UK – The UK should consider the launch of a National Investment Bank (NIB) charged with overseeing the regulation of and fundraising for domestic infrastructure projects, a new report has suggested.
Launching the joint report by Pension Insurance Corporation (PIC) and Llewellyn Consulting, Russell Jones, partner at the consultancy, suggested the new institution could be granted the same level of independence as the Bank of England, while also issuing project funding for developments.
He said it would also separate decisions on infrastructure from the political cycle of elections.
'UK Infrastructure: The challenges for investors and policymakers', says the new bank could take the place of the Green Investment Bank (GIB), launched last year to foster investment in renewable projects.
However, the GIB's ability to issue project debt was curtailed when the government linked issuance to UK national debt falling below a set point, which some criticised as a "missed opportunity".
John Llewellyn, co-founder of the eponymous consultancy, said the decision to link GIB's ability to issue debt to the national debt level had tied "both hands behind its back".
He added that, following discussions with ratings agencies, he had been assured that the agencies would consider whether a debt-funded project was earmarked for sale once private sector appetite for infrastructure returned, meaning the government would not be left out of pocket.
Mark Gull, co-head of asset and liability management at PIC, agreed that ratings agencies would be lenient towards debt funding of infrastructure.
"If you're seen to use [debt] to create growth, the ratings agencies will look on that very positively," he said.
De-politicisation was also a theme repeatedly returned to during the launch roundtable, with the discussion around growing airport capacity in the South East of the UK – with rival bids proposing, among other things, the creation of a new airport or the expansion of capacity at one of the existing hub airports in London – cited as an example of where politics interfered with development.
Gull said of the debate: "It shows these things can become very political, if I can put it politely," he said.
"It's become a clearly very, very political issue and, if an MP is worried about what happens in his local constituency for a major project for the UK, it is a very good advert for de-politicising the process."
He noted that a NIB would instead be able to put forward a case for the economic advantages of any project, while potentially being able to avoid some of the planning problems that hinder infrastructure construction at present.
Jones said that a further advantage of a NIB would be that its project bonds would be likely to offer returns above conventional Gilts.
"The fact it's offering a higher rate of return on these bonds would be something that is attractive to the pensions industry," he said.
He added that it would also be important that it brought together the relevant expertise for each project, in turn aiding smaller investors.
"Smaller pension funds, smaller institutional investors, they don't have the in-house expertise required to really get involved in these investments," said Jones.
"If the National Investment Bank could help them to achieve that expertise, that would be another positive element."
IPE and Stirling Capital Partners are co-hosting a conference, Infrastructure for Pension Funds and Other Capital Owners, to take place on 2 October in London. For more information, please visit www.ipe.com/infrastructure.
