Key influencers and decision makers from across the investor community will gather next week for the Global Infrastructure Investors Summit on 2nd June, at the London Stock Exchange, to discuss infrastructure investment.
While we know there is a pool of capital from pension funds, banks, wealth managers, sovereign wealth funds and asset managers to invest – the debate about its attractiveness as an asset class goes on – and this will be a major theme for the Summit. In the meantime however, at grass roots level public authorities are experimenting with new approaches that will get their infrastructure projects going, and create investment opportunities for certain types of funders. There are three key mechanisms in play to help stimulate activity:
- Revolving Infrastructure Fund (RIF)
A Revolving Infrastructure Fund (RIF) is set up by local authorities or a Local Enterprise Partnership to pay upfront for infrastructure projects that generate significant economic growth. The investment is recouped by the LA/LEP from developers through planning obligations (Section 106 /Community Infrastructure Levy – see no. 3) or through the proceeds of a land sale – if they have a stake in it. The model encourages developers to commit to projects; and creates an uplift in land value which can be released by the LA/LEP to continue to invest in further infrastructure projects. The West of England Local Enterprise Partnership's £56.7m RIF will fund roads, flood relief schemes and bridges. A number of Local Enterprises Partnerships across England have started their own RIFs.
- Tax Increment Financing (TIF)
Under Tax Increment Financing (TIF), local authorities can borrow for infrastructure projects, against a predicted future growth in business rate receipts. The investment is made on the basis that an uplift land values will be generated and can be used to repay the initial investment. The funding is borrowed from either public or private sources, or is in some cases provided by the developer. There are many examples of TIF across the UK, including Glasgow (Buchanan Quarter, £310m); North Lanarkshire (Ravenscraig, £73m);and London (Nine Elms) where the Greater London Authority (GLA) wants to borrow £1bn to pay for the London Underground Northern line extension.
- Community Infrastructure Levy (CIL)
The Community Infrastructure Levy (CIL) permits local authorities in England and Wales to levy charges on new developments in their area. The money raised can be used to fund infrastructure projects including road schemes, flood defences, schools, hospitals, health and social care facilities, park improvements, green spaces and leisure centres. The UK government expects the Levy to raise an estimated additional £1bn a year of funding for local infrastructure by 2016.Most local authorities have introduced a CIL charge applied on each square metre of new developments that creates net additional floor space, where the gross internal area of new build exceeds 100 square metres.