Six major insurers have pledged to invest £25bn in UK infrastructure, but few new projects were announced in the Treasury’s updated National Infrastructure Plan and the autumn statement.
Insurers Aviva, Friends Life, Legal and General, Prudential, Scottish Widows and Standard Life, working together with the Association of British Insurers, said they would be willing to invest in projects including transport, housing, health and education following successful negotiations on the European directive Solvency II.
The investment was welcomed; however, with no firm commitment to spend from the insurers, some questioned whether the money could be used effectively.
EC Harris head of infrastructure Matt Riley said the UK “still does not have the right policy environment for these funds to be put to good use and make a real difference”.
Aecom head of government and public sector John Hicks said the potential funding could be a “white knight”. “If it ever happens, will it be in addition to continued government funding or, most likely, replace what we should already be investing?” he said.
The updated NIP revealed the overall value of its infrastructure pipeline had increased from £309bn to more than £375bn of investment to 2030.
However, £110bn of that is due to be delivered after 2020. Mr Riley said: “This, in itself, is a significant delay to the previous National Infrastructure Plan in 2011 that promised all of this by 2020.”
“If the £25bn investment from insurers ever happens, will it be in addition to continued government funding or, most likely, replace what we should already be investing?”
John Hicks, Aecom
Mr Hicks said the average £45bn annual spending on infrastructure by the UK government remained well below the £78bn a year spent by “typical developed economies”.
Announcements made in the updated NIP included a UK Guarantee for the development of a new nuclear power station at Wylfa in north Wales, £50m for a full redevelopment of the railway station at Gatwick Airport and the scrapping of tolls on the planned A14 scheme between Cambridge and Huntigdon.
Pinsent Masons infrastructure partner Kate Orviss said the NIP was “largely a restatement” and added that many of the announcements related to existing projects were more relevant to investors than to construction.
While the majority of infrastructure spending will go to transport and energy projects, the updated NIP announced support to develop a higher education and cultural quarter on the Olympic Park in partnership with University College London, the Victoria and Albert Museum and the London Legacy Development Corporation.
In the autumn statement, the chancellor George Osborne announced the Treasury will fund a new £10.7m science and research facility named after professor Peter Higgs at the University of Edinburgh.
It will also invest £270m over five years to build a network of quantum technology centres across the UK.
On the high street, business rate rises were capped at 2 per cent and there will be a £1,000 discount for smaller premises.
Glenigan economics director Allan Wilen said this could boost the flow of retail and leisure refurbishment and fit-out projects.
The government confirmed its capital gains tax will be levied on future profits from property sales made by foreign investors.
Social infrastructure received little attention in the government’s announcements, which Wates head of education Stephen Beechey described as a “missed opportunity”.
The government has committed to provide free school meals to infant pupils in reception, year one and year two, and will provide £70m of new funding from the Treasury and £80m from “unspent Department for Education maintenance budgets” to schools to build new kitchens and dining facilities, or expand existing ones, to enable them to deliver the programme.
EC Harris head of education Marcus Fagent said the funding “may fall short of what is required, allowing £7,500 per school where a new kitchen will cost £50,000 and upwards”.
Chancellor announces £1bn to unlock stalled housing sites
The chancellor George Osborne has announced a £1bn extension to the Local Infrastructure Fund to unlock stalled housing sites.
In his autumn statement, Mr Osborne said the fund would be extended by £1bn over five years from 2015/15 to 2018/19, and would begin by funding nine sites that will together provide 27,000 homes.
The Local Infrastructure Fund was in last year’s autumn statement with a £225m allocation to give loans or equity backing to developers for infrastructure that will unblock stalled schemes.
Nine sites earmarked for funding include a £2bn Paramount theme park in Dartford, Kent, by London Resort Holdings – a joint venture between Brookfield Multiples, Development Securities and landowner Lafarge.
Three of the schemes are in the South-east, with funding also due to benefit projects in Leeds, Leicester, Manchester, Newark and Swindon.
WSP head of development Ian Liddell said: “The reality is that you can’t have houses without roads, water and energy supplies, so it’s extremely good news that the government will be funding infrastructure to unlock stalled developments.”
However, Deloitte Real Estate head of residential projects James Pargeter said it would be “too diluted to make a really significant difference to overall UK supply”.
Meanwhile Aecom head of government and public sector John Hicks pointed out that “how the £1bn that has been targeted is to be raised – other than through land sales, which do not happen quickly – was not apparent”.
Mace Investments chief operating officer David Grover said the key to unlocking stalled sites was not funding, but a collaborative approach between developers and investors.
He said: “The partners behind projects need to work together effectively to unlock stalled schemes and there needs to be a clear path to escalate difficult issues that may be hampering progress.
“Potential investors and developers need to have a greater level of security that there is a willingness on all sides to get schemes moving.”
Mr Osborne also announced that councils selected through a competitive bidding process would be able to borrow £300m in 2015/16 and 2016/17 to build new affordable homes, raising the cap on borrowing for housing.
Those councils would have to subsidise the build programmes by selling vacant, high-value social housing.
Mr Pargeter said the funding is “a small step in the right direction”. But London Councils executive member for housing Sir Steve Bullock said the measure “unfairly prejudices London”, which has the greatest housing need and the most valuable housing stock.
He added that London Councils will continue to campaign for the complete removal of the housing borrowing cap.