Attracting investment for local infrastructure

1 Attracting investment for local infrastructure

Attracting

investment

for local

infrastructure

A guide for councils

Guidance

2 Attracting investment for local infrastructure

Attracting investment for local infrastructure 3

Contents

Executive summary 4

The UK’s infrastructural needs and the role of local government 6

The UK’s infrastructural needs 6

Funding infrastructure 7

The changing role of local government 9

Financing infrastructure 12

Types and sources of nance 12

Practical guidance for attracting private and foreign investment

into local infrastructure 19

The role of councils in providing infrastructure 19

WHY? Why would someone invest in your locality? 20

HOW? How do the make the commercial model work? 21

WHEN? When should you talk to potential investors? 24

WHO? Who should be involved in the process? 26

Conclusion 28

Further contacts for advice and support 29

Glossary 30

4 Attracting investment for local infrastructure

Executive summary

Global ﬁnancial markets are more open

than ever to investing in local infrastructure

and redevelopment schemes in the United

Kingdom. For the right project, these

sources of ﬁnance are virtually unlimited,

rapidly deployable and can come with

the experience and expertise to support

delivery. This provides councils with a unique

opportunity to unlock their local areas’

potential and raise revenue. However, the

infrastructure investment landscape can be a

complex for councils to navigate. This guide

highlights some of the key opportunities and

considerations to help you start this journey.

The UK continues to require increasing levels

of investment for infrastructure for the future,

reﬂecting expected population and economic

growth, the challenges of climate change, the

need to decarbonise the UK’s energy supply,

and new opportunities to deliver technological

change. In the Infrastructure Finance Review

Consultation Paper issued by HM Treasury

in March 2019, it was highlighted that of

the projected £600 billion infrastructure

investment pipeline for the next 10 years, half

is forecast to come from the private sector.

Infrastructure plays a critical role supporting

local communities and the local economy. It

can unlock an area’s potential, enable residents

to access new education, skills, and work

opportunities, support local retail and business

areas, and increase the viability of new sites for

homes and businesses.

The role of local government is changing.

New roles and powers for local government

have emerged in recent years which make it

more viable to access up-front investment for

infrastructure that can be repaid or serviced

by revenue streams from taxes, services,

infrastructure use or enhanced land values.

Foreign Capital Investment (FCI) is a particular

source of private investment, which has been

successfully used in the past for a range of

infrastructure projects as it typically invests

large sums, over long time periods, at stable

interest rates to enable the development on

infrastructure. It excludes the secondary

purchase of existing assets for the purpose

of income generation. This report discusses

FCI alongside other sources of ﬁnance

and investment for infrastructure, providing

guidance and advice to councils. FCI is distinct

from FDI (Foreign Direct Investment) which

refers to investment into business interests.

Successfully engaging with private investors

and FCI can not only bring investment but also

critical skills and capabilities to support you

bringing an infrastructure project on-stream.

To have the best chance of success you

should consider the Why? How? When? Who?

Attracting investment for local infrastructure 5 Attracting investment for local infrastructure

WHY? Why would someone

invest in your locality?

Investors will compare investment

opportunities on a global basis. For the

right investments there is no shortage of

available ﬁnance. For an investor to regard

a local investment opportunity as a serious

proposition, they must have long term trust in

the governance and capability of the council

concerned. This needs to be demonstrated

by leadership, local vision, political stability

and access to managerial and technical

capability and capacity.

HOW? How to make the

commercial model work?

The investment landscape can be complex.

Understanding investors and the type of

investments they undertake will lead you to

the most appropriate investor. Do you know:

• FCI is often looking for schemes totalling

more than £100 million in value

• some UK pension funds will look

at schemes from £10 million

• pension funds generally seek for returns

over 20 or even 40 years.

Investors will be able to work with you on the

detailed business model but you need to be

clear before you approach them on the type

of investment relationship you seek and the

appropriate payback mechanisms.

WHEN? When should you

talk to potential investors?

