A national infrastructure plan, involving an investment bank or fund to facilitate investment by institutional investors, could boost GDP by £400bn, according to a white paper published today.
The paper, UK Infrastructure: The challenges for investors and policymakers, concluded if the government developed a stable, long-term national strategy for infrastructure and implemented the current £310bn National Infrastructure Plan in full, it would significantly bolster the UK’s GDP – by £400bn.
In order to do this the study, published by Llewellyn Consulting and Pension Insurance Corporation (PIC), has proposed three elements for the plan:
– ‘Invest and sell’ asset transfers whereby the government would invest heavily in infrastructure projects up front and then sell them back to the private sector when it is in a better position to buy them.
– A reanimation of the Private Finance Initiative which fell short as a result of the crisis and led to bank finance drying up – this financing void is something pension funds and insurance companies can fill.
– The creation of a national infrastructure investment bank or fund that would come up with a regulatory framework and be involved in the planning and financing of infrastructure projects and be able to issue debt in the form of bonds, the yield on which would have to exceed government debt. This would be a quasi-government entity and operate much like the Bank of England in that it would have its own mandate and be removed from the short-term political debate and five-year cycles.
Co-author of the report John Llewellyn, a former global chief economist and senior economic policy adviser at Lehman Brothers, said since the financial crisis there has been a chronic shortage of aggregate demand for infrastructure from the private sector which the government has failed to address.
This lack of government understanding, he continued, has created a current gap in the UK’s infrastructure pipeline – a gap a greater demand for infrastructure from the private sector would help plug.
According to Llewellyn, there is a gap of four years in the UK infrastructure pipeline with just two tendered projects currently underway, one of which is the Mersey Gateway Project – a scheme to build a six-lane toll bridge over the Mersey between the towns of Runcorn and Widnes.
“There has been a strong macro case for infrastructure and a strong demand to meet that in the pension and insurance industry – we need to bring these two together,” he said.
He added a “structural institutional environment” and a “stable long-term national strategy” to facilitate investment in and the development of infrastructure by the private sector would enable this to happen.
PIC co-head of asset and liability management Mark Gull said in the current low yield environment institutional investors want long-dated and stable cash flows and to be able to buy the assets to provide that.
“The private sector would love these instruments. We will buy them with the right cash flows,” he added.
However, he agreed a major shift in the government’s understanding of investors’ requirements is required to supply suitable risk assets to help trustees support their scheme liabilities.
Comments