Perspectives on Infrastructure: Investment opportunities in the UK

In the second interview of the series, Daniel Woolf of CBI shares his recommendations on addressing the challenges of investing in infrastructure

22 September 2020
Daniel Woolf of CBI headshot

Daniel Woolf has been in his current role as Senior Policy Adviser for Infrastructure and Energy at the CBI since January 2018. Last year, in coordinating the CBI’s response to the government’s Infrastructure Finance Review, Woolf and his colleagues outlined the barriers to businesses investing in and financing UK infrastructure. At the time, those barriers included political uncertainty, the perception of politicised regulators, negative procurement practices, government handling of risk transfer, the lack of a championed infrastructure finance delivery model and fragmented governance structures.

While collating the CBI’s response to the government consultation, Woolf produced recommendations to address these challenges, and this year he has spent a great deal of time producing a new CBI report on Infrastructure Finance titled, ‘Investing in infrastructure’, published in early September.

This year has been challenging for the industry, Woolf says: “It has been a very turbulent time and the infrastructure sector has been hit really hard by COVID-19. Members have told us about quite a few projects that have been delayed, with the construction sector in particular faced with real difficulties including whether to stay open and how to continue to operate safely. Members tell us that while around 90 per cent of sites have reopened, they are in many cases still making a loss due to adaptations they have had to make to ways of working.”

He adds: “Our members are consistently positive about the relationship with the public sector, with Highways England, for example, continuing with meaningful upgrade work. The notice to proceed that was recently issued on HS2 has also started to inject some much-needed cashflow into the supply chain.”

Woolf says that prior to COVID-19, it was clearly important to the government to encourage private investment into UK infrastructure, which led to the Treasury and Infrastructure and Projects Authority’s consultation process about attracting private money into the sector. “But we are still waiting for the publication of the government’s response to that consultation, and that should be the priority now. It is our view that the pandemic has served as a really important moment in highlighting how important the private sector is to the government’s aim of delivering the infrastructure that the country needs.”

In March 2020, the government made its historic pledge of £640 billion to build UK infrastructure, which was a huge commitment. “Since then, the government has had to spend billions to keep the economy afloat,” says Woolf, “so those commitments have clearly become more challenging as a result. I am increasingly of the view that the private sector’s role is more important than ever.”

The CBI does not see any evidence of a drop-off in the private sector’s appetite to invest into infrastructure, so the government must now focus on facilitating that investment. “It is our view that to increase private investment into UK infrastructure the government should focus on an attractive investment environment starting with creating a stable and enabling regulatory regime,” says Woolf.

That means retaining the key regulatory principles that have facilitated the swathes of investment into the regulated utilities over the past 30 years, including evidence-based decision-making and keeping at arms’ length from short-term political considerations. It also means making decisions subject to a proportionate but robust appeals regime.

Other barriers that continue to put off private investment include an overly complex and fragmented governance regime, and the lack of clarity on finance delivery models. Woolf says, “At the end of 2018, following the abolition of PFI and PF2 contracts, there was an expectation from our members that a new delivery model would be championed or proposed, and that didn’t happen. That essentially signalled to the private sector – to banks and investors – that the UK government, at that time, was not really serious about attracting private finance into infrastructure.”

He says CBI members are now keen for a clear departure from the notion that you can have a one-size-fits-all model: “We would rather see the government outline, as part of the publication of the national infrastructure and construction pipeline, a series of models that they would permit for different sectors and different projects,” he says.

The CBI also feels that the government should now consider setting up an infrastructure bank, similar in function to the British Business Bank, to plug the gap in funding lost by the conclusion of the UK’s involvement with the European Infrastructure Bank. Plans for such a bank are rumoured to be in place.

“We think a British infrastructure bank could play a similar role to the Canadian Infrastructure Bank,” says Woolf, “which allows the Canadian government to explore projects that would otherwise be difficult to bring to market. In Canada there is sufficient liquidity to finance many of their planned infrastructure projects, so there was a fear that the bank would crowd out private finance. But, our members have told us that it assists the market as a vehicle to present innovative and unsolicited proposals, to help manage risks that the private sector cannot accept, and to provide competitive financing when a project is too large for the market.”

Such a model could serve to bridge the gap between the public and private sector on complex projects that require innovative solutions, he argues.

In the UK, the appetite from the private sector to invest in infrastructure has only grown with the advent of COVID-19, while the government’s need for private capital to deliver its objectives is also clear. Woolf hopes Whitehall’s response to last year’s consultation will soon start to unlock the standstill.

If you would like to find out more or have any questions, please contact Stuart McMillan, partner in our Infrastructure team.

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Perspectives on Infrastructure: Investment opportunities in the UK

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