UK Government publishes consultation on how best to support private investment in infrastructure post-Brexit
Posted in Infrastructure, mining and commodities
Following its departure from the European Union (EU), the UK will cease to be a member of the European Investment Bank (EIB), meaning UK infrastructure projects will no longer be automatically eligible for financial support from the EIB (for more information see our blog post: The draft Withdrawal Agreement: funding for infrastructure and innovation projects). The UK Government is exploring options for a future relationship with the EIB, but recognises the need to plan for all scenarios to enable the support of private investment in UK infrastructure.
In March 2019, the Government published the Infrastructure Finance Review, a consultation seeking views on how best to support private investment in infrastructure post-Brexit. Over the course of the review, the Government will consider the infrastructure market, analyse future challenges and look at the future role of Government in ensuring that viable projects can raise the private investment they need. The consultation closes on 5 June 2019.
Future challenges for UK infrastructure projects without access to EIB funding
The review summarises the impact of EIB lending in different areas:
- the EIB has made private investors more comfortable with technology and early deployment risk in new technologies. For example, in the UK offshore wind sector, the EIB was a significant lender to the market at a time when private investors were not yet comfortable with the risk profile of the technology. Its presence in the market provided a ‘stamp of approval’ to private investors and there have since been offshore wind projects that have reached financial close without EIB involvement;
- market capacity can sometimes be a problem, for example, when large or many projects come to market at the same time, or there is market contraction. This can lead to a funding gap, which the EIB historically has been able to fill. The Government acknowledges that it needs to be ready to respond to potential funding gaps post-Brexit. Existing UK Government support for infrastructure finance – room for improvement?
- The UK Government already has a number of tools in place to ensure that infrastructure projects can raise the finance they need. The Government may also lend directly to projects, but its intervention must be for the public good, be consistent with wider Government objectives and address a clear challenge facing the market. Available support measures include:
Among other things the Government is seeking views on the perceived strengths and weaknesses of the UK infrastructure finance market, whether the private sector could fill the gap left by the EIB post-Brexit and what capacity the market might have on a long term basis to fund large scale infrastructure projects.
Existing UK Government support for infrastructure finance – room for improvement?
The UK Government already has a number of tools in place to ensure that infrastructure projects can raise the finance they need. The Government may also lend directly to projects, but its intervention must be for the public good, be consistent with wider Government objectives and address a clear challenge facing the market. Available support measures include:
- UK Guarantees Scheme (UKGS) – since 2012 when it was established, the £40 billion scheme has issued £1.8 billion of guarantees to nationally significant infrastructure projects. In some cases, projects have pre-qualified for guarantees, but have ultimately raised private finance;
- Digital Infrastructure Investment Fund (DIIF) – the scheme was launched to support the roll-out of next-generation broadband networks. The Government acts as a cornerstone investor and has provided £400 million across three funds, matched by the private sector;
- Charging Infrastructure Investment Fund (CIIF) – the £200 million fund to be launched in spring 2019 will support the development of electric vehicle charging infrastructure, enabling the fast-paced expansion of the technology;
- The Infrastructure Finance Unit (TIFU) – the Government may offer direct lending to infrastructure projects, depending on wider market conditions. Established following the financial crisis, TIFU lent £120 million for one project and engaged on other projects before market conditions recovered.
The consultation asks for views on the effectiveness of the Government’s existing support and for ideas for alternative forms of support.
Central Government or independent management for private sector support tools?
Currently, the Infrastructure and Projects Authority (a joint unit between HM Treasury and Cabinet Office) delivers support for infrastructure financing on behalf of the UK Government. The effectiveness of the above tools to encourage private sector investment is influenced by how they are managed. While the UKGS may help to encourage private investment through its involvement with eligible projects, and the DIIF and CIIF act as a ‘stamp of approval’ demonstrating the Government’s confidence in the growth of emerging technologies, there are concerns surrounding the way in which such support programmes are delivered.
The National Infrastructure Commission (NIC) in its 2018 National Infrastructure Assessment (NIA) suggested that an institution which is operationally independent from the UK Government should be established if the UK loses access to EIB funding. The Government is seeking views on whether interventions in the UK infrastructure finance market should be delivered by central Government or a body that is operationally independent.