Infrastructure, infrastructure, infrastructure! If you hadn’t got the message already, Rachel Reeves wants pension funds (and others) to invest in much-needed UK projects, from new reservoirs to more housing.
Indeed, the UK chancellor mentioned infrastructure no fewer than seven times in her Mansion House speech in the City of London last week, in which she said she would force greater consolidation of local government pension funds so they had the size and skills to invest more in illiquid assets.
Ensuring the funds are available is only one part of the problem. The other is supply of decent places to invest.
Investable infrastructure projects are in short supply, fund managers say privately. For which read well planned, engineered schemes that do not have a high chance of getting dropped once money has already been spent.
“A risk of private investments for pension funds . . . is in committing to projects which end up not being deployed, or achieving sub-market returns for the risk being assumed,” Richard Tomlinson, chief investment officer at Local Pensions Partnership Investments, wrote in a report in April.
This supply problem is not down to an absence of need. In fact, some £40bn-£50bn a year of private sector investment will be required to fund upgrades in areas including the UK’s waste, water, energy and telecoms infrastructure, the National Infrastructure Commission has estimated.
Short-termism is often to blame — both at a central and local government levels. All too often, decision-making about vital infrastructure has been piecemeal. Rarely has a long-term plan been drawn up to assess the country’s needs — and stuck to. Just take the prevarication over new onshore wind farms or airport runways in recent decades.
Budget constraints at the local authority level are another big problem. Tied to this, the UK’s snarled-up planning system has become the bugbear of almost every infrastructure developer and investor in the country.
Budgeting and design work could also do with improvement, the NIC suggested in a report in October. Indeed, critics say often too little is spent upfront on planning and developing schemes to avoid problems later on. Developing a pipeline of projects is also needed to keep skills, such as good project managers, in the country.
The Labour government is not blind to the problem. Reform of the planning system is at the heart of Sir Keir Starmer’s efforts to “get Britain building again”. He has also promised a 10-year national infrastructure strategy in the spring.
The hope is that with a clear plan, decent investable projects will eventually follow. Otherwise, there will be more pensions money chasing too few opportunities — hardly a recipe for investment success.
