Ruth Mitchell

Member Article

Infrastructure investment must be incentivised say CBI

The Government should incentivise investment in UK infrastructure by implementing a number of key transformational changes according to the CBI.

In a new report entitled “An offer they shouldn’t refuse: attracting investment to UK infrastructure”, the CBI noted that by securing up to £250 billion in infrastructure develpment, the Government could finally offer the UK a much needed growth boost.

In the Chancellor’s Autumn statement, the Chancellor pledged his support for UK infrastructure, but 6 months later, few projects have yet to materialise.

The CBI now believe that four transformational changes could make a real difference to UK infrastructure. This includes; targeting specific projects to enhance their credit rating, pooling pension funds beyond the Pension Infrastructure Platform, commercialising the public sector’s pproach to infrastructure and ensuring Solvency II doesn’t act as a barrier to private investment.

John Cridland, CBI Director-General now hopes that the report will act as a catalyst for growth in this sector.

He said: “As this report makes clear, if we want to see the billions of pounds needed to upgrade our ageing infrastructure and secure jobs and growth for the long-term, the Government must make smarter use of limited public finances.

“By underpinning and lifting the credit rating of certain infrastructure assets, it can make them less risky and more attractive to investors.”

The report also showed that if the Government captures just a small fraction of the £1.5 trillion of capital held in UK pension funds and invest a further 2% of these assets in infrastructure, this could make a huge contribution to renewing energy, transport and other infrastructure.

He continued: “With banks and institutional investors, including pension funds, working together to find new ways to fund infrastructure development, the Government must play its part by removing hurdles, and acting in a more commercial, investment-savvy way. An attractive, professional one-stop shop window for investors must be the right way forward.

“To help make investors an offer they shouldn’t refuse, the Government must enhance the credit rating of brand new projects, extend capital allowances to cover all types of infrastructure, ensure Solvency II doesn’t act as a brake on growth and consider the introduction of a time-limited dividend tax credit for pension funds investing in new projects.”

The Government has identified that much of the £250 billion fund for its National Infrastructure Plan will come from the private sector, but UK based institutional investors have yet to enter the market. Many of them do not find these projects attractive, especially “greenfield” projects with a riskier construction phase.

The CBI has now proposed that the Government lift credit ratings for these projects, and should consider enhancing the credit rating of several projects at one time rather than fully funding individual ones. By doing this, the Government could help infrastructure to compete with other asset classes.

The Government should also encourage pension funds to invest in infrastructure by establishing a dividend tax credit aimed at new projects which would make infrastructure more attractive to defined benefit pension funds.

It is hoped that this tax credit will attract new investment by UK pension funds and could be take up over a five year period, lasting the lifetime of the investment.

The CBI also proposes that the public sector’s approach to infrastructure should be made more commercial by implementing a single shop window for infrastructure investors, with a single manager for each project along with secondees from the private sector

This was posted in Bdaily's Members' News section by Ruth Mitchell .

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