Real Estate News
Solution for infrastructure 'conspicuous by absence'
18 Sep 2012
UK - A joint survey by KPMG and the UK's business lobby group has found that only a third of businesses believe government policy on infrastructure will boost investment from sources such as pension funds.
In its second annual survey - 'Better connected, better business' - the advisory firm and the CBI found that companies' faith in government policy had declined by 10 percentage points year on year - contrasting with a more positive outlook from infrastructure investors, where nearly half thought investment would increase.
Richard Threlfall, partner and UK head of infrastructure at KPMG, acknowledged that politicians' awareness of the asset class had improved in recent years, and that they were now at the "forefront of political debate".
But he also said that such prominence had not helped boost overall investment.
"Despite the announcement and subsequent dialogue around the Pensions Infrastructure Platform (PIP), an immediate and workable solution to investment in infrastructure, particularly greenfield projects, remains conspicuous by its absence," he said.
The PIP, a joint venture between the National Association of Pension Funds (NPAF) and the Pension Protection Fund, is aiming to launch in January next year.
According to chief secretary to the Treasury Danny Alexander, seven UK funds have so far agreed to fund start-up costs and made soft commitments.
The UK's largest local authority fund said earlier in the year it had agreed "in principle" to provide £100m (€123.5m) in seed capital.
CBI director general John Cridland echoed Threlfall's concerns over tangible progress, saying that a "mixed picture" had emerged from survey results.
"Business leaders welcomed a number of the government's recent policy initiatives, such as changes to the planning system and the move to incentivise pension fund investment in infrastructure," he said.
"But a failure to translate positive ideas into action on the ground has left many business leaders sceptical about the overall impact of government policies."
The survey further found that 37% believed reducing the construction risk posed by greenfield projects would boost interest from investors, including pension funds, while only 35% of companies believed government policies were boosting investment overall.
"The risk profile of infrastructure projects can often make them unfeasible as an investment proposition," the report noted.
"It is therefore incumbent on the government to mitigate some of this risk to draw in investment from these funds and other private sector sources."
Steps to reduce risk have already been taken, with the NAPF saying a recent £40bn guarantee scheme for select infrastructure projects would help boost confidence in the sector.
The CBI has previously called for the time-limited reinstatement of the dividend tax credit to boost the attractiveness of infrastructure for "risk-averse" pension fund investors.
Author: Jonathan Williams