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This blog is suspended due to illness.

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Pensions Infrastructure Platform: a solution in search of a problem

The sort of new infrastructure that the Pensions Infrastructure Platform will allow the construction of, as long as they don't have a greenfield mandate (CC Flickr pic: regan76)

The sort of new infrastructure that the Pensions Infrastructure Platform will allow the construction of, as long as they don’t have a greenfield mandate (CC Flickr pic: regan76)

How are pension funds in the UK to be inveigled into investing in much-needed infrastructure? It’s a question that has been on the minds of politicians and policy wonks for a while, as this blog has observed. And we might have hit on the answer – but, with classic British pusillanimity, it’s the answer to the wrong question.

The Pensions Infrastructure Platform was set up in 2012-13 by the pension funds industry in order to pool the capital of many funds in one place, so that they could use economies of scale to pay infrastructure experts to manage their funds, and to give them sufficient size to make the eight- or nine-figure investments infrastructure projects demand.

Although the government has only taken an advisory role in setting it up, HM Treasury has been keenly looking over the PIP’s shoulder and egging it on: the latest edition of its National Infrastructure Plan refers approvingly to the PIP, while Chief Secretary to the Treasury Danny Alexander congratulated the pension funds when the PIP announced its first infrastructure fund this year. Strathclyde Pension Fund, British Airways Pensions and the Pension Protection Fund are among those investing.

There’s just one small problem from the government’s point of view. Government is concerned with building new infrastructure – the ‘greenfield’ market – and raising the necessary cash. Pension funds, as I’ve mentioned previously, don’t tend to like taking construction risk on these greenfield projects (however misguided that is, as I noted here). They are more comfortable with projects that are already built.

And so it is that the PIP, which Mr Alexander and his boss George Osborne seem to think is a way of getting pension funds to build new infrastructure, is not going to do that. My old employer IJGlobal reported this week that the PIP’s next two funds will not, like the first fund, invest in greenfield projects (you can read that much before you hit the paywall). So precisely zero of the £330 million they’ve committed so far will actually help build anything. Until they get some new investors, that’s not going to change.

The PIP isn’t entirely useless. Pension funds today do need to find more sources of stable yet high-enough-yielding investments. And getting British pension funds to invest in UK infrastructure (instead of the many foreign investors already active here) means that the profits from that infrastructure stay in the country. But it doesn’t do what the government has been hoping, planning and heavily implying to us all that it would: pay for new infrastructure. Not for nothing has a certain senior infrastructure financial adviser in this country with a penchant for mordant humour dubbed it “a solution in search of a problem”.

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How to do a huge new airport, Mexico city style

Visualisation of Foster + Partners' design for the new Mexico City airport (pic: nicked off presidencia.gob.mx)

Visualisation of Foster + Partners’ design for the new Mexico City airport (pic: nicked off presidencia.gob.mx)

Mexico City’s planned new mega-airport smells of ditchwater. Not in a bad way, mind. Reports earlier this month carried the announcement from the country’s president that the country’s biggest airport, Benito Juarez, is to be replaced as it can’t be expanded much further to accommodate passenger growth. The project underlines yet again how other countries are using different solutions to the UK to create new airport capacity.

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UK airports: Boris Island crash-lands

CC pic: Thedarkarches

CC pic: Thedarkarches

There’s been a lot of talk in the UK recently about the relative merits of expanding our biggest and busiest airport, London Heathrow, or building an entirely new one in the Thames Estuary as London Mayor Boris Johnson still wants.

Reading today’s decision by the Airports Commission to drop the latter option, it seems clear to me that even if the so-called ‘Boris Island’ option of a new airport had many merits and none of the flaws the commission mentions, it still wouldn’t happen. Why? Because, as I noted over a year ago, it’s very very expensive. Not only does the commission’s report underline that, it also trashes the integrity of the Boris camp’s claims over the past few years – and this very day. Continue reading

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Meanwhile, over in the US…

Texas governor Rick Perry opens the final section of State Highway 130 in Texas, October 2012. Note electronic toll gantry behind him. A pressure group is

Texas governor Rick Perry opens the final section of State Highway 130 in Texas, October 2012, with an electronic toll gantry behind him. A pressure group is still complaining about the privately operated road. (CC Flickr pic: texasgovernor)

It’s been two years since it was my actual job to report on infrastructure spending in the United States, but had I still had the same job, I could have reported on the latest developments by cutting and pasting my stories from two or three years ago without many modifications.

Every so often, an article appears marvelling at how the world’s biggest economy can have such run-down airports, cracked roads and third-world-style overhead power distribution lines. Despite national tropes like opposition to ‘big government’, the problem comes down either to US government not being big enough, or being relied on too much. Continue reading

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How will the UK pay for its future railway?

 

New platforms at London Bridge station - helping make the railways more expensive (pic: Network Rail)

New platforms at London Bridge station – helping make the railways more expensive (pic: Network Rail)

News in the Financial Times that the British government is trying to keep the £34 billion (US$57bn) debts of Network Rail, the owner-operator-maintainer-improver of Britain’s rail infrastructure, off balance sheet can only accelerate the debate about how to pay for the railways in the long term. Continue reading

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The Commonwealth Games 2014 and infrastructure (but mostly infrastructure)

Attention today turns to Glasgow, Scotland’s biggest city, as the Commonwealth Games begin – and to the efforts the city has been making to regenerate and clean itself up from its gritty industrial past, in part through infrastructure initiatives. And indeed, Glasgow and the surrounding shires offer extensive evidence of the depth – and the limits – of the Scottish government’s infrastructure ambitions. Continue reading

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