Investors can be brought into your project

at various stages and through a variety of

mechanisms. They can be a useful source

of expertise and capacity and projects can

beneﬁt from early engagement. Do you know:

• Passive investors tend to provide ﬁnance

only, though will likely want to be involved

in governance, particularly for signiﬁcant

projects.

• Active investors will want a hands-on role,

providing experience and expertise to

shape the project.

There is often no need to go through complex

procurement processes for investors (as you

would delivery partners) as value for money

requirements can be satisﬁed via alternative

methods. This can be a complicated area and

you should seek advice if you are unsure.

WHO? Who should be

involved in the process?

To successfully deliver an infrastructure

project, there are a range of skills,

capabilities, resources and stakeholders

that need to be involved and coordinated.

Key partners can include councils, expert

advisors, subnational organisations, local

or regional transport bodies, and, if seeking

FCI, the Department for International Trade

(DIT).

Getting the Why, How, When, Who right will

dramatically increase your access to these

new sources of ﬁnance to deliver the new

infrastructure you need.

6 Attracting investment for local infrastructure

The UK’s infrastructural

needs

This report discusses the UK’s infrastructural

needs, the role of local government and how

private ﬁnance, in particular Foreign Capital

Investment (FCI), can contribute towards

infrastructure provision. FCI is sourced from

other countries or international organisations.

Particular sources of FCI, such as sovereign

wealth funds or public sector pension funds

invest in infrastructure projects because they

often seek long-term, low risk, stable-return

investments.

Infrastructure supports the functioning of

communities and their local economies. It can

unlock an area’s potential, enable residents

to access new education, skills and work

opportunities, and make sites for housing and

jobs more viable and more likely to be built.

The UK continues to require sizeable

investments in infrastructure in the future.

The National Infrastructure Commission

estimates that there is a signiﬁcant uplift

required in annual public expenditure on

infrastructure. It will reach £26.9 billion

between 2020-2025, and £29.2 billion

between 2025-30. This further increases

to £31.5 billion per annum between 2030-

35. This compares to the government (both

central and local) investing £18.9 billion in

infrastructure in 2016,

which has increased

year-on-year for the past 10 years.

1 Source: ONS, August 2018, Developing new statistics

of infrastructure

This increase reﬂects expected population

and economic growth, the challenges of

climate change, the need to decarbonise

the UK’s energy supply, heating and

transport system, and new opportunities to

deliver technological change. In its National

Infrastructure Assessment (NIA), the National

Infrastructure Commission (NIC) set out a

pathway for the UK’s economic infrastructure

over the next 30 years:

• nationwide full-ﬁbre broadband by 2033

• half of the UK’s power provided

by renewables by 2030

• three quarters of plastic packaging

recycled by 2030

• £43 billion of stable long-term transport

funding for regional cities

• preparing for 100 per cent electric vehicle

sales by 2030

• ensuring resilience to extreme drought

• a national standard of ﬂood resilience

for all communities by 2050.

As well as economic infrastructure, there

is also a compelling need to invest in new

social infrastructure, such as housing,

industrial and commercial property, new

schools and hospitals, and to continue

to regenerate and revitalise the UK’s

town centres. The national picture is less

clear here, with no Social Infrastructure

Commission setting out the UK’s key policies

and spending decisions, as has been done

for economic infrastructure with the National

Infrastructure Commission.

The UK’s infrastructural

needs and the role of

local government

7 Attracting investment for local infrastructure

In more detail

Infrastructure is the basic physical and

organisational structures and facilities

(eg buildings, roads, power supplies)

needed for the operation of a society

or enterprise. In this report, we divide

infrastructure into two types: economic

infrastructure - the ‘hard infrastructure’

that provides transport, energy supplies,

ﬂood protection, water supplies and waste

treatment, telecommunications and digital

networks; and social infrastructure that

provides the environment and buildings for

social and market activities to take place,

and for the public to access services and

interact including facilities such as schools,

universities, hospitals, care homes, social

housing, private housing, business parks,

industrial parks, science parks and retail

sites and premises.

