Financing UK infrastructure - Emap.com€¦ · 1 Infrastructure investment: crucial for growth and better 05 public services 2 Government must use private finance to meet the UK’s

Building strong foundationsFinancing UK infrastructure

3Building strong foundations: Financing UK infrastructure

Foreword 04

1 Infrastructure investment: crucial for growth and better 05 public services

2 Government must use private finance to meet the UK’s 08 infrastructure needs

3 Private finance models must evolve to continue to offer 11 value for money

4 Government must set the conditions to attract investment 15 in infrastructure

References 18

Contents

Foreword

Building strong foundations: Financing UK infrastructure4

The UK’s prosperity relies on the country having high-quality economic and social infrastructure that supports business growth and innovative public services delivery. Investment is essential to ensure that the UK does not lag further behind its competitors. With constrained public spending, it is clear that the government will need to rely on private finance to provide much of the investment that is needed. But it is not clear how the government intends to attract all this investment. Britain has been a world leader in developing and using the Private Finance Initiative (PFI) and other forms of public-private partnership (PPP) to give a much needed boost to infrastructure investment. Other countries have taken notice: our PPP models are now used all over the world. PPPs are continually evolving to ensure they are fit for purpose and a cost-effective way of securing investment in infrastructure. Problems experienced in the past are being addressed to ensure private finance continues to be used to deliver high-quality infrastructure on time and on budget, with the assets maintained for many years to come.

However, the government must provide leadership and champion the use of PPPs to fund and deliver projects, otherwise the opportunity to use private finance will be lost. Companies and investors will increasingly look overseas for business and the UK will not get the new infrastructure it needs.

The government needs to be clear about the positive role private finance models will play in securing investment. The government’s publication of a quarterly rolling two-year programme of infrastructure and construction projects enables industry to see what’s on the horizon, but not beyond. It needs to outline a longer term pipeline of infrastructure projects and a delivery plan, to provide the certainty that enables investment. This will ensure that we have high-quality, well maintained infrastructure that will provide a solid platform for the UK’s economic growth. Dr Neil Bentley Deputy director-general, CBI

1 Infrastructure investment: crucial for growth and better public services

Building strong foundations: Financing UK infrastructure 5

Investing in infrastructure, from schools and hospitals to roads and waste facilities, is vital to the UK’s economic growth. High-quality infrastructure increases productivity, lowers production costs and raises output. It also enables a skilled and healthy workforce and improved public services delivery, all of which are essential for the UK to remain competitive.

As Britain’s population grows and ages, the need for infrastructure and the associated services will increase. Existing infrastructure will have to be maintained and new assets built to meet the population’s changing economic and social needs. However, compared with many OECD countries, the UK has under

invested in infrastructure 1 (Exhibit 1). The Treasury’s own National Infrastructure Plan states that investment had been “timid, uncoordinated, wasteful in its procurement and insufficiently targeted.” 2 Dealing with the fiscal deficit has meant capital spending is projected to drop to just 1.1% of GDP by 2014-15.

“The extent to which government directly invests in infrastructure and encourages investment from the private sector will have a fundamental impact on growth.”


The extent to which government directly invests in infrastructure and encourages investment from the private sector will have a fundamental impact on growth. Carefully targeted expenditure can support a private sector-led recovery and increase tax revenues.3 Infrastructure investment has a particularly strong fiscal multiplier because of the economic activity it generates: in fact, it is almost twice as important to economic growth as departmental current spending.4

The case for increased investment is strengthened when the state of the UK’s assets is compared with that of other countries. The World Economic Forum ranks the UK 33rd for the quality of its infrastructure (Exhibit 2), behind many of its international competitors including France (4th), Germany (9th) and the United States (23rd).6 The state of our roads, railways, schools and hospitals risks jeopardising our ability to compete internationally. This gap must be narrowed to prevent the UK being left behind as the global recovery gathers pace.

