Infrastructure expert: lack of UK Budget announcements means "wait continues" for overseas investors

Out-Law News | 20 Mar 2014 | 4:40 pm | 2 min. read

Time is running out for the UK government to harness the desires of institutional and overseas investors to inject much-needed funding into UK infrastructure, an expert has said.

Jon Hart of Pinsent Masons, the law firm behind Out-Law.com, was commenting after a Budget announcement that focused on "individuals ... rather than the bigger picture in respect of UK infrastructure". The Chancellor of the Exchequer's speech and corresponding Budget document contained "nothing really new" beyond "comments in respect of the promise of further announcements in the autumn of 'the projects to be built over the remaining decade'", he said.

"Housebuilding – the extension of 'Help to Buy' and new homes in Ebbsfleet provide a camouflage of good news stories for construction, whilst missing the point that the industry is not a monolithic industry," he said. "The infrastructure sector of the industry remains shot to pieces and no real palliative measures have been announced from the despatch box today."

"There is a paradox in this. As part of the improving economic fortunes, there is perhaps more potential financing available for investment in infrastructure than at any time since the high water mark before the economic slump. New sources of investment – whether through the Pensions Investment Platform, institutional funders or through sovereign investment funds, including the so-called 'wall of Chinese money' - are looking for opportunities to invest in appropriate assets. The over-heated secondary market for infrastructure demonstrates the strength of the appetite for new projects. But where are they?" he said.

In his Budget speech, the Chancellor announced an additional £140 million for immediate repairs and maintenance to damaged flood defences across the UK, on top of that already committed following the winter storms and floods. He also announced a £200 million 'potholes challenge fund', from which local authorities would be able to bid for a share.

The government allocated £100 billion to capital spending on infrastructure as part of the 2013 Spending Round, and published its updated National Infrastructure Plan (NIP) alongside December's Autumn Statement. The updated NIP set out its investment priorities up to 2030 and included a list of 40 'Priority Schemes' in the energy, transport, flood defence, waste, water and communications sectors.

However, Hart said that it was "funding, not finance" that was preventing the necessary investment in UK infrastructure. Foreign investors were increasingly "eyeing up key transport and other infrastructure developments", as well as more traditional real estate assets and projects, due to the UK's status as a "safe haven economy, offering a home for investment". Institutional investors in the UK and beyond are also becoming increasingly keen to invest in infrastructure, including the seven UK investors that have already committed £260 million to the industry-backed Pensions Infrastructure Platform.

"In the money-go-round of constraints within which the Chancellor has had to operate, there has been no appetite to look at sources of new funding i.e. from individual voters to pay for new projects," Hart said. "However, the clock is running down. This isn't just in respect of the months remaining to the next election, but in the length of time before overseas investors will shrug their shoulders and look to put their money elsewhere. An opportunity remains for the government to get on the same page as institutional investors and funders before the general election, but there isn't much from today's announcement to suggest that this is going to be particularly high on the political agenda."

"The government must allow overseas investors to invest in building Britain and creating a new and modern infrastructure so desperately needed," he said.