The UK National Infrastructure

Commission

was established on

5 October 2015 as the non-ministerial

government department responsible for

providing expert advice to HM Government

on the pressing infrastructure challenges

facing the United Kingdom. One of its main

tasks is to undertake a national infrastructure

assessment during each Parliament, make

recommendations to the government and

then monitor the government’s response.

The council role in infrastructure

is to lead the delivery of local infrastructure

improvements and they are speciﬁcally

tasked to provide sufﬁcient infrastructure to

support local plans. Councils also plan and

invest strategically to support local economic

strategies, and to unlock local housing and

employment opportunities. They negotiate

agreements with property developers to

gain contributions (through Section 106

agreements) to local infrastructure, including

road building and social infrastructure such

as schools and community facilities.

2 www.nic.org.uk

Councils also provide rail and other

transport services (more commonly in

metropolitan areas), often in collaboration

through a passenger transport executive,

and have a role in designating bus routes.

With local devolution, city deal and mayoral

combined authorities funding, the proposed

retention of business rates revenues, and

other new ﬁnancial tools and vehicles – the

council role in infrastructure is set to change

considerably over the coming decades.

Funding infrastructure

There is a need to fund infrastructure

and the provision of residential, industrial,

commercial and public buildings that local

communities require in the future. Managed

well, new infrastructure can create new

income for councils and deliver efﬁciencies in

some services. The recent increase in council

borrowing to fund residential and commercial

property acquisition and development in

order to provide revenue income to replace

central government grant funding reﬂects this.

In the UK, a signiﬁcant proportion of economic

infrastructure is either privately owned (such

as energy, water, waste, telecoms and digital

networks, rail rolling stock, and airports),

or is run or overseen by central government

departments (such as Highways England

and Network Rail). Social infrastructure tends

to be owned by central government and local

government, although in the past there have

been a number of Private Finance Initiative

(PFI) projects where private investors build

and own public buildings such as hospitals

and schools and they are leased back

by government departments or organisations.

Both the public and private sector invests

in infrastructure – it is estimated that £109.4

billion was invested in construction work

in 2017 – £24.7 billion by the public sector,

and £84.7 billion by the private sector.

3 Construction Statistics Annual, Number 19, 2018 Edition,

Ofce for National Statistics

8 Attracting investment for local infrastructure

There are a range of sources of ﬁnance

to pay for infrastructure, including public

grants, revenues from taxes, public services,

and publicly owned assets and enterprises,

and private capital. In the Infrastructure

Finance Review Consultation Paper issued

by HM Treasury in March 2019, it was

highlighted that of the projected £600 billion

infrastructure investment pipeline for the next

10 years, half is forecast to come from the

private sector. Private capital is increasingly

seen as a viable source of funding for certain

types of project.

In addition to UK sources of private capital,

there is a signiﬁcant amount of investment

capital held by foreign interests such

as sovereign wealth funds and foreign

pension funds, looking to invest in long term

infrastructure and development projects with

low-risk, stable-interest returns.

In more detail: Key sources of finance

Grants are public subsidies or ﬁnance

awards offered to a recipient for public

or private purposes. The subsidy is not

expected to be paid back, and may be

used for infrastructure provision, research,

business development, education or other

endeavours that are anticipated to support

a public good. The grant offering typically

includes conditions that must be met,

such as reporting performance or results.

Bids for grants can often be a one-time

competitive process.

Tax revenue is deﬁned as the revenues

collected from taxes on income and proﬁts,

social security contributions, taxes levied on

goods and services, payroll taxes, taxes on

the ownership and transfer of property, and

other taxes.

Revenues from assets and services are

usually derived from user charges for the

use of an asset or the operation of a service

in an asset, such as rent, lease payments,

tolls, travel tickets, congestion charges,

parking fees, or other charges.

Loans/ debt funding are the provision

of funds for an expected return, such as

interest payments, and the return of the

principal (initial sum) lent.

Equity is the provision of funds in return for

an ownership share of a company or asset.

Private investment and capital is the

provision of ﬁnance from private institutions,

businesses, and organisations, commonly on

a commercial basis that expects a ﬁnancial

return such as fees or interest payments.