Source: CBI Submission to the 2010 Spending Review based on OECD, HM Treasury, Databank and Oxera data

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5

Public investment if PPP adjustment is introducedPublic investment

Japan

Spain

France

Average across selected countries excluding UK

Canada

United States

Italy

Germany

United Kingdom1.6

2.3

2.5

2.6

2.7

3.1

3.6

4.2

1.5 2.0

Exhibit 1 Average public investments 1999-2008(% of GDP)

Investment in infrastructure provides significant economic returnSpending on construction has a strong positive impact on the economy, by driving growth and creating employment in a number of sectors through supply chains and providing long-term economic and social benefits beyond the construction output. Every £1 spent on construction increases GDP by as much as £2.84. The effects are even more pronounced in areas such as school building, where every £1 spent increases output by between £3.87 and £5.04.5

Source: WEF

Exhibit 2 WEF ranking for infrastructure quality

CountryInfrastructure quality ranking

France 4th

Germany 9th

Canada 13th

Japan 15th

USA 23rd

UK 33rd


A recent CBI/Ipsos MORI survey revealed that this infrastructure gap is a major concern for business. The majority of respondents believe that the quality of UK infrastructure relative to other countries has deteriorated over the past decade.7 This limits the attractiveness of the UK as a place for business investment, as companies prefer to operate where networks and services are more effective and reliable. Over time, Britain risks losing out as competition for business investment intensifies across all sectors.

Exhibit 3 Attractiveness of UK over other countries, 2000-2010 (%)

-100 -90 -80 -70 -60 -50 -40 -30 -20 -10 0 10 20 30

Personal taxation levels

Nature/level of regulation

Business taxation levels

Availability of grants/loans

Availability of land/planning restrictions

Ability to attract internationally mobile key staff

Exchange rate risk

Infrastructure

Political and economic stability

Availability of trained/skilled workforce

Quality of life

Access to markets

Critical mass of other businesses in your sector

Flexibility of work practices

Good labour relations

Historical legacy of your business 21

21

10

5

1

-7

-11

-16

-16

-20

-23

-32

-36

-51

-69

-84

< UK declined UK improved >

“The majority of businesses believe that the quality of UK infrastructure relative to other countries has deteriorated over the past decade.”

Source: CBI/Ipsos/MORI survey


A clear plan for private investment allowed infrastructure projects to be launched that otherwise would not have been possible. In the last decade over 500 PFI projects have reached financial close – a figure that includes over 120 healthcare initiatives.8 The UK’s Victorian hospitals and dilapidated school buildings needed investment and the PPP approach has directed funding to build and maintain infrastructure in a way that conventional procurement often failed to do. When procured conventionally, political and economic cycles have tended to restrict the availability of funding, delaying or cancelling investment and postponing maintenance.

However, the UK cannot take its world-leading position for granted. Infrastructure prospects in the UK have worsened in recent years and investors are increasingly looking internationally for new opportunities. Three quarters of infrastructure businesses with operations in the UK are more focused on opportunities overseas today than they were three years ago 9 and the mature markets in Australia, the US and Canada continue to expand.

With cuts to capital spending and increasing demand for new infrastructure, the government will need to rely on private finance to provide the infrastructure the country requires. The UK has been a world leader in using private finance for new projects, which has helped to narrow the gap between public spending on infrastructure and the overall level of investment required.

Business has played a crucial role in building and maintaining public services infrastructure by funding and delivering projects through the Private Finance Initiative (PFI) and public-private partnerships (PPPs). These procurement models have enabled the private sector to construct and improve assets and deliver better services. This has been achieved through better integrating the design of infrastructure and the delivery of services, successfully sharing risk, increasing transparency and accountability and taking a whole-life approach to procurement.

2 Government must use private finance to meet the UK’s infrastructure needs

“...investors are increasingly looking internationally for new opportunities.”


To reverse this trend in the UK, the government needs to use PPPs to leverage private finance and maximise the value for money of infrastructure projects. As the public sector can borrow more cheaply than businesses, it is often argued that a conventional design and build process is the most cost-effective method for building infrastructure. Traditional procurement may be appropriate in some cases, but often a PPP approach will deliver better value for money over the life of an asset.

Maximising value for moneyProjects that are funded directly by government can be subject to an optimism bias, meaning costs and duration of a project are underestimated. Over 70% of traditionally procured projects are delivered after the contractual deadline, as not all risks are properly identified or managed. This leads to the escalation of project costs and delays as variations have to be made during the build period.10

In contrast, by adopting a partnership approach the public sector can transfer appropriate risk management functions and concentrate on strategic policy making and performance management of contractors. Full payment is not made to contractors until the building is operational, creating a strong incentive for them to meet deadlines. If the project over runs the private sector partner bears the cost.

