Good news for UK infrastructure
Date: 01 December 2011
The announced infrastructure spending includes 35 new rail and road projects.click to enlarge
On Tuesday UK Chancellor George Osborne announced a £5bn injection into infrastructure projects over three years, and has given the go-ahead for 35 rail and road proposals.
Turner & Townsend infrastructure Managing Director Murray Rowden commented, "Few will argue with the Chancellor's ambition to overhaul some of the country's most crucial infrastructure. The section of his speech where he confirmed the list of road and rail schemes singled out for investment was notable for its lack of boos. Investing in infrastructure is an investment in the UK's future growth, and the right project will generate both wealth and jobs in its own right.
"Mr Osborne said he has accounted 'pound for pound' for all of the £5bn of public money due to be injected into infrastructure construction over the next three years, but if the Government is to find the extra funds needed to meet the vast capital cost involved it will need both creativity and persuasion.
"Instead of the previously popular private funding initiatives (PFI), the Government is proposing to use private pension funds as a source of long-term funding, a logical and tested way of keeping much of the cost off the balance sheet - and getting a significant chunk of the money up front.
"It should be an easy sell too. From the pension funds' perspective, the right projects can be very appealing - as they provide a long-term, steady income stream and low risk. But the smaller projects will provide a tougher challenge as investors will want to see quicker returns in for the higher risk.
"The most likely source of this sort of funding will be a retooled and rebranded version of PFI. Despite its tarnished image and reputation for hidden cost, the PFI model can be an effective one. Our experience shows that it's still popular in several other countries - especially Canada. Successive UK Governments have found its ability to allow investment without driving up public debt levels to be irresistible.
"If the Chancellor is to come close to delivering this ambitious list of infrastructure projects, he cannot count on the pension funds to provide all the investment needed. He will inevitably be seduced, like his predecessors, by the siren song of PFI."
For further information contact:
Murray Rowden, UK Managing Director
t: +44 (0)207 544 4000
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