Economic secretary Ian Pearson this week said he was seriously considering setting up a bank to drive investment in infrastructure.
The idea for such a body has been heavily promoted by the ICE and the Treasury is considering establishing it under the wing of its Infrastructure UK (IUK) arm. IUK is being established to plan and develop national infrastructure over the coming 50 years.
“I have always seen IUK as being an important missing link between areas of government,” said economic secretary to the Treasury Ian Pearson.
“I think rather belatedly, we have got around to wanting to have a more strategic approach to supporting industry,” he said.
“IUK is a strategy and delivery body, and we are looking at a number of options for how to finance our infrastructure needs.
“This will include looking at an infrastructure bank,” he said.
“No new government will be wanting to not pursue the PFI/PPP projects, which deliver good value for money to the taxpayer”
“There is an underlying truth here - when people are calling for an infrastructure bank, it recognises a need to invest in infrastructure. Is the best way to address this underlying truth an infrastructure bank or is there another way of achieving the same end which has better value for money?”
Full details of IUK’s remit are to be unveiled in the Budget later this month, although IUK will not complete a full infrastructure plan - its first major milestone - until later this year at the earliest.
“We are stepping up our ability to plan and deliver major infrastructure,” Pearson told NCE.
He added that infrastructure funding would be a key issue for whoever wins this year’s General Election.
An infrastructure bank has long been proposed by the ICE. Last month it set out a funding mechanism that could finance £500bn of projects over the next decade (NCE 25 February).
Pearson said he was looking at issuing low carbon bonds, as suggested by the ICE. “We will consider the idea of a low-carbon investor institution, or green bonds.
Infrastructure UK’s top 3 tasks
● 50-year spending programme which will be constantly revised
● Look at infrastructure markets and assess their capacity
● Push cost-effective delivery, driving the government’s more for less agenda
“It will depend on how we can bring additional finance into the infrastructure space. “[Trade minister] Mervyn Davis and I have been very keen to look at what further role pension funds could bring because it seems to both of us that there is a natural fi t for funds to have long term stable returns, and when the construction phase is over, major infrastructure can deliver these long term returns as well,” he said.
Pearson defended the role of the private finance initiative (PFI), with the private sector expected to supply around 70% of investment under Labour’s vision.
“No new government will be wanting to not pursue PFI/PPP projects, which deliver good value for money for the taxpayer,” he said. “PFI does deliver on time and on budget and has had a galvanising effect on traditional public procurement,” he said.
He added that £5bn of PFI deals had been completed in 2009. Pearson said Labour’s plan had initially focused on schools and hospitals, and that national infrastructure was next.
“We are proud of our track record, with £1.5trillion invested since 1997. We have done in 10 years what would normally take a generation,” he said.
A “political football”
Pearson hoped IUK would not become a “political football” despite different party focuses. “In the last 20 years there has been feast and famine, with spending yo-yo-ing, and this has not been helpful for long-term planning. I want to see if it is possible for cross party consensus for a certain level of investment.
“IUK has been created because there is the recognition that there needs to be long term planning and certainty for investors.
“We are looking at UK infrastructure needs, and examining principles around which those needs can be prioritised, and looking at ways to deliver. All things government should be interested in doing,” he said.
The ICE welcomed Pearson’s approach. “It is very encouraging that the government is considering a funding unit along the lines of a national infrastructure investment bank,” said ICE director general Tom Foulkes.
“The ICE has been calling for such a mechanism for some time, as a way of attracting the large volumes of private capital needed to ensure vital infrastructure continues to be built, without diverting money away from front line public services.
“We also believe such a unit will greatly enhance the effectiveness of Infrastructure UK. We look forward to hearing more detail in the coming Budget.”