Risk transfer forces the contracting authority to set clear specifications from the outset and encourages rigorous planning and close collaboration between the public and private sectors. Knowledge sharing provides opportunities to find the best solutions that deliver innovative, cost-effective services. The integration of design and service delivery means the final service is always kept in mind and potential obstacles to efficiency can be identified and overcome.

Ultimately, this can contribute to better public service outcomes. For example, GCSE results in new schools delivered through PPPs improved at more than four times the rate of other schools.11 In healthcare, a recent study found that PFI hospitals had better patient environment ratings and higher cleanliness scores than conventionally procured hospitals of comparable age.12

PPPs also save money by ensuring that whole-life costs of the project are taken into account and best value is achieved by aligning contract terms with the life of the asset. Contracting authorities are required to quantify costs over a project’s entire lifetime, prioritising maintenance and equipment replacement, which can be neglected through other procurement routes. Failure to plan this investment in advance can see infrastructure assets quickly fall into disrepair, requiring costly interventions to bring them back to acceptable standards.

PPP contracts can stipulate that assets are maintained to pre-agreed standards by the private sector – failing to meet these will often mean that they incur financial penalties. This guarantees that at the end of the contract the asset will be handed back to the public sector in good condition.

Competition for service delivery is boosted through the partnership approach too, as services as well as construction are subject to competitive tender. To win the contract, competitors must bid each other down on price and up on service provision. Increasing competition can have a dramatic effect on efficiency. For example, in criminal justice a series of competitions based on the design, construction and management of prisons brought cost reductions of 38%.13


PPPs can include a range of services beyond constructionPPP contracts transfer responsibility to the private sector for maintaining and operating the infrastructure once construction has been completed. The contracting authority is not simply buying a new building: it’s ensuring that a wide range of important services are delivered to the public. Payment to the contractors is dependent upon meeting clearly defined performance criteria. For example, a typical PPP school project may include constructing catering facilities and providing the associated services. Payments to the contractor would be conditional on performance related to factors such as the range of food services, portion size and customer satisfaction.

Given these benefits, it is critical that government works with industry to ensure there is a range of versatile, adaptable and efficient models that can attract private investment to infrastructure. In doing so it must identify and retain elements of existing models that have been successful as well as exploring new and innovative funding mechanisms.

“...it is critical that government works with industry to ensure there is a range of versatile, adaptable and efficient models that can attract private investment to infrastructure.”


Not every private finance agreement has been perfect. High-profile examples of poor value for money PFIs – due to costly procurements and inflexible contracts – have lead to calls for conventional procurement to be used for all infrastructure projects. However, this ignores that partnership approaches, when appropriately chosen and managed effectively, deliver substantial benefits for taxpayers and service users.

It is important that both the public and private sectors learn from the mistakes of the past and continue to improve how they work together to ensure that private finance models are applied well and deliver value for money. The public sector needs to ensure that the conditions are right to encourage a maximum number of bidders to participate, allowing competitive tension to drive improvement and efficiency. The private sector in turn needs to adopt a true partnership mentality and seek to accommodate the changing requirements of service users. Developing a close and constructive relationship is therefore necessary to overcome the variety of challenges that may present themselves throughout the course of a contract.

PPPs must adapt and offer more flexibility. They are often long-term agreements that transfer risks to the private sector over 20 years or more. This brings the benefits of whole-life costing, but variations in demand, public policy or technology can mean that services have to adapt to continue to meet public need. PPPs can respond well to these changes and the vast majority of contract managers are satisfied with the quality of work carried out in these circumstances.14 But there is more that can be done.

It is inevitable that some changes are made over the duration of a contract and the extent that this impacts upon value for money will be determined by how both public and private sector partners manage the situation. The contracting authority must dedicate sufficient internal resources to contract management and develop a strong knowledge of the services offered by alternative providers. Central co-ordinating bodies have an important role to play in providing intelligence and expertise to assist local contracting authorities and sharing best practice from other projects.

