Infrastructure Investment Trusts (IITs) could be the PFI of the 21st century, according to the Association for Consultancy and Engineering (ACE).
The IIT is modelled on the Real Estate Investment Trusts (REITs). This new mechanism for funding major infrastructure projects allows investors, including contractors and engineers, to invest in a project. Like the REITs scheme, the IIT is a tax wrapper and relies on tax incentives to encourage investment.
The ACE has this week produced a paper on how IIT would work, as well as a summary briefing.
“The IIT is a very exciting development,” said ACE chief executive Nelson Ogunshakin. “It has the potential to unlock investment and bring funding into projects that cannot be financed through traditional means.”
The report’s recommendations have received a positive response from a select opinion panel, formed as an anonymous focus group. The group includes representatives from the banking sector as well as institutional investors. It supported ACE’s view that that IIT was an effective supplementary model to PFI that would be effective in financing major capital projects.
“The ACE will strongly promote the adoption of IIT in its discussions with HM Treasury and the coalition government in general,” added Ogunshakin. “The ACE believes that the government should explore introducing the IIT in the UK as a cost-effective means of channelling finance into infrastructure assets at a time when the public sector is expected to retrench from capital expenditure.”