5.1 The Government's overall approach to ensure that the UK's infrastructure plans can be financed is to maintain a stable and credible policy and regulatory framework for infrastructure across the sectors, so that investors can plan and invest with confidence, and political and regulatory risk is minimised. Building on this, the Government will henceforth take a new strategic approach to coordinating public and private investment in infrastructure, using all the tools at its disposal.
5.2 Financing the UK's infrastructure needs over the long term may involve two potential challenges.
5.3 First, the principal sources of private finance for the UK's existing infrastructure pipeline - the balance sheets of utility companies and commercial banks - may face growing pressures in the medium to long term. To respond to this challenge, 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 unlock 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;
• will provide, at the beginning of the next fiscal year, the first £775 million of the £3 billion pledged for the Green Investment Bank over the next three years. Ahead of state aid approval for the Green Investment Bank, the Government will stand ready to make co-investments with the private sector in projects from April 2012, with assets subsequently passing over to the Bank; and
• will consider using transparent forms of guarantees to support specific projects where this provides best value for money for taxpayers and users and subject to affordability, recognising that the private sector cannot always bear every risk in major new projects. The Government has, for example, recently indicated its openness in principle to provide contingent financial support for exceptional risks in the construction of the Thames Tideway tunnel.
5.4 Second, there will be constraints the degree to which public finances can support new infrastructure investment. Therefore, increasing the rate of investment beyond the current pipeline set out in this plan will involve finding new ways of engaging private finance.
5.5 To respond to this challenge, the Government will explore opportunities for the use of tolling or concession models in relation to new infrastructure development.
5.6 The Government will also aim to leverage greater levels of private investment through targeted deployment of public capital and allow local authorities more flexibility in the way they use local receipts to fund infrastructure in specific circumstances.
5.7 The costs of infrastructure investments are ultimately borne by households and businesses in the bills and taxes they pay. Almost two thirds of the investment pipeline identified by the Government will be funded by bill and fare-payers, and with investment levels expected to increase it is important to ensure that they are able to afford these costs. The Government has therefore identified a range of actions to ensure the affordability of the UK's infrastructure plans.