9 Attracting investment for local infrastructure

The changing role

of local government

Councils have a signiﬁcant role in infrastructure

provision, accounting for 40 per cent of all

government expenditure on infrastructure in the

UK in 2016. In the past, councils have provided

local roads, local transport infrastructure

and services, and municipal buildings. Past

decades have seen a diminishing local control

over capital investment – but these are being

reversed as new powers are being promised

by central government or advocated by

councils themselves.

The environment for local government

ﬁnance and infrastructure projects funding

is changing rapidly. Initiatives such as the

London Finance Commission have provided

some bold and pragmatic new proposals

for ﬁnancial tools that could be used for local

government and the removal of the cap from

housing revenue account borrowing now

gives many councils the opportunity to

borrow to invest in new social housing.

Since 2010, local government has taken

a bigger role in place leadership, and

in determining local priorities. City, local

growth and devolution deals and reforms

to local government ﬁnance have shifted

power and funding to local areas to enable

them to take strategic decisions about local

investment. Collectively these bespoke deals

have enabled localities to develop long-

term plans and strengthen local leadership

through directly elected city-region mayors,

Combined Authorities and Local Enterprise

Partnerships (LEPs). Local transport funds

were also released from existing Department

for Transport (DfT) budgets to local transport

partnerships, and further devolution of

transport planning and prioritisation has

been made via combined authorities and

subnational transport bodies. LEPs and

private ﬁrms also bid for Regional Growth

Funds – a competitive system of capital

and revenue grants. LEPs and combined

authorities have also provided strategies

for the use of European Funds.

Mayoral Combined Authorities are a new

form of local government, and are able to

access between £15 million and £30 million

in additional funding each year. Enterprise

Zones are also another signiﬁcant initiative

in England, offering business rate discounts,

and the ability for authorities to use all

business rate receipts for local and regional

priorities. Mayoral Combined Authorities and

new forms of joint working are spearheading

local service reform – such as in Liverpool

City Region and Greater Manchester.

New models of public service delivery,

collaboration and use of shared assets

may emerge.

Fifty per cent local business rates retention

was introduced in 2013, where councils

retain 50 per cent of the value of additional

business rates receipts. HM Government is

committed to further business rates retention

and in 2017 announced it was aiming to

introduce 75 per cent business rates retention

from 2020 in a ﬁscally neutral way. This is

being piloted in a number of councils in the

ﬁscal year 2019/20.

Many councils are pushing for further ﬁscal

powers. The most comprehensive set of

proposals for local ﬁscal powers were made in

2017 by the London Mayor, London boroughs

and private sector leaders in the report of the

London Finance Commission

(Devolution:

a capital idea) – which signals how local

government ﬁnance may change in the future.

The London Finance Commission suggested

a more radical devolution agreement which

includes such ﬁscal powers as the full suite of

property taxes, an assignment of VAT income,

the local contribution to the apprenticeship

levy, permissive powers to establish other

taxes such as a tourism levy, adult skills, 16-18

funding, all age careers advice, health and

social care, employment support, a proportion

of innovation funding, and all business support

funding, including exporting and inward

investment support.

4 www.london.gov.uk/what-we-do/business-and-economy/

promoting-london/london-nance-commission

Attracting investment for local infrastructure10

As a key part of delivering the National

Industrial Strategy, local industrial strategies

developed by Local Enterprise Partnerships

and Mayoral Combined Authorities

in partnership with councils, will be central

to delivering the vision to build an economy

ﬁt for the future, with prosperous communities

across the United Kingdom, and to drive up

productivity. They will provide a distinctive,

long-term vision for each area that set out how

each locality will maximise its contribution

to UK productivity, detailing speciﬁc,

achievable, long-term priorities. LEPs and

Mayoral Combined Authorities are developing

their local industrial strategies, undertaking

research and strategy development in policy

areas such as productivity, supply chains,

innovation, education, skills and infrastructure.

