23/09/2011
The Coalition Government's National Infrastructure Plan (Oct
2010) set out an ambition for UK infrastructure investment to be
some £200 billion over the five years to 2015: investment
facilitated by smarter use of public funding, improving private
sector investment models, encouraging new sources of private
capital and addressing the regulatory failures that stand in the
way of greater private sector investment in infrastructure.
Much progress has already been made. The draft National Planning
Policy Framework, although enduring considerable teething pains, is
a firm declaration of intent. But challenges remain, particularly
in terms of loosening the purse-strings for development to take
place, as market conditions leads to companies sitting on their
hands and protecting cash reserves. Another restraining factor has
been the lack of opportunities for the private sector to match
their own willingness to invest with public sector funding - with
ERDF support almost the only game in town beyond some of the
developing approaches such as CIL and TIF, or prudential borrowing,
which remains a model approached with caution by local
authorities.
These ongoing challenges were recognised by the Chief Secretary
to the Treasury, who at the Liberal Democrat conference in
mid-September, announced a one-off disbursement of £500m through
the Growing Places Fund:
"Across the country, projects are being held back by tough
market conditions, difficult cash flow and a lack of confidence.
Projects where people could be working but aren't. That is why I'm
announcing today the creation of a new Growing Places Fund. Half a
billion pounds that will kick start developments that are currently
stalled. Half a billion pounds that will deliver key infrastructure
and create jobs. Putting local areas in the driving seat, to boost
the local economy and get people into work. Providing flexibility
to local areas to recycle funding for other projects once
development is completed."
Full guidance on the GPF is yet to be issued, but we understand
that the approach is likely to be modelled on the Regional
Infrastructure Fund (RIF) model operated by SWRDA. Importantly, and
in line with the coalition government's approach to 'smarter'
public sector funding, project investment through the RIF was
specified very clearly as:
- not constituting gap funding
- not for bridging viability gaps
- not to be made available to schemes where repayment of the
forward funding is not through the planning system.
The key principle of the RIF which we expect to see replicated
with the Growing Places Fund was the revolving nature of the
funding, with an emphasis on developing a return on
pump-priming/forward investment through identified revenue streams
e.g. strategic planning contributions, CIL income and potentially
TIF revenues, user charges, and other private investment such as
sale of concessions or longer term public funding commitments.
These returns can then be invested in other projects, creating an
'evergreen' funding approach.
While we await further clarification, here are some of our
suggestions for how the Fund might usefully be shaped, based on our
extensive experience of working with Government, local authorities,
and the private sector, on infrastructure funding and
implementation:
- Clear guidance on what will be appealing to the GPF decision
makers. Local authorities/LEPs do not necessarily have the resource
to review a range of existing or new projects in order for a
'beauty parade'. They need to know what aspects of a project are
going to be scored highly and develop/put forward projects
appropriately
- An appropriate geographical basis to the allocation system that
recognises the important infrastructural needs across England
- A decision making system that is clear and robust, but not
over-engineered or re-inventing the wheel. Our extensive experience
of Regional Growth Fund applications demonstrated that the private
sector found the process lengthy and in many cases overly
complex.
- Clear Government 'ownership' - the HCA looks well placed for
co-ordination and administration of the Fund, and are supportive of
this approach.
- The capacity to match GPF to ERDF, for example. This was an
aspect of RGF that was inadequately choreographed. Government
should ensure the GPF is aligned with, and familiar to, the CLG
ERDF team and their priorities.
- A clear steer on what Government views as appropriate leverage
for GPF, not just return on investment from future income. From our
own experience, RGF achieved a high level of private sector
leverage, and we expect similar proportions will be sought.
For more thoughts on GPF, keep an eye on our website, where we
will update our thinking as guidance emerges. Or for a more
detailed conversation, call David Tuck on 0113 245 2200.