Successful partnership requires a joint commitment to transparency from the public and private sectors. Changes to the government’s accounting practices, including listing liabilities for PFI projects on balance sheet, ensure greater accountability for capital spending decisions. In addition, the process of assessing and quantifying costs for the duration of the contract is a particular strength of PPPs – this provides certainty to the contracting authority and allows it to budget accordingly.

3 Private finance models must evolve to continue to offer value for money


There also needs to be thorough price and quality comparison, both when considering alternative procurement routes and when benchmarking individual service elements. Once the project is operational, the public sector should use its right to insist that new services are put out to tender. Soft facilities management services should be re-tendered regularly to ensure that value for money is obtained.

RecommendationThe Cabinet Office should require contracting authorities to provide standardised data on service cost and quality, to allow effective benchmarking of services.

RecommendationSoft services should be re-tendered at agreed points throughout the contract and new service elements that are introduced should be put out to competitive tender.

Competition drives efficiency and innovation, placing downward pressure on costs and helping to ensure efficient resource allocation. The companies bidding for contracts must focus on satisfying the needs of the prospective client and service users. They are required to offer quality services at the best price possible. Charging unreasonable amounts for services will see a competitor chosen instead.

Competition for PPP contracts can however be limited by high costs due to the length of procurement processes, as companies cannot afford to take the risk of not winning the bid. The value for money of PPPs will improve by reforming the procurement process to encourage more participants.

A range of procurement procedures is available to contracting authorities, with different timescales associated with each. While complying with legal requirements, contracting authorities must consider how they can reduce costs for themselves and for suppliers by selecting the right option and implementing it effectively.

Using Competitive Dialogue efficientlyOne procedure is the Competitive Dialogue process, which involves two or more bidders fully developing bids right up to the point of delivery. Only one of these companies can win the contract, and the other participants have to absorb the costs of their failing bids. Companies account for the risk of losing the competition when they set their prices, so the final cost to the contracting authority, and hence to taxpayers, is greater when procurement costs are high.

Competitive Dialogue is the right choice when the project is complex and the contracting authority cannot define the technical solution to meet its needs, but it will not always be the most suitable contracting route. Contracting authorities must ensure that they use the method only when it is appropriate to do so. The UK uses competitive dialogue more than any other EU state. For example, just 0.1% of government procurements in Germany use Competitive Dialogue compared with 2.6% in the UK.15 In sectors where PPPs are common, contracting authorities could ask providers to tender based on the costs of similar projects that they have bid for, avoiding the requirement to go through competitive dialogue.

When Competitive Dialogue is the appropriate choice, it is essential that it is conducted as efficiently as possible. It takes an average of 429 working days to complete this type of procurement in the UK, whereas Germany conducts the same process in half the time.16 The cost of developing bids over such a long period can be substantial. This has a detrimental impact on value for money of projects in this country.

“Competition for PPP contracts can be limited by high costs due to the length of procurement processes, as companies cannot afford to take the risk of not winning the bid.”


Procurement savings could be made by introducing lean procurement techniques and stripping out layers of bureaucracy and rationalising decision points. Government could store supplier information more effectively so that similar details are not repeatedly requested. Implementing such measures could cut procurement times by as much as 60%, saving suppliers £3 million for every competitive dialogue conducted.17

RecommendationThe Cabinet Office should ensure that ‘lean procurement’ techniques are implemented widely for PPP projects, with clear timescales decided at the outset of each project.

Sharing ideasThe cost of PPPs could be further reduced by sharing best practice and standardising successful designs. The Building Schools for the Future initiative, for example, delivered a much-needed upgrade to the schools estate, but the desire for bespoke buildings added cost to the programme. The James Review highlighted the need to make better use of standardised designs to simplify projects and allow contractors to deliver efficiency savings through economies of scale.18 This proposal should be implemented swiftly so that local authorities can reap the benefits of more affordable school buildings. In addition, there is scope to extend standardisation of design to other social infrastructure such as hospitals and prisons.

It is important that government consults with the industry to ensure quality standard designs are achievable and affordable. This process must enable innovation while ensuring that the infrastructure is fit for purpose and delivered efficiently. A central body should determine how to incorporate improvements to these standards over time.