It is expected that local industrial strategies

will help guide the strategic use of local

funding streams and act as a gateway to the

deployment of future local growth funding. It

is important that council infrastructure plans

and provision ﬁt within the aims of each local

industrial strategy, and play a role in driving

growth and productivity.

Infrastructure provision requires signiﬁcant

up-front resources to plan and build, with

long lead-times until the main economic

and ﬁnancial beneﬁts begin. Up to recently,

councils would typically raise capital ﬁnance

through central government grants, Section

106 agreements, additional business rates

retention, city deals, new homes bonus

payments, congestion charges, and loans

through the Public Works Loan Board.

future, the changing role of local government,

and the resulting new ﬁscal powers and

sources of revenue will provide new means

of repaying loans, bond issues (including

Municipal Bonds), or other ﬁnancial

instruments.

5 www.lepnetwork.net

6 www.dmo.gov.uk/responsibilities/local-authority-lending-

pwlb

In more detail – tools used for raising

capital for economic and social

infrastructure

• Section 106 (S106) agreements are

legal agreements between councils

and developers; these are linked to

planning permissions and can also be

known as planning obligations. Section

106 agreements are drafted when it is

considered that a development will have

signiﬁcant impacts on the local area (such

as increased congestion, or an increase in

school rolls) that cannot be moderated by

means of conditions attached to a planning

decision. They compel the developer to

make a ﬁnancial contribution towards, or

provide improvements to mitigate against

these impacts.

• Additional business rates retention

represent the new business rates that may

arise from new business activities that

result from an infrastructural investment.

Case study: Milton Keynes

Partnership

Project: new roof tax to invest

in infrastructure

The Milton Keynes Partnership Committee

established a ‘roof tax’ on new homes to

pay for supporting infrastructure. Overseeing

the construction of 15,000 new homes over

a 10-15 year period, it planned to levy £300

million from developers to help cover the

estimated £1 billion cost of infrastructure.

The levy took the form of a roof tax of

£18,500 for each house completed, and

£66 per sq ft of commercial real estate.

In the mid-2000s there were 25 similar

schemes in operation in the UK.

Key learning:

The scheme provided an assured, stable

revenue stream, reduced the need for

complex S106 negotiations and limited

delays, attracted further investment and

fostered conﬁdence that the infrastructure

would be delivered.

11 Attracting investment for local infrastructure

• City deals are agreements between cities

and city-regions, to provide advanced

funding for infrastructure which will be

repaid by additional business rates

retention.

• Road tolls and congestion charges are

in essence, user charges that are intended

to pay for the provision of a new road,

or as an incentive to discourage car use.

• Public Works Loan Board is a UK

government body that offers low interest,

long-term loans to public authorities,

including councils based on revenues

and prudent borrowing limits.

• Government grants are public subsidies

or ﬁnance awards offered to a recipient

for public or private purposes that are not

expected to be paid back.

• The Private Finance Initiative is a

mechanism by which the private sector

can invest in a public asset – usually to

plan, construct and manage it on the

government’s behalf. They make a return

through user charges, fees, and rent.

PF2, the most recent version, has been

withdrawn by HMG and a replacement has

yet to be announced.

• Land value capture Major transport

investment can signiﬁcantly increase the

value of land, particularly if it is close to a

train station or transport hub. Land value

capture is a term used to describe the

use of this increase in land value to fund

investment in public services, such as

transport.

Case study: Birmingham City Council

Project: land value capture

Curzon Street station

in central Birmingham

will be the ﬁrst new intercity station built

in Britain since the 19th century but the

implications for the project are much wider

than just transport improvements -‘The

Curzon Street Investment Plan will see

£900 million spent on regenerating the

area around the new station, leading to the

creation of several new neighbourhoods

across almost 150 hectares, including 4,000

homes and 36,000 jobs.

Key learning:

Through the development of this ‘landmark’

transport hub, Birmingham City Council is

seeking to attract investment in numerous

related infrastructure projects to regenerate

nearby areas and brownﬁeld sites in

particular.

7 www.hs2.org.uk/stations/birmingham-curzon-street/

12 Attracting investment for local infrastructure

Types and sources