Private capital is ready and able to build a better Britain

Read GIIA’s latest OpEd in today’s Daily Telegraph….

The UK is currently home to Europe’s largest market for private investment in infrastructure, with transaction volumes by value higher than in France and Germany combined. The pioneering use of private capital models since the late 1980s, through the use of economic regulation and Public-Private Partnerships, has led to the UK dominating Europe’s infrastructure market for private capital.

This private investment has been associated with a huge boost to the quality of infrastructure in sectors such as energy and water networks, airports and digital infrastructure. However, more investment is needed in the future. Along with other developed nations such as Germany and the United States, the UK continues to face an infrastructure investment gap of 0.5% of GDP – which is around £10bn per year in the UK’s case.

A recent Ipsos Mori poll, in partnership with the Global Infrastructure Investor Association, shows that 73% of the public understands the importance of investment in infrastructure for future economic growth but nearly six in ten Britons do not believe that enough is being done to meet their country’s future infrastructure needs.

At a time of strained public budgets, private capital will be an essential component in increasing investment in infrastructure and, interestingly, Britons appear to be content with this. For example, by a margin of two and a half to one, the public are happy with FDI if it leads to a more rapid delivery of infrastructure.

According to the Government’s own projections, £600bn of infrastructure investment will be needed over the next decade. Securing this investment, much of which will need to come from private sources, will be essential if the UK is to meet the ambitious infrastructure challenges set out by the National Infrastructure Commission. Targets include energy networks needing to cope with at least 50% of electricity coming from renewables by 2030, full fibre broadband being nationwide by 2033 and halving water leakage by 2050.

But securing the necessary private investment to deliver the Government’s ambitious infrastructure pipeline could be at risk. The Chancellor has abolished PFI in his recent Budget with no replacement model in place. Moreover, the decades of broad consensus on the benefits of private sector expertise and stable investment streams is being challenged. Labour’s 2017 manifesto pledged a programme of renationalisation that would result in a return to the days when our infrastructure needs have to compete for public funds alongside our growing healthcare and education requirements.

Such uncertainty for investors could not be happening at a worse time on the back of Brexit.

Just when the UK needs to remain attractive to investment in order to secure robust economic growth into the future, analysis from EY shows that, whilst it remains an attractive place to do business, the UK has been losing ground in terms of attracting FDI.

By contrast, many other nations are courting private capital to help deliver high quality infrastructure. While the UK is, for now at least, ceasing the use of PPPs to deliver infrastructure, US states such as Colorado are using PPPs to procure major transportation projects. Other countries are implementing new PPP-enabling legislation for the same purposes. For example, Romania’s Government has just launched its first public procedure for a PPP to construct a motorway, Norway and Finland have major road PPPs coming up, Austria is tendering one of its largest ever PPPs on broadband and Belgium is continuing its PPP programme for prisons.  In fact, globally, there are nearly 1,200 PPP projects which are being prepared for, or are currently in, procurement.

Across the other side of the globe, Australia has pioneered an asset-recycling programme whereby the proceeds from the sale of public assets are ring-fenced to pay for new infrastructure. New South Wales, for example, has utilised this mechanism to increase its budget for infrastructure in general, and increase funds dedicated to the development of local infrastructure.

And it is not just developed nations seeking private capital – emerging economies will want vast amounts of investment in the coming decade. It is estimated that $1.7 trillion per year will be needed in infrastructure investment across Asia by 2030, highlighting the growing options for private investors going forward.

Thankfully, the UK still remains Europe’s top destination for FDI. But while other countries embrace the benefits that private investment brings, it would be dangerous for the UK – which pioneered many of the private capital models used worldwide – to give an impression of hostility to private capital. Unlocking further private capital will be vital in delivering the critical infrastructure milestones that the public expects in the coming decades and politicians of all sides should be open to dialogue with the private sector on how best to achieve that.

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