternatives to regulation

The department has considered 3 non-regulatory options at long-list stage:

• hybrid public private funding via contractual governance model
• performance based contracts
• bonds (green investment bonds)

The OA links the rejection of alternatives to regulation directly to the SMART objectives in line with the Better Regulation Framework expectation to consider alternatives even at a high level. The department states that all 3 of the non regulatory options fail to provide an additional route to delivery and therefore were discarded at long-list stage.

Justification for the short-listed options

The department has used a scoring system to assess the extent to which each long list option meets the SMART objectives. Where an option has been discounted at the long-list stage and has not been carried forward to the short-list, the OA provides a qualitative explanation of why the option would fail to meet the objectives.

The OA presents 2 short-listed options, including the preferred option (option 4 – full private delivery with full economic regulation by Office of Rail and Road and regulated company powers to act as highway authority and to charge road users) and option 4C (as option 4 but establish a new regulator). The department details these options in the OA and appraises them against Green Book Critical Success Factors and the policy’s SMART objectives.

The department should include the ‘business as usual (do-nothing)’ option within the short-list.

Small and micro sized business and medium-sized business assessment

The OA provides a sufficient small and micro business assessment but could benefit from including quantitative evidence to support the narrative. The OA explains that the regulatory options are not expected to impose direct costs or obligations on small and micro businesses at the point of enactment. The legislation applies only to the regulated entity, which will finance, construct, operate, and maintain the infrastructure. Given the scale of capital and operational requirements, this will be a large organisation.

Small and micro businesses may participate as subcontractors, suppliers, or users of the infrastructure. However, these roles do not create regulatory obligations under the economic regulatory regime. Any potential impact would arise only at scheme implementation, for example, if road user charges were set at levels that disproportionately affect certain user groups, such as freight operators, many of whom are small and micro businesses. The regulator will monitor and address disproportionate impacts through its charging framework and enforcement of fairness principles.

The anticipated impact on small and micro businesses under this framework is not expected to differ materially from delivery via public provision. The OA would benefit from considering whether there could be any benefits for small and micro businesses as a result of this legislation.

Justification for preferred way forward

Identifying impacts and scale

The OA provides a proportionate assessment of the impacts, recognising that the primary legislation establishes a framework rather than imposing immediate obligations. Impacts are largely contingent on future secondary legislation and scheme-specific details, meaning monetisation is currently limited and headline net present value and equivalent annual net direct cost to business values are not provided.

The appraisal appropriately sets out indicative estimates where feasible and explains underlying assumptions transparently. The approach aligns with Regulatory Policy Committee guidance for primary legislation, with further quantification and detailed analysis to follow in subsequent assessments. The legislation is permissive and expected to deliver net benefits to business, as costs will only arise where firms anticipate gains.

Appraisal of the shortlisted options

The department has outlined the considerations made when selecting the counterfactual; providing a conservative and credible basis for comparison, avoiding overstating benefits by assuming delivery would occur under existing mechanisms. The department should clarify that the policy does not imply that all new major road infrastructure will use road user charges.

The department uses an extended appraisal period of 60 years, starting in 2027, as regulated schemes delivered under this framework will remain subject to ongoing oversight. This aligns with the appraisal period of comparable legislation, such as the nuclear regulated asset base model.

The OA appraises the direct impacts of establishing the legislative framework. All other impacts have been appraised as indirect, as they relate to the potential future use of the regulated asset base model and are not directly attributable to the legislation itself. General scheme benefits are assumed to also occur under the counterfactual of public delivery.

The direct impacts include:

• familiarisation costs for affected stakeholders
• any immediate administrative, personnel or procedural changes required to operationalise the framework

The department has used the Lower Thames Crossing as a case study to illustrate the potential impacts resulting from using regulated asset base as a financing approach.

These impacts include:

• protection of road users interests in the absence of public ownership
• enhanced cost scrutiny via regulatory oversight
• improved transparency and accountability in delivery
• familiarisation costs for the regulated entity

However, it is not clear that all of these - especially the first - represent impacts assessed against the public delivery counterfactual.

The department has described the evidence gaps and uncertainties within the OA, as well as expressing a commitment to address these evidence gaps where possible at secondary legislation stage. The department could consider using sensitivity analysis to model the uncertainties in road scheme delivery.

Selection of the preferred option

The department explains that the preferred option is option 4, which is for full private delivery and full economic regulation by the Office of Rail and Road. The regulated asset base model will enable a regulated private sector company to finance and build new trunk road capacity and collect revenue from user charges under an economic licence. In addition to price regulation, the economic regulatory regime will include requirements for quality and performance, such as safety, lane availability, journey time reliability, and incident clearance times.

Option 4 provides better value for money than Option 4C because it does not need a new regulator to be set up. Setting up a new regulator would present an additional administrative cost burden for government. The department has undertaken a qualitative comparison of both short-listed options to demonstrate this difference.

