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‘Superfunds’ should drive Britain’s green future, says think tank

960 640 Stuart O'Brien

New British pension ‘superfunds’ should be created to invest in infrastructure for country’s green recovery.

That’s the view of the Social Market Foundation, which also says that ministers preparing for a ‘green recovery’ from coronavirus should be ready to take more risks and spend public money up front to support innovative ‘pathfinder’ infrastructure projects and new renewable energy markets in their early stages.

The cross-party think tank says building new roads, power sources and communications networks could create much-needed jobs and make Britain’s economy more productive and resilient, with priority given to “shovel-ready” projects that support domestic supply chains and employment.

In a new report, the SMF identified pension reform as the key to financing and funding new infrastructure.

Ministers should encourage UK pension funds to merge into fewer, larger funds able to invest large sums in big long-term projects, the SMF said, citing Australia and Canada, where such funds have successfully delivered 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 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.

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.

The SMF also recommended:

  • A cross-party commission with an independent chair should be created to establish a “strategic vision” of the UK’s infrastructure needs over at least the next decade. Parties taking part in the commission should give public commitments to ensure financial and regulatory support for the projects identified in the vision.
  • An urgent review of planning regulations should be undertaken with the aim of reducing planning risk for investors. This could include narrowing the scope for Judicial Review of projects identified as top priorities by the new cross-party commission.

Richard Hyde, Senior Researcher at the SMF said: “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.”