The ICE this week proposed “radical” ways to fund the national infrastructure bank it wants the government to set up to finance £500bn worth of projects over the next decade.
The ICE said publicly owned assets could be transferred to the bank, including government stakes in existing PPP schemes and its shareholdings in bodies like Network Rail.
It added that proceeds from the sale of the government’s share in bailed out banks and from the auction of carbon permits could also be channelled to the bank.
The bank could then be used to provide debt fi nance to project developers or to take direct equity stakes in special purpose companies set up to deliver and operate a major project.
Lending to projects could be from the bank’s own funds, or from funds raised via the issue of asset backed bonds, said the ICE.
Proposals to the Treasury
ICE proposals for an infrastructure bank were delivered to the Treasury on Friday for consideration ahead of the 2010 Budget.
Earlier this month economic secretary to the Treasury Ian Pearson told an ICE infrastructure funding summit that the government was looking to attract new sources of private sector investment via Infrastructure UK.
Chancellor Alistair Darling announced the establishment of Infrastructure UK in December. The new body’s job is to deliver infrastructure investment and help the transition to a low carbon economy.
The ICE’s national infrastructure bank would:
● Merge Public Works Loans Board, the Treasury Infrastructure Finance Unit and Partnerships UK
● Set up infrastructure investment ISA funds
● Issue bonds (possibly low carbon or green bonds)
● Take over government stakes in PPP schemes and in bodies like Network Rail
● Use funds from the sale of government bailed out banks
● Use some of the proceeds of carbon permit auctions
“We have seen significant investment in UK infrastructure over the last decade”, said Pearson. “The challenge now is to raise the bar by attracting new sources of private sector investment as we plan, prioritise, finance and deliver investment in a low carbon future.
“The setting up of Infrastructure UK represents the next stage of this government’s vision to develop the UK’s strategy for national infrastructure.
“By acting as a focal point for infrastructure investors, operators and contractors for government departments and other bodies with infrastructure responsibilities, Infrastructure UK can drive forward this agenda. The government will unveil its strategic approach at Budget,” he said.
ICE director general Tom Foulkes said the effectiveness of Infrastructure UK and chief construction adviser Paul Morrell will depend on new and innovative funding sources being secured.
“The challenge now is to raise the bar by attracting new sources of private sector investment as we plan, prioritise, finance and deliver investment in a low carbon future.”
Ian Pearson, Treasury
“There is a requirement for up to £500bn of investment in the UK’s infrastructure over the next decade, but the government will not have the resources to provide more than a fraction of that,” said Foulkes. “The private sector therefore needs to be encouraged and helped to fill the funding gap,” he said.
A study published by economist Dieter Helm in September 2009 estimates that £500bn must be spent on UK infrastructure by 2020, with the main focus being energy projects.
The ICE’s submission to the Treasury outlines three more conventional ideas for how an infrastructure bank could be funded.
It suggested the bank could be funded by merging existing government sources of funds and expertise such as the Public Works Loans Board, the Treasury Infrastructure Finance Unit and PFI facilitator Partnerships UK.
“The private sector needs to be encouraged and helped to fill the funding gap.”
Tom Foulkes, ICE
It also suggested raising money from individual investors via infrastructure ISA savings accounts and other new financial mechanisms or by using bonds issued on the international money markets.
It said the European Investment Bank was “a possible model”.
“Policy should be geared to facilitating an increase in the total availability of funds and a reduction in the cost of fi nance for infrastructure projects,” it said.
The ICE said it would convene a follow-up infrastructure funding summit after the General Election to maintain momentum.