UK government moves to stimulate infrastructure, housing investment
An increased focus on infrastructure and housing investment by the UK government in its Autumn Statement was largely welcomed today.
A £23bn (€27bn) National Productivity Investment Fund and investment in rail, telecoms and housing was announced by UK chancellor Philip Hammond, while a pipeline of PF2 projects is likely to be announced early next year covering economic and social infrastructure.
Merrick Cockell, chairman at the London Pensions Fund Authority, said: “It is encouraging the chancellor has identified infrastructure as a priority and will work with the National Infrastructure Commission on a plan.
“There is no shortage of funds to invest in UK infrastructure. What is lacking are the appropriate assets and the right deals to invest in.”
He said he hoped an economic infrastructure plan would include how to finance such developments and involve potential asset owners, such as UK pension funds, “right from the beginning”.
Vivek Paul, director of client solutions at BlackRock, said Hammond’s statement suggested a “potential future role” for the private sector in infrastructure projects.
“Any increase in the future supply of infrastructure assets accessible to pension funds would be welcome,” he said.
Mercer principal Amarik Ubhi said Hammond’s approach to infrastructure appears to be “evolutionary rather than revolutionary”, with a specific focus this time on road congestion and communications infrastructure.
“We view the Government’s stated commitment to building out and upgrading the UK’s infrastructure positively,” Ubhi said.
Michael Wistow, international tax partner at law firm White & Case, said the £23bn fund would provide a “tangible boost” to the economy and could be a “game-changer”.
David Curtis, head of UK institutional sales at Goldman Sachs Asset Management, said government investment in infrastructure was “often seen as an attractive investment for pension funds in need of reliable long-term investments”.
He added: “The sector certainly does have an important role to play in portfolios, but its value depends on the kind of projects being pursued.”
More “modest projects”, such as broadband extensions or improvements to local roads, are not on a “sufficient scale” to help pension funds.
“So we await with interest further detail on the individual projects the government intends to support,” he said.
“In principle, there should be a positive feedback loop between the UK’s need for infrastructure and the pensions industry’s need for assets, but those assets need to offer the cashflows and inflation protection schemes require.”
A dedicated £2.3bn housing infrastructure fund for up to 100,000 new homes in high-demand areas, unveiled by Hammond, was welcomed by Melanie Leech, chief executive of the British Property Federation.
Hammond allocated £7.2bn to the construction of new homes to 2020-21.
Leech said the “hidden gem” is the spending on infrastructure to help bring forward housing sites.
“Infrastructure spending is housing delivery’s silver bullet, and the considerable commitment to invest about £2bn a year is therefore very welcome,” she said.
However, Christopher Mahon, investment manager and director of asset allocation research at Barings, said the chancellor’s infrastructure plan was “upside down”.
“The UK treasury has already committed eye-watering sums of money to programmes such as HS2, Heathrow & Hinkley that won’t be completed for another 20 years,” he said.
“Billions upon billions have been promised, with those projects costing £56bn, £19bn, and £18bn, respectively.”
Only “token amounts of money are being spent on practical projects that are needed today, such as easing rail and road bottlenecks”, he said.
The £2bn announced today, Mahon said, was “fifty times smaller than the amounts committed to the three mega projects alone”.
Leech said an allocation of £1.7bn for accelerated construction on public land would also help “upscale the modular construction sector, meaning a more efficient industry and the faster delivery of homes”.
Jeremy Blackburn, head of policy at the Royal Institution of Chartered Surveyors, said it had warned the UK treasury that the country was facing a “critical rental shortfall of 1.8m homes”.
However, Hammond did not make an expected announcement on Treasury-backed infrastructure bonds, as promised by Prime Minister Theresa May in July this year.
Berwin Leighton Paisner’s Mark Richards, said: “There was nothing on the much-mooted infrastructure bonds, which was disappointing.”
Chris Cummings, chief executive of the Investment Association, said: “We are today giving our formal backing to the development of a UK municipal bond market, which will help local authorities secure much-needed financing to invest in new infrastructure projects and meet their refinancing needs.”
He said the association was launching a position paper outlining its support and highlighting the benefits of municipal bonds for investors, borrowers and the wider economy.
Hammond announced £1bn to invest in full-fibre broadband and trialling 5G networks, and five years of business rates relief for new fibre-optic infrastructure, which was welcomed by Deloitte Real Estate’s head of business rates James Thompson.
“This will remove one of the major barriers to the rollout of high-speed telecommunications infrastructure,” said Thompson, who explained that the relief would be restricted to ‘full-fibre’ infrastructure – which interprets as ‘fibre to the property’.
The UK Treasury predicts the value of the relief to rise from £10m next year to £25m by 2022.
“We would expect the speed of rollout delivery to be increased as a result of this relief,” Thompson said.
“This will provide a medium-term benefit and will help grow the business rates tax base in the longer term when the five-year relief has expired.”
Ian Allison, director in business rates at BNP Paribas Real Estate, said the pledge, aimed at assisting the chancellor’s goal of making the UK a leader in 5G, could be subject to EU state aid rules and therefore be worth up to €200,000 over a three-year period.
“I’m sure a utility company would be hoping for significantly more relief than this,” he said.