Keep politics out of UK infrastructure decisions, says PiP
Decisions on strategic infrastructure need to be free from “short-term partisan, political interference” to unlock investment from UK pension schemes, said the Pensions Infrastructure Platform (PiP) in response to a consultation on the National Infrastructure Commission (NIC) that closed yesterday.
The infrastructure venture for pension schemes set out the key conditions that needed to be met to funnel investment capital from UK pension schemes into infrastructure projects in the country:
- A clear pipeline of future projects
- Projects structured to reduce overall risk consistent with producing real returns of 2-5% and to minimise any initial periods of zero yield
- Inflation-linked return streams for debt and equity financing
- Clarity over long-term regulatory and subsidy regimes
It held up the Thames Tideway Tunnel (TTT) as a good example of how multi-year construction projects could be structured to appeal to pension schemes, noting that the project “delivers a yield from day one” and includes contractual risk sharing mechanisms.
The Thames Tideway Tunnel is a £4.2bn (€5.9bn) London infrastructure project funded by a group including Dalmore Capital and insurers Allianz and Swiss Life.
PiP investors are collaborating with a £370m equity contribution.
The NIC, the arms-length government agency announced by chancellor George Osborne in October last year, can play “a vital role” in setting long-term priorities for infrastructure investment in the UK, said the PiP, but it will be rendered “obsolete and ineffectual if its recommendations consistently fail to be acted upon”.
Overall, it stressed the importance of predictability of long-term returns to pension schemes and said that, for core infrastructure, this mainly had to do with the political, legal and regulatory regimes the assets operate under, as well as in relation to subsidies and any usage revenues.
Having noted that infrastructure projects are lengthy ones vulnerable to short-term political risk, PiP said: “It is critical decisions on the UK’s strategic infrastructure needs be separated from short-term, partisan, political interference and that, once the country’s needs are established, there is confidence implementation decisions will be taken within a clearly defined period – not subject to open-ended prevarication”.
More specifically, it said it should be mandatory for the government to put before Parliament recommendations from the NIC.
“Allowing the government discretion over whether to respond to NIC studies risks introducing political expediency, undermining the perceived independence of the NIC and ultimately rendering it ineffectual,” it said.
The Treasury’s consultation proposed that the government would have discretion to do so.
The PiP agreed with most other questions in the consultation but opposed the proposal that the remit of the NIC should be set by a letter from the chancellor on behalf of the government.
“Allowing the chancellor of the day to set the remit for the NIC risks the introduction of politically driven short termism into the supposed 10-30 year focus of the commission,” said the PiP.
“It risks the remit’s being dependent on the particular views of the individuals who happen to hold the office of chancellor at any particular time.”
It also disagreed with the NIC’s “working assumption … to only review those areas of infrastructure that are the responsibility of the UK government” and that it should be free to review projects in devolved regions.
The responsible authorities in these regions would not, however, be obliged to accept or act on the NIC’s findings, said the PiP.
The PiP launched its first investment fund in 2014 and its second in February 2015 – both are externally managed.
It launched its first internally managed fund this month, a £1bn direct infrastructure fund.