Regulatory scorecard

Part A

Total welfare impacts

The impact on total welfare is uncertain. No overall impacts have been monetised at this stage and the department has not provided a net present social value or equivalent annual net direct cost to business.

The department has provided a qualitative assessment of impacts to businesses and wider society, including to HM Government and the regulator. The impacts include familiarisation and implementation costs, operational costs and fiscal flexibility.

Impacts on business

Costs to businesses that choose to deliver through the scheme include familiarisation costs, capital expenditure, operation costs and transaction costs. In terms of benefits, the legislation would enable private entities to collect user charges from assets that would otherwise have generated revenue for the government.

The scorecard indicates that the preferred option is expected to have a positive impact on businesses, as businesses will only participate in delivering a road scheme under the regulated asset base arrangement if the expected benefits outweigh expected costs. This is also the case for businesses that decide to undertake road construction activities under the counterfactual (where businesses are contracted by government).

The department has not provided any indicative estimates of costs or benefits to businesses compared to the counterfactual and should better justify its assessment that overall impacts on business will be positive compared to the counterfactual.

Impacts on households, individuals or consumers

The department states that there are no expected impacts to households, but this assumption should be better supported. As a result, the OA does not present a net present value to households or an equivalent annual net direct cost to households figure.

As the OA references the potential for greater value for money for road users and taxpayers from the regulated asset base model, the department should still complete the household section of the regulatory scorecard. For example, a better allocation of construction risk could reduce the overall cost of road provision, increased user fees could shift costs onto road users from taxpayers and regulated asset base provision could reduce taxes (or lead to other benefits). Impact on households would only be avoided if charging fees to road users would be equivalent under both regulated asset base and public provision.

Distributional impacts

The department concludes that the overall distributional impacts of the preferred option will be neutral. The OA would benefit from additional narrative to support this statement.

The department commits to consider equalities impacts at the scheme level and at the secondary stage. The OA could benefit from further explanation of the potential equalities impacts that may arise.

The proposed legislation is only applicable within England and hence any impacts will be concentrated in England. In the business section of the regulatory scorecard, the department describes how the individual schemes may seek to promote local employment. In addition, there may be sector-level impacts for the construction sector, financial and advisory services sector and environmental organisations.

Part B

The department considers the impact on the UK business environment to be neutral. The department states that there are no negative impacts expected with the potential for minor positive effects. The measure reduces entry barriers for private operators, but scheme level procurement will remain unaffected. For any scheme delivered under the framework, there would effectively be a regulated monopoly. Private sector delivery may also bring foreign investment and more efficient delivery.

The department indicates that the international impact of the policy is uncertain, as no direct impacts on international trade have been identified. Indirectly, the framework could provide transport efficiency gains, which could ease the movement of goods.

The department considers the impact on natural capital and the environment to be neutral. Any environmental or carbon effects will occur only at a scheme level, subject to planning, investment committee, environmental assessment and net zero obligations. The OA should discuss how the proposed move to increased road user charges will affect the rollout of electric vehicles and the cost recovery of road usage by these vehicles compared to petrol and diesel vehicles.

The department states that the preferred option will support the government’s commitment to economic growth. The policy creates an additional delivery route for major road schemes which crowds in private finance. The department commits to assessing this impact further during the development of secondary legislation. It is noted that, under the counterfactual, road schemes would proceed through conventional public provision and therefore the legislation does not drive additional road‑building.

On this basis, the OA appropriately treats both the growth benefits and the environmental impacts of individual road schemes as matters for scheme‑level processes rather than attributable to this framework. However, the scorecard ratings do not fully reflect this symmetry. Growth is rated as ‘supports’ while natural capital is rated ‘neutral’, which risks implying that indirect benefits are attributable to the legislation while indirect costs are not. If the department’s analytical position is that the framework does not cause additional road expansion, both domains would be expected to be neutral. The department should clarify this point and ensure the scorecard aligns consistently with the stated counterfactual.

Monitoring and evaluation

The department recognises the need for a comprehensive and adaptable monitoring and evaluation framework to ensure the policy operates effectively and delivers its intended outcomes. Although the monitoring and evaluation approach is still being determined, the department intends to conduct both scheme-level evaluation and system-level evaluation. If secondary legislation is brought in for this framework, a post-implementation review will be considered on a case-by-case basis.

The OA includes a list of potential data sources that could be used as part of an evaluation, such as interviews with stakeholders, customer surveys and Department for Transport traffic statistics. The OA could be improved by detailing some specific metrics that could be used to assess whether the preferred option has met the policy objectives.

Other comments

The Department for Business and Trade commissioned an independent review of the Office of Rail and Road (ORR) in October 2025 as part of its Regulator Performance Independent Review Programme. The review is ongoing and will examine the purpose, capability and performance of the ORR in delivering its responsibilities. Department for Transport should consider the impact on this proposal of any recommendations for the ORR that the government accepts following the outcome of the review, expected later this year.

Following issue of the RPC’s opinion, the independent regulatory review of the Office of Rail and Road was published by government in September 2026