The UK faces an undeniable need for infrastructure development. At the forefront of this challenge is the centrepiece of Labour’s growth agenda – housing. However, housing is just one piece of the puzzle.
The UK also requires significant investment in infrastructure such as utility networks, wind and solar power generation and social infrastructure, such as student accommodation.
Pension Insurance Corporation (PIC), a specialist insurer of defined benefit pension schemes, aims to address these needs. Its purposeful investment strategy is designed to generate secure, long-term cashflows from a wide portfolio of assets, including infrastructure, to serve its pension liabilities.
To date, PIC has invested more than £13bn (€15.3bn) in UK infrastructure, with a particular focus on social housing, student accommodation, and urban regeneration.
These investments not only secure the pensions of PIC’s policyholders but also generate substantial social value, benefiting communities across the country.
A lack of domestic capital?
PIC is not alone in its commitment to domestic infrastructure – across the UK’s pensions and savings system we estimate there is £200bn of capital poised for deployment in infrastructure projects.
Rather than a lack of available funds there simply is a shortage of investable projects. Additionally, the buyout market generates substantial asset pools with long-term liabilities, necessitating long-term investment strategies.
This approach aligns perfectly with the Labour government’s objective for the pension sector. So, what is holding these projects back?
Partly, we see this as being related to the UK’s BANANA [build absolutely nothing anywhere near anything] economy. But we also think the social value generated by these projects is frequently underappreciated by those nearby. Regeneration initiatives contribute immensely to local communities, creating skilled jobs, apprenticeships, improved healthcare outcomes, and economic boosts for local businesses.
Communicating these benefits effectively is key to overcoming opposition and unlocking the potential of these projects. While some long-term investors and developers are beginning to change the narrative around these developments, more must be done to help local authorities bring forward these initiatives.
How government could support investment in infrastructure
At PIC, we believe there is also a need for a new era of public-private partnerships, given the constraints on government finances. The resistance to the development of vital infrastructure projects is often fuelled by narrow regulatory remits.
A crucial first step for the new government should be to review how regulators oversee the economy. Building on ideas from the recent “Smarter Regulation” parliamentary white paper, inefficiencies must be addressed to ensure that investment flows into the areas where it is most needed.
This process should not be controversial or politically divisive; it is a necessary step if the UK is to achieve meaningful growth.
The impact of regulatory and arm’s-length bodies on housebuilding over the past three decades is a case in point.
Entities like Natural England and the Environment Agency, while fulfilling their specific objectives, have inadvertently hindered the delivery of much-needed housing and infrastructure.
Another priority for the government should be to mobilise the UK’s long-term savings to support infrastructure development.
While progress has been made in this area, there is a risk that government-backed investment could crowd out private investors with a lower cost of capital. While investment objectives would be met, the broader economy would be worse off.
A more sensible approach would be for the Government to take on the project risks that the private sector cannot, using its resources to create social value rather than competing on price with private investors.
Finally, the government must address the shortage of planning officers, which is a significant bottleneck in the development process.
PIC has proposed a ‘pipeline fund’ to create a pool of private capital to supplement public funding allocated to planning. This fund would enable the deployment of additional planners across local authorities, particularly where there is a lack of capacity and expertise.
The fund, which aims to raise £22.5m over three years from private sector organisations, would provide a vital resource to address the planning shortfalls that currently hinder economic development.
This pipeline fund represents a true public-private partnership, bringing together companies eager to improve the planning process and local government leaders committed to creating a more effective system.
By working together, the private and public sectors can create local economic opportunities across England, supporting the government’s growth mission, and fostering prosperity for all.
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