UK pension ‘superfunds’ should be created to invest in green infrastructure to help the nation’s post-Covid economic recovery, according to a leading think tank.
The Social Market Foundation says public money should be spent up front to support these infrastructure projects, which should include support for new renewable energy markets.
The SMF identified pension reform as a key to financing and funding new longer-term infrastructure projects and said ministers should encourage UK pension funds to merge into fewer, larger funds. It points out that similar moves in both Australia and Canada have helped successfully deliver major infrastructure investments.
The government launched consultations on pension consolidation and the creation of ‘superfunds’ in 2018 and 2019 but despite Boris Johnson’s previous support for the plans ministers have yet to announce decisions.
The SMF said that the need to support an economic recovery with infrastructure projects meant “urgent action” is now needed on pension reform.
Investment rules should also be reformed to allow the new funds to pay the management fees often involved in running big infrastructure projects, the SMF said in a report setting out how to get more private money into big UK projects.
The report draws on a roundtable discussion among parliamentarians, former officials, investors and academics. Based on that event, the SMF concluded that politicians must offer much greater certainty and financial clarity to investors about the profits they can make from funding infrastructure projects.
Such profits should be energetically explained to voters as a necessary condition of private financing of public infrastructure, the SMF said. Political pressure to eliminate profits from private finance deals helps deter investment in infrastructure, the report found.
Politicians’ determination to minimise taxpayer costs by asking the market to fund new projects is also limiting Britain’s ability to build new infrastructure projects, the SMF said.
To support the economic recovery, government should be prepared to take more risks by spending directly to support new ‘pathfinder’ projects that would then be replicated by private investors if they succeed.
Building new roads, power sources and communications networks could create much-needed jobs and make Britain’s economy more productive and resilient, the cross-party think-tank said. Priority should be given to ‘shovel-ready’ projects that support domestic supply chains and employment.
The SMF also called for for cross-party commission to be set up to create a “strategic vision” of the UK’s infrastructure needs over at the next decade and beyond. Parties taking part in the commission should give public commitments to ensure financial and regulatory support for the projects identified in the vision.
In addition it says there was the need for an urgent review of planning regulations, with the aim of reducing planning risk for investors.
SMF senior researcher Richard Hyde says: “The best way to support the infrastructure the country urgently needs in the long-run is to make better use of the billions of pounds held in pension funds that could be profitably invested in helping Britain on its way to a green recovery.
“Ministers should move quickly to encourage the creation of pension superfunds like those in Australia and Canada.”
“In the short-term, ministers looking to get infrastructure projects up and running and providing jobs should be prepared to spend directly to support pathfinders that can prove to investors that it is safe to invest in similar projects. That means taxpayers bearing more of the risk, but the long-term rewards justify that risk.”
The SMF report was sponsored by Tidal Power Limited, which is pursuing plans to build a fleet of new tidal lagoons to generate power for the UK grid. However the SMF said it remain independent and has taken no view on whether the lagoons plan should go ahead.
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