Infrastructure capital trusts can help boost UK growth
To plug the UK’s infrastructure funding gap, a new VCT-style ‘infrastructure capital trust’ could unlock billions in retail investment for crucial local projects, says Bernard Fairman
An “encouraging” 0.1% improvement in growth forecasts might, if the Chancellor is right, indicate a more fruitful economic spell for the UK. This sounds optimistic. Sustained growth in this country has been hampered for a long time, and with constrained public finances, any meaningful investment in UK companies and infrastructure must be found elsewhere.
The Government has detailed commendable commitments to increase investment into infrastructure, and is naturally focusing on major, long-term projects with national impact, such as the third runway at London Heathrow. Meanwhile, our many smaller and medium-sized infrastructure projects across the country are stalling. This reflects widely acknowledged bottlenecks in our regulatory systems and insufficient funds being available from banks and other financial institutions.
We now have an urgent need to mobilise other forms of private capital for local infrastructure investment across the UK, including renewable energy such as solar and onshore wind, battery storage, improvements to the national grid, local housing, and the growth of more sustainable timber to meet our long-term construction needs.
We believe the time has arrived for a new asset class to be made available to the British public as an additional form of investment to pensions and ISAs – especially as any mooted ISA reform would only marginally change the private investment landscape.
This new asset class could be modelled on the success of Venture Capital Trusts, which initially launched in 1995 as listed companies, and today amount to around £6.5bn of funding from private individuals. This capital is invested in UK early-stage businesses seeking to become the next generation of successful growing companies across the British Isles.
The proposed name for this new asset class could be an Infrastructure Capital Trust. They would be designed to invest in approved infrastructure projects that meet Government growth criteria, with investors benefiting from income tax relief at 40 per cent in the first two years to boost initial take up, and thereafter at 30 per cent, with dividends and any potential capital gains being free of tax.
£500m could be raised in the first year
We believe that £500m plus matching debt of £500m could be raised in the first year alone, with £3-5bn becoming available for investment in local UK Infrastructure relatively quickly. This would take the burden off public finances, help deliver levelling up, offer a tax incentive in an environment where these are shrinking fast, and most importantly support GDP growth.
Through the existing IFA market and online investment platforms, the funds raised from private individuals – retail investors – could be put to work quickly and the shares would be tradable on the London Stock Exchange, also offering a listing boost to the exchange. Once these infrastructure projects have been constructed, these investments would be expected to generate steady returns for their ICT investors, regardless of whether they have invested £5,000 or £50,000.
Reflecting these steady returns, the investments could be supported by matching long-term debt, which could be provided by the National Wealth Fund (NWF), co-investing alongside the ICTs. This brings retail and institutional money into alignment.
With such debt potentially provided by the NWF, we believe that by the next General Election around £5 billion of capital could be invested in critical, nationwide UK infrastructure. Together, we as a nation, would be investing in our own energy independence and security, creating jobs from engineering, construction and ongoing management, while taking advantage of the lower cost of renewables and reducing the need for costly fossil fuel imports.
Companies like Foresight already channel billions of pounds of private capital into projects that will drive regional growth, create jobs, and support the UK’s transition to renewable energy. But, we need to unlock much more capital. ICTs could be a big part of the solution.
Bernard Fairman is executive chairman of Foresight Group plc, a FTSE 250 investment company