The Government is taking a fundamentally new approach to coordinating public and private investment in UK infrastructure. The Government prioritised public capital investment in infrastructure at the 2010 Spending Review and will now also use all the tools at its disposal to facilitate the private investment that will finance the majority of the UK's infrastructure.
The UK, like other countries, faces a number of challenges in attracting this private investment. Ongoing instability in financial markets could disrupt the supply of long term bank lending for project finance. Few institutional investors have developed the capability to assess direct investment opportunities in individual infrastructure projects. Much of the infrastructure needed in the next decade presents a higher risk profile for private investors, notably the energy infrastructure associated with a transition to a low-carbon economy.
The Government will take a number of steps to address these challenges, including:
• bringing new investors into UK infrastructure. The Government has signed a Memorandum of Understanding with two groups of UK pension funds (including the National Association of Pension Funds and the Pension Protection Fund, and a separate group representing pension plans and infrastructure fund managers) to support additional investment in UK infrastructure. The Government is also working with the Association of British Insurers to set up an Insurers' Infrastructure Investment Forum. The Government will target up to £20 billion of investment from these initiatives;
• exploring new sources of revenue to support investment. The Government is commiting to increase capacity and improve performance on the A14, which will support proposed housing developments in Northstowe, Waterbeach and Alconbury. It will explore innovative ways of financing this work, including tolls, which will also be investigated for other new capacity proposals. By spring 2012, the Government will have developed proposals with local partners for improvements to the A14 road and the other local transport networks;
• allowing local authorities more flexibility to support major infrastructure. The Government today announces its support for the extension of the Northern Line to Battersea and will consider allowing local borrowing against future receipts of Community Infrastructure Levy (CIL) to support this, subject to commitment by April 2013 from a developer to contribute and develop the site. As part of its commitment to enable Tax Increment Financing, the Government will also consider allowing city mayors to borrow against future CIL receipts where this can make a significant contribution to national infrastructure; and
• using guarantees when investors cannot accommodate certain risks. The Government will, subject to affordability, consider using transparent forms of guarantee to support specific projects where this provides best value for money for taxpayers and users, recognising that the private sector cannot always bear every risk in major new projects. In line with this, the Government recently confirmed its openness in principle to provide contingent financial support for exceptional risks in the construction of the Thames Tideway tunnel.
These actions complement existing government commitments on:
• reforming the Private Finance Initiative. The Government will launch a call for evidence in December 2011 to consider new models for using the private sector in the delivery of public assets and ensure that the mistakes of the past are learnt from, while making full use of the wealth of experience across the public and private sectors; and
• establishing the Green Investment Bank. The bank will receive funding of £3 billion over the next three years to support investment in green infrastructure, with the intention that it will be able to borrow from 2015-16.
The Government is also increasing public investment in infrastructure and has already announced the £500 million Growing Places local infrastructure fund and £150 million to expand mobile network coverage to reach 99 per cent of the population. As part of the new investment at the 2011 Autumn Statement, the Government can announce major investments in road, rail and broadband networks.
The Government is investing over £1 billion to tackle areas of congestion and improve the national road network, including:
• two new managed motorway schemes to allow use of the hard shoulder at congested times on the M3 and M6;
• improvements to M1/M6 Junction 19, the A14 Kettering Bypass, widening of the A453 and the A45/46 Tollbar End improvement scheme; and
• smaller projects which will deliver significant improvements on the road network, such as removing bottlenecks and improving safety and road layout.
More than £1.4 billion will be invested in railway infrastructure and commuter links, including:
• electrification of the Transpennine railway route from Manchester to Leeds and a rail link between Oxford and Bedford;
• enhancement and renewal works to improve stations and rail infrastructure, improve resilience against extreme weather and tackle problems more quickly; and
• improvements to the quality of travel for rail users, including extending smart ticketing across London and the South East, supporting the Southern Rail franchise's procurement of 130 new carriages and limiting the increase to regulated rail and Transport for London fares in January 2012 to the Retail Price Index plus one per cent.
The Government is committing £170 million of extra funding to allow more local transport projects to go ahead, including the Kingskerswell Bypass in Devon, the Lincoln Eastern Bypass and Manchester Cross City Bus, and will write down £150 million of debt on the Humber Bridge which will halve the tolls for cars.
The Government is announcing £100m to create up to ten 'super-connected cities' across the UK, with 80-100 megabits per second broadband and city-wide high speed mobile connectivity.
There will be a particular focus on small and medium sized businesses and strategic employment zones to support economic growth. Edinburgh, Belfast, Cardiff and London will all receive support from this fund and a UK-wide competition will decide up to six further cities that will also receive funding.
Where appropriate the devolved administrations will receive Barnett consequentials to invest in their key infrastructure priorities.