The particular requirements of local communities should also be taken into account. Contracting authorities could provide communities with a range of designs from which to choose. Authorities with accountability to local communities could then decide on the infrastructure that best meets the needs of constituents while ensuring that value for money is achieved in its delivery.

RecommendationCentral government bodies with oversight of infrastructure projects in the health, education and justice sectors should be responsible for working with industry to develop a range of standards designs.

Managing risk betterPPP projects could be procured more effectively by balancing risk transfer with value for money more effectively. Contracting authorities often attempt to increase the amount of risk that is transferred to the private sector without evaluating whether it is cost-effective. There is little to be gained from this as contractors will respond to the uncertainty generated by increasing prices. Risk should be borne by the party that is most equipped to deal with it and public bodies need to be pragmatic when deciding whether to transfer or retain it.

Certain elements of risk are often best retained by the public sector. For instance, requiring the private sector to insure a complex PPP deal will mean that the cost of premiums (which significantly exceeds the cost of claims) is built into charges. Self-insurance by the public sector is likely to be much cheaper. Similarly, the public


sector is better placed to take responsibility for energy procurement as it can extract greater economies of scale than private companies. Finally, attempts to transfer demand risk to the private sector should be avoided as they tend to increase the interest charged by financial institutions when providing project finance.

RecommendationContracting authorities should avoid transferring to the private sector those risks which are best managed in-house, such as insurance, energy and demand.

Payment mechanisms that seek to ensure services are provided successfully should be designed fairly, incentivising the contractor to innovate and strive for efficiency improvements. Those contractors that perform exceptionally should be rewarded according to their achievement and performance should be benchmarked to allow this judgement to be made easily.

When services do not meet the required standards, contracting authorities should not pay the full price for them. Where there is consistent service failure, punitive measures should be implemented to ensure that the contractor takes remedial action and that the contracting authority is compensated for the fault.

Complex payment mechanisms that are overly punitive are counter-productive as they damage the confidence of external financers looking to invest. This can push up the cost of obtaining finance and restrict value for money. When the performance regime is unfairly weighted, contractors model in this risk in their pre-estimates of penalties. As a result, they are likely to charge a higher price to the contracting authority at the outset.

RecommendationClear and simple payment mechanisms should be implemented to incentivise continuous improvement of services once the contract is operational.

Principles for successful PPP projectsConsider the alternativesPPPs are not suitable for every project. The choice of procurement route should be based on value for money after a rigorous comparison process. Government balance sheet implications should have no impact on this choice.

Prioritise efficient procurementCommercial teams need to be incentivised to complete procurements quickly, establishing clear timeframes at the outset.

Align contract terms with the life of the assetContracting over the whole life of the asset will ensure that it is adequately maintained and that there is greater transparency of costs.

Transfer the appropriate risksRisk should be borne by the party that is best placed to manage it. Transferring risk elements that are best retained will reduce value for money.

Pro-actively manage the contractTaking an active role in managing the contract provides greater scope for contracting authorities to make changes to services. Regularly benchmarking services creates an additional challenge to contractors to offer the quality services at competitive prices.


Creating the right conditions to attract finance from the private sector must be a priority for government. With project finance from banks unlikely to return to the levels seen before the financial crisis, it will be important for government to encourage finance from a broader range of institutional investors than it has done previously. By setting out a clear pipeline of activity and promoting infrastructure through policy, the government can encourage international capital to flow towards UK projects. The private sector can then invest with confidence, assured that there is political support for the programme. With £800 billion under management in private sector defined benefit pension schemes today, pension funds perhaps represent the best opportunity to unlock new investment. Infrastructure should be a logical solution for pension funds, as they look for assets that can match liabilities as they are wound down over time. However, only 0.7% of UK pension plans invest in infrastructure, preferring government bonds to match their long-term liabilities.19 Many trustees do not have experience of investing directly or indirectly in infrastructure and may be reluctant to enter a new market. Building confidence in the market, by having a strong pipeline of projects with clear timeframes, would encourage more pension funds to consider investing in infrastructure assets.

