Plan laid out to get government to de-risk major construction projects

John Cridland, CBI

The Confederation of British Industry has called for the government to urgently consider ways to de-risk private sector investment in infrastructure in order to kick-start the £250bn needed to fund the government’s construction pipeline.

The business body laid out a roadmap for using government guarantees for specific early stages of infrastructure projects in order to encourage institutional investors to back new-build or “greenfield” infrastructure schemes such as new nuclear power stations.

The report follows comments from prime minister David Cameron and deputy prime minister Nick Clegg in the last ten days that they are considering using the government’s financial strength to provide the guarantees required to attract investors to back key construction projects.

CBI director general John Cridland said the CBI’s report, launched today, provided the government with a detailed guide as to how this could be achieved, following frustration over slow progress since the publication of the National Infrastructure Plan with the autumn statement last year. He said: “We’ve been encouraged by the strategy from ministers. But six months on, progress has been slow.

“We do think there is a way of limited government intervention, but as yet it hasn’t worked out how to do that. The prize is huge, but operationally it needs a lot of sophisticated work.”

Cridland said the CBI’s plan should not be seen as the government providing unlimited guarantees to risky products, but as working as an “underpinning facilitator” to de-risk certain specific parts of infrastructure projects.

In the autumn, chancellor George Osborne said he wanted to get institutional investors such as pension funds and insurance funds to buy into big infrastructure schemes. However, there is a limited history of institutions in the UK even buying in to mature infrastructure assets, let alone funding the much more risky construction phase.

Cridland said Osborne’s plan to get £20bn of investment by pensions funds “still needed commercialising”, despite a pledge to have it up and running by January 2013.

As part of the CBI plan, Cridland also called for banks and institutions to form partnerships enable investment in infrastructure without compromising banks’ obligations under forthcoming international banking regulations known as Basel III. He said the government needed to ensure the secondary regulations implementing Basel III did not put undue strain on businesses, and called for reform to capital tax allowances to ensure all infrastructure assets were treated equally.

UK pension funds hold £1.5 trillion in capital under management, with the CBI saying that investing just a fraction of this in infrastructure would create thousands of jobs. The UK is rated 28th in the world in terms of the quality of its infrastructure, behind the Czech Republic and Croatia.