The landscape for infrastructure finance

26 February 2013

Investment in infrastructure has rarely seemed as important to the UK economy. Yet there has been widespread criticism that the pace and scale of private investment in UK infrastructure has been too slow. To discuss this, and to identify what is required to make investment happen, Reform held a roundtable seminar with Lord Deighton, Commercial Secretary to the Treasury. The event was sponsored by Assured Guaranty and held under the Chatham House Rule.

From the outset the Coalition Government made clear that the financial burden for future UK infrastructure investment would lie mostly with the private sector. Capital investment in infrastructure was cut, and a National Infrastructure Plan (NIP) was published identifying that up to 80 per cent of the projects would need to be financed privately. Since then, the Government has announced £40 billion of Government Guarantees, has established the Green Investment Bank to provide £3 billion of funds for sustainable projects, and has published the outline of a new private financing model, PF2. Yet more than half way into this Parliament, only ten per cent of the £310 billion of required investment has been made.

Perhaps puzzlingly then, the overwhelming message from the seminar was clear – finding the money is no longer the problem. Investors are ready and waiting. There was consensus that in moving from “policy to projects”, capital markets will devise the best way to deliver these cost-effectively. In fact, capital market solutions already exist. Financial guarantees, infrastructure bond funds, the new Pension Infrastructure Platform and other products, are all in place ready to support investors who might otherwise find it difficult to consider infrastructure as an asset class. Even at a local authority level where investment is perceived as harder to secure, capital market participants are supporting deals in areas such as transport and housing. The Government must open the tap and provide a clear project pipeline, swiftly removing the barriers which are slowing down deal flow. The challenge for Government then, is to trust that the private sector and investors will deliver on the plan that has been outlined.

Poor procurement, too much red tape, and a lack of skills within Government are all seen to be holding up projects and slowing the investment pipeline. Yet Infrastructure UK is widely thought to have the right skills and power to move projects forward, and Lord Deighton has been tasked with galvanising Government processes around infrastructure investment following his success as Chief Executive of LOCOG. By devolving power to Local Enterprise Partnerships, regional infrastructure projects can happen more quickly. The Cabinet Committee established to drive through the top 40 infrastructure projects must forget about vested interests and think about the long term infrastructure requirements for the UK (which may not be in line with the political cycle). The Growth and Infrastructure bill must remove red tape which is hindering progress in areas such as broadband rollout. And the Government capability reviews should identify those areas where skills and experience are lacking, and ensure that talent is brought in where needed.

However none of this will be enough without political will and a broader strategy. The seminar highlighted how the most successful infrastructure projects, both large and small, are well supported and have clear mandates. Otherwise they can be too easily kicked into the long grass. This uncertainty can add risk to the investment. The Government needs to make clear what we need to build, when we need it built by, and why it is worth the investment.

Reform roundtable seminar on “The landscape for infrastructure finance”, with Lord Deighton of Carshalton, Commercial Secretary to the Treasury.

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