Plans for Growth

The Welsh Government’s Infrastructure Investment Plan for Jobs and Growth published last week opens the door to the possibility of private investment in its infrastructure projects in Wales, to help create the economic growth and jobs that Wales needs.  Right on cue, yesterday’s CBI report on attracting investment to UK infrastructure, calls on the UK government to take steps to incentivise private sector investment in capital projects. It will be interesting to see how some of the changes which the CBI want to see implemented are received not just by the UK Government but by the Welsh administration as it develops its thinking on the role of private finance over the course of the summer.

The Welsh Government is clear that its preference is for capital projects to be funded by direct government grant but there is an acknowledgment that it is not feasible for that to meet the current level of need in Wales for a range of infrastructure projects with economic, social or environmental benefit –  given the limitations of the Welsh Government’s funding mechanism. The challenge then is to develop vehicles which attract private investment but also deliver value for money over the long term to the public purse and the requisite degree of control and protection over assets for the public good.

The Welsh Government’s openness to private investment stems in large part from the UK government’s 40% cut to the Welsh Government’s capital budget and the urgent need to stimulate the Welsh economy. The Welsh Government” has not favoured the use of the Private Finance Initiative” and as a result, the lack of debt from infrastructure projects allows some scope for partnering with the private sector through the right structures.

The Plan explicitly anticipates the need to attract pension funds to public infrastructure financing, which is where the CBI’s report picks up the discussion. The long term nature of pension fund liabilities should provide a good fit with the long term financial returns from infrastructure projects. Overseas pension funds are already active in the UK infrastructure sector. At home, local government pension funds such as the Greater Manchester Pension Fund  have invested in infrastructure – with the added benefit of being able to stipulate that part of the fund is invested in local projects.  But this is a very small part of the £1 trillion of capital held in UK pension funds.

As well as calling for pension funds to collaborate and build the necessary skills to partner with government, the CBI are calling for changes to taxation to incentivise investment, which in the case of Wales are beyond the powers of the Welsh Government. But alternative proposals should be considered to explore the potential for pension funds as strategic partners – to support the Welsh Government to deliver infrastructure projects to benefit our communities and create the jobs that we need.

On 25^th June the Bevan Foundation is holding an event on the Future of Funding in Wales at which Prof Gerald Holtham, adviser to the Welsh Government on its Infrastructure Investment Plan for Jobs and Growth will be speaking. Register to attend here

Jeremy Miles is a Trustee of the Bevan Foundation