Infrastructure funding models

Nick Roberts | 26 Aug 2015 | Comments

There’s no doubt that we’re currently in the midst of an infrastructure renaissance and a challenging delivery schedule. Perhaps it’s not on the scale of the Victorians, but we have billions of pounds worth of projects highlighted in the National Infrastructure Plan and infrastructure is a hot topic in political circles. New or upgraded roads, railways, airports, housing, energy generation plants and digital networks are heralded as the answer to many of the biggest challenges facing the UK, ranging from productivity and rebalancing the economy to increasing social mobility and tackling climate change. But it somehow still feels a bit fragile.

We have to welcome the steps that have been taken in recent years to provide improved transparency of the pipeline of major projects and the confidence that this provides. But it’s important that future planning and investment isn’t undermined by the political pendulum swinging back and forth and that we can focus on delivering the benefits that will enrich people’s lives.

For me, a lack of money within the UK government at both a national and local level is a big issue. It means tough choices will have to be made around spending. I often wonder whether it would be more straight forward if infrastructure was funded with someone else’s money. With public sector funding there is always a debate about whether it should go into one thing or another, so it could be a choice between infrastructure or, for example, the NHS or education. If the funding was from a third party, it’s likely the discussion would be more along the lines of ‘I’ve got some money to build a railway, are you interested? If not I’ll find someone else’s railway.’ The private sector paid for swathes of Victorian infrastructure so should we be learning a lesson from them?

A political landscape which involves clearing the country’s debts and living within our means is likely for the foreseeable future and could provide an opportunity. Not only could third-party investment take some of the heat out of infrastructure decision making, it could help plug the two per cent shortfall between the amount of GDP the UK spends on infrastructure and the amount that the Organisation for Economic Co-operation and Development (OECD) says is needed to maintain competitiveness and quality of life.

The world is not short of money to invest and there are numerous sovereign wealth funds which are seeking opportunities. But our rules and regulations don’t make it particularly easy and in many cases investors have to win a bidding process in order to spend their money on our projects. I know we need to make sure the deal is favourable for everyone, but barriers like this probably also turn a number of people off.

Third party funding isn’t a new idea but I think it’s fair to say we haven’t been as successful in achieving this as we would have liked. In this regard I was pleased to see that a delegation from the Northern Powerhouse recently attended the Prime Minister’s trade mission to South East Asia. In addition to promoting the products, services and capabilities of businesses in the North they were able to present a case for inward investment into the region.

With the Northern Powerhouse, certainty around investment in infrastructure will be vital for transforming potential into the reality of connectivity, jobs, skills and social mobility. This is even more important outside of London, which already has international profile and a strong framework governing its future development. Securing additional funding on top of what the government has already committed could be the difference between success and failure. It will require vision and clarity of the investment opportunities. We have a comparatively stable economy and political system, as well as the experience and skills to deliver high quality infrastructure safely and efficiently. Let’s not allow a lack of imagination around potential funding models hold us back.

This post was originally published in Infrastructure Intelligence and is reproduced here with kind permission.