Success of the chancellor’s infrastructure plan hinges on the involvement of pension funds, which is unclear
In his autumn statement today Osbourne announced that £20bn of investment will be made by pension funds to modernise the country’s infrastructure. Thirty-five new road and rail schemes will be brought forward including some potentially controversial schemes such as the Silvertown/Woolwich and Lower Thames Crossings. To facilitate this investment and to shorten timescales, planning rules and regulations could be relaxed. But where did the £20bn figure come from? Many of these schemes may need to be re-estimated and the level of risk and associated costs more accurately quantified.
Even more controversial was the announcement that airport options for the South-east could be explored but that a third runway at Heathrow was definitely off the agenda. Pressure and debate will grow around a potential Thames Estuary airport but one thing is clear, the Lower Thames reach between Kent and Essex will be an environmental battleground in the near future.
What is unclear currently is the role of the pension funds and the role of the agencies managing their involvement. The Highways Agency, following the Cook Review, is recommended to be shaped along the lines of other regulated industries, so whether or not they will be procuring and managing private investment in the schemes announced today will require some clarification and definition over the next few weeks and months.
Pension funds like infrastructure as an asset class because it is a relatively safe bet, providing more sustainable and less risky returns than other asset classes. Pension funds also offer perhaps a more acceptable class of investor, developing the previously derided PPP model beyond a perceived smash and grab by the private sector of a nation’s family silver, into something more palatable.
Roads, rail, aviation and telecoms improvements were all heralded by the chancellor. So a radical announcement, yes, but the lack of detail at this stage makes it difficult to be completely satisfied. The fact that the chancellor felt bold enough to announce the involvement of the pension funds means that discussions are pretty advanced already. If he can pull it off then it truly could mean the creation of 21st century infrastructure for the UK at last.
Brian Fitzpatrick is head of highways at EC Harris