UK unveils decade-plus, £250bn infra plan

The government hopes to unlock up to £20bn from local pensions to help fund projects and will work with British insurers to ‘create a new asset class of infrastructure bonds’. The China Investment Corporation and fund managers including Meridiam and Hermes have given a thumbs-up to the plan.

UK Chancellor George Osborne yesterday unveiled the second revision of a much anticipated National Infrastructure Plan that outlines a £250 billion (€293 billion; $390 billion), decade-plus roadmap of 500 infrastructure projects across road, rail, energy and broadband, to name a few sectors. 

The plan includes a list of priority projects to be developed in the short to medium term, with the government hoping the private sector will pick up the tab for “almost two thirds of the expected investment between 2011 and 2015”.

As well as being the first time a UK government has outlined a long-term infrastructure plan, the coalition government is also aiming to create a new framework that will allow institutional investors – such as pension funds and life insurers – to become much more substantial financiers of UK infrastructure.

Noting that, “historically, institutional investors, and pension funds in particular, have tended not to play a major role as direct investors in infrastructure assets,” the government has actively engaged with the sector to change this situation.

In this context, the government has signed a memorandum of understanding with the National Association of Pension Funds (NAPF), whose members manage some £800 billion of assets, and the Pension Protection Fund to “establish a platform to facilitate increased pension fund investment in infrastructure”. According to the National Infrastructure Plan, “the pension infrastructure platform will be wholly owned by pension funds and will allow them to invest in key UK infrastructure assets”.

Separately, the government has also signed an agreement with a group of fund managers and institutional investors – including Meridiam, Hermes, the Greater Manchester Pension Fund and the London Pensions Fund Authority – “to develop detailed proposals for more early stage institutional investment in greenfield infrastructure”. This group of investors has about £50 billion of assets under management collectively.

Infrastructure Investor contacted representatives from both of the above initiatives for more detail, but was told discussions will only now begin in earnest.

Another potential source of capital might come from life insurers. To this effect, the government has teamed up with the Association of British Insurers (ABI) “to explore ways to ensure that the capital markets continue to provide an efficient and attractive source of debt finance for infrastructure”. 

Otto Thoresen, ABI’s director general, said ABI wants “to work with the government to create a new asset class of infrastructure bonds which could see insurers investing in everything from railways to new hospitals”.

The final piece of the funding puzzle comes in the form of foreign sovereign wealth fund money. The $410 billion China Investment Corporation has already expressed an interest in investing equity in UK infrastructure.

To read more about how the infrastructure industry is reacting to the UK government’s infrastructure plan, please click here.