Osborne confirms £30bn infrastructure pipeline

Chancellor George Osborne has bolstered plans for a £30bn programme to improve the UK’s creaking infrastructure, as set out in the National Infrastructure Plan.

As expected infrastructure took centre stage in the Autumn Statement where Osborne confirmed that a third of this investment will come from government with the remainder from institutions such as UK and foreign pension funds. 

The public funding - £5bn between now and 2015, and another £5bn for longer-term projects over the following five years - will be provided by cuts elsewhere, including tax credit payments and a 1% cap on some public sector pay increases for the two years after the current freeze ends in 2013.

On the measures set out today, he said, “over the next three years we will use these savings to fund capital investments in infrastructure, regional growth and education as well as help for young people to find work. Every pound spent in this way will be paid for by a pound saved permanently.”

Future projects will be funded by an 'investment platform' - a joint venture between government and British pension funds that will unlock £20bn of private investment to invest in infrastructure projects.

Osborne has already signed of a memorandum of understanding with the National Association of Pension Funds (NAPF) to facilitate the development of this new investment platform.

Joanne Segars, NAPF chief executive, said: "We're keen to work with the Government to try to make it easier for pension funds to back big infrastructure. The UK desperately needs to update its infrastructure, and pension funds are hungry for stable, long-term, inflation-linked investments.

“The Government hopes to unlock £20bn, but the amount that comes from pension funds depends on the structure of the investment platform and the pricing of the assets. We are at a very early stage, and there are no plans or details on the table yet. We look forward to developing proposals with the Treasury over the coming months.”

Richard Threlfall, head of infrastructure, building and construction at KPMG, said the infra announcements were a "positive step toward enhancing the UK as a competitive place to do business on a global platform", but added a note of caution: "A £20bn pension investment concept was announced as expected, but with no detail as the understanding with pension funds is at a very preliminary stage."

Projects could also attract interest from Australian and Canadian funds, as well as China which has said that its sovereign wealth fund is seeking to invest in UK infrastructure.

Network Rail is also set to invest £1bn which will be guaranteed by the government.

The government has earmarked 500 projects to be included in the National Infrastructure Plan, including rail electrification, road improvements, school building, energy projects and renewed hopes for a new Thames Estuary hub airport.

The government is also overhauling digital infrastructure too by delivering superfast broadband to 90% of homes and mobile coverage to 99% of families.

Private Finance Initiative

Over the past 15 years a significant amount of UK infrastructure has been delivered via the Private Finance Initiative (PFI) - a delivery mechanism that involves private sector firms designing, building, financing and operating public assets, such as schools and hospitals.

Criticism of the model has centred on value for money, affordability and private sector profits, and as such, the government has now committed to reforming PFI with a new delivery model.

The government is launching a call for evidence next month to bring forward proposals for a new approach in using the private sector in the delivery of public assets.

KPMG’s Greg McIntosh recently provided AccountingWEB with an outline of the basic accounting processes and principles involved in these long-term projects.

The BBC’s Panorama programme  this week Who's Getting Rich on your Money? also took a look at the PFI model and asked why the coalition government signed so many PFI deals when in opposition both the prime minister and his deputy branded them as 'dodgy accounting'.

The Treasury told the Panorama investigation into PFI deals that the upcoming review will see the "end of PFI as we know it".