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Insight | Changing the way infrastructure projects are funded

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Crossrail 2 is struggling to find financial backers, Network Rail has fundamentally changed its business to attract third party funding and the debate on how infrastructure projects in the UK should be financed is gathering great speed. 

But how would the debate change if we were personally able to invest in the different schemes?

Throwing a curveball into the mix, KPMG director infrastructure advisory Gwyn Llewelyn says turning the market on its head and putting money where our mouths are could help to push projects forward at a greater pace.

Llewelyn is effectively championing the cause of individual investors throwing their weight behind infrastructure projects. He believes funding and financing models need to become more flexible as the useful economic life of an asset moves away from its physical lifespan. 

“Traditional assets with a 60 year lifespan, which is our traditional appraisal period for infrastructure, becomes very difficult,” he says. “You can’t predict transport infrastructure when we don’t know if we’re all going to be moving around in autonomous taxis in 30 years’ time.”

He also says the standardised “cookie cutter” approach is diminishing and more bespoke deals and solutions need to be applied.

Instead, Llewelyn believes that the technology now available for online platforms to aggregate large numbers of small investments into infrastructure could change behaviours.

“Technology changes mean it’s easier to run platforms and for us to be the masters of our destiny and choose which platforms we invest our money in,” he says.

One such platform is Abundance. It allows anyone to invest anything from £5 upwards into green energy projects, facilitating “direct investments into projects and businesses that generate real social or environmental benefits” while making a “decent” return.

Tax breaks from the government making investment in these types of schemes comparable to paying into a pension pot could sweeten the deal further for would-be investors.

“I am genuinely interested in what behaviours that would drive and what projects get invested in,” Llewelyn adds. “When investing, pension funds are governed by a risk profile.

“But if I’m investing personally, do I take social benefits which are not purely financial benefits into account?”

He wonders whether people would be happy to get a slightly lower return because they were supporting their local hospital or cancer unit, or perhaps a green energy project that they were passionate about. Or potentially someone may have an interest in investing in a local project which would help or impact on them personally such as a new bridge or connecting road.

He points out that major schemes such as Crossrail 2 or High Speed 2 would always require government support and this funding would be more suited to smaller schemes.

“The smaller localised projects are easier to handle from smaller localised funding so that’s where you’ll get more of it.”

But in the fast-paced changing world, he believes this type of finance could provide a valuable lifeline to otherwise overlooked infrastructure projects.

“It’s an early market but I think in five to 10 years’ time we will see more finance flowing into infrastructure through direct investment through platforms like this,” he says.

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