Government must send a clear message to institutional investors that the UK’s infrastructure is an attractive investment. There are a number of actions it should take to encourage participation particularly by reducing the level of uncertainty associated with infrastructure investments:

1 Set out a clear plan for future infrastructure Uncertainty over the future direction of infrastructure projects discourages investment, as the risk of policy change undermines confidence. The second edition of the National Infrastructure Plan must clearly set out the government’s priorities so businesses and investors can plan ahead. The announcement in the Budget that a quarterly publication of the two-year pipeline will be introduced is a step in the right direction, but is not sufficiently long term. A forward look of five years would provide more certainty and encourage investment from the private sector.

RecommendationThe government’s new rolling plan for investment should provide a five-year outlook rather than two-year.

4 Government must set the conditions to attract investment in infrastructure


2 Ensure reforms to the planning system boost investor confidence

The CBI’s recent project on Making the UK the Best Place to Invest highlighted that the UK’s inefficient planning system was restricting investment and innovation.20 Delays and uncertainty in the planning process are undermining investor confidence in the system’s capacity to deliver decisions. Broad changes to the planning system in the Localism Bill and National Planning Policy Framework remain a concern and may risk making the planning system slower and less reliable. The Plan for Growth, however, did introduce some innovative planning reforms, such as land auctioning and relaxation of the rules for change of use, which may unshackle growth. It is essential that the government ensures any changes increase certainty and lift investor confidence.

RecommendationCommunities and Local Government must ensure that removing delays and uncertainties is a key driver of all planning reforms.

3 De-risk projects of strategic importanceFor some projects, government will need to take a more active role in reducing the risk profile. The creation of a Green Investment Bank with the power to issue bonds with government guarantee will significantly reduce the uncertainty of future low carbon projects.21 In the European Union, a new Project Bond Initiative is being launched to attract additional private sector investment by improving the debt rating of the bonds issued by project companies. These types of initiatives have the potential to attract new investors to infrastructure projects.

RecommendationGovernment should establish the Green Investment Bank with the power to issue bonds as soon as possible and explore expanding this work to create new ‘infrastructure bonds’ that can be used to finance a wider range of infrastructure.

Canada – leading the way in PPP infrastructure investmentSince the financial crisis the Canadian government has expanded its commitment to PPPs and has set about creating the conditions that have attracted global private investment to new infrastructure projects. PPP is viewed as a viable and attractive procurement method by governments at federal, provincial and municipal levels. Each has identified a pipeline of projects, offering clear visibility of opportunity to private sector investors, building contractors and service providers. In 2008, a federal Crown corporation, PPP Canada, was established to improve the delivery of projects by achieving better value, timeliness and accountability to taxpayers. Since then it has been an important body in promoting the use of PPP procurement at all levels of government and administering public money through a C$1.2 billion fund.22

Projects are commissioned extremely efficiently, with bid costs estimated at just 0.35 – 1% of capital value and procurement times just 16 months on average. This compares highly favourably with the UK, where bid costs are 2 – 3% of capital value and timescales stretch to 34 months on average.23 This efficiency encourages greater levels of competition for contracts as international businesses have been encouraged to participate.The sophistication of the Canadian market has brought in a diverse range of institutional investors – including pension funds – which now feel sufficiently educated to invest in the infrastructure asset class.24


Government can improve investment in infrastructure by extending the range of models available to contracting authorities. Rather than following a set procedure according to previous procurements or dogma, officials must consider which model is likely to deliver the required outcomes. The PFI model has been used extensively in the UK with great success, but it will not be appropriate in all instances. For example, the cost of procurement may mean that PFI is not the best method of delivering small projects, while a single PFI contract is unlikely to be the most suitable way of leveraging private finance for very large, complex projects such as urban redevelopments. There needs to be a range of financing models to provide options for contracting authorities and ensure that value for money is achieved in each case.

The Regulated Asset Base (RAB) has been proven to attract private investment in the utilities sector through holding down the cost of finance by regulating the prices paid by consumers. This regulation effectively guarantees that companies’ investment will be returned over time. Extending the RAB model to other sectors could lower the risk of new capital projects and the cost of financing them. However, the nature of the model makes it difficult to apply to social infrastructure, as the services provided in schools, hospitals and prisons are not directly paid for by users. The model also raises affordability concerns, as risk can be passed on to specific groups of consumers that cannot easily pay for the service.

Tax Increment Financing (TIF) has been used extensively in the United States and works by the public sector raising finance against future increases in tax yields generated by new infrastructure. It has typically been used in urban regeneration and renewal projects, creating new affordable housing and improving public infrastructure assets like roads and railway lines. Through the creation of TIF zones, areas of deprivation can be targeted for regeneration and local authorities can prioritise spending where it is most needed. The government’s commitment to extend local authority borrowing powers is welcome and it should bring forward legislation to enable TIF schemes to get off the ground.

RecommendationThe government should introduce legislation extending local authority borrowing powers to enable them to progress Tax Increment Financing schemes.

Some local authorities are already attracting new investment through the development of local infrastructure funds. For example, the Evergreen fund in the North West of England has plans to leverage more than £200 million of private money for commercial developments in the region and has already received contributions of local authority pension funds. The fund is led by the Association of Greater Manchester Authorities and is supported by local authorities across Cheshire, Cumbria and Lancashire as well as the European Investment Bank. Attracting resources from a range of public and private sources, local funds like this one can ensure investment is made to enable better services for local communities.

Local infrastructure funds are usually started with a ‘block’ of finance created by the public sector which is then matched by private sector investors and enables effective risk sharing between the two. With the funding in place, an investment policy is then established, which enables investment in individual projects that satisfy the criteria set in the policy. Profits generated by the projects are returned to the fund and can then be re-invested in further capital works.


References

1 Economic Outlook No.85, Organisation for Economic Co-operation and Development, 2009

2 National Infrastructure Plan, HM Treasury, October 2010

3 CBI Submission to the 2010 Spending Review, CBI, 2010

4 The Office of Budget Responsibility uses a short-run fiscal multiplier of 1.0 for capital investment compared with 0.6 for departmental current spending – Does the Composition of Government Expenditure Matter for Economic Growth? Gemmell, Kneller And Sanz, 2009

5 Construction in the UK: The benefits of investment, L.E.K Consulting on behalf of UKCG and the CBI, October 2009

6 The Global Competitiveness Report 2010-2011, World Economic Forum, 2010

7 CBI/Ipsos MORI Survey for Making the UK the best place to invest, 2010

8 PPP Data and Statistics, HM Treasury, February 2010

9 Desperately seeking safety, survey undertaken by Partnerships Bulletin, Volume 16: Issue 3, April 2011

10 Modernising Construction, NAO, January 2001

11 10% average improvement in PPP schools in 2008, compared with a 2.4% average improvement nationally

12 Operating healthcare infrastructure: analysing the evidence, UCL & KPMG, May 2010

13 Market Testing, Ethos Journal, published by Serco, Autumn 2010

14 Making Changes in Operational PFI Projects, National Audit Office, January 2008

15 Ibid

16 Ibid

17 Ibid

18 Review of Education Capital, Sebastian James, for the Department for Education, April 2011

19 Pension Fund investment in infrastructure, Organisation for Economic Co-operation and Development, October 2009

20 Making the UK the best place to invest, CBI, April 2011

21 Risky business: Investing in the UK’s low-carbon infrastructure, CBI, April 2011

22 PPP Canada Website, http://www.p3canada.ca/home.php

23 Infrastructure Australia: PPP Procurement, KPMG, May 2010

24 Canada: An intelligence report, Infrastructure Investor, January 2011

August 2011© Copyright CBI 2011The content may not be copied, distributed, reported or dealt with in whole or in part without prior consent of the CBI.

Product code: PSE_PSE_173 www.cbi.org.uk

For enquiries about this report or a copy in large text format, please contact:

Rob MallowsSenior public affairs officer

T: +44 (0)20 7395 8107E: [email protected]

CBIThe CBI’s mission is to help create and sustain

the conditions in which businesses in the UK can compete and prosper for the benefit of all. We are the UK’s leading business organisation

and campaign for a competitive policy landscape for companies in the UK, the EU and on the

wider international stage.

The CBI’s strength lies in its breadth of membership, representing over 240,000 companies of every size and from every sector. With offices across the UK as

well as in Brussels, Washington, Delhi and Beijing, the CBI provides members with representation

around the world.

Documents

Financing UK infrastructure - Emap.com€¦ · 1 Infrastructure investment: crucial for growth and better 05 public services 2 Government must use private finance to meet the UK’s