UK Can Make Infrastructure A Private-Investment Draw-CBI
05/27/2012| 07:16pm US/Eastern
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By Jason Douglas
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The U.K. government should put money into many infrastructure projects to spark a rise in their credit ratings and draw in private financing, the Confederation of British Industry said Monday.
That is better use of billions of pounds in taxpayers' funds than bankrolling a few big schemes, it said in a report.
Pensions and sovereign wealth funds, which may only invest in projects with good enough credit scores, are needed to help pay for new U.K. roads, power plants and other construction because state finances are stretched, the lobby group said. The government's pipeline of 500 infrastructure projects needs GBP250 billion in funding. Just GBP50 billion of public money has been earmarked for them, government figures show, leaving the private sector to pick up the rest.
"If we want sustainable growth in this country, infrastructure investment is the way forward," CBI director-general John Cridland told reporters at a press conference Friday.
Agencies assign ratings to debt used to fund infrastructure projects but the risk of public opposition, construction delays and other pitfalls mean they are rarely high enough to tempt institutional investors, the CBI said. The collapse during the financial crisis of the monoline insurance market, where investors were able to buy protection against default to mitigate those risks, has made the funding crunch worse, it added.
One way to "credit enhancement" is for government to provide a small chunk of funding and offer to take a bigger part of any losses before other creditors, the CBI said. Or it could provide extra cash for already fully-funded projects, it added. The government could further boost infrastructure investment by making the tax system more attractive and doing a better job of selling investing in the sector overseas, the CBI said.
The World Economic Forum ranks the quality of U.K. infrastructure 28th in the world--behind peers like Germany but also lagging nations including China, the Czech Republic and Croatia. Projects in the U.K. government's pipeline include a GBP32.7 billion high speed rail link between London and other major English cities and a GBP22 billion overhaul of the U.K. water system.
Cridland said the government should not backtrack on its austerity drive by borrowing large sums to fund infrastructure projects, as some have urged as a way to boost growth. Rather, Prime Minister David Cameron can do more to release cash for capital spending by tightening budgets further, he added.
-By Jason Douglas, Dow Jones Newswires; 44-20-7842-9272; jason.douglas@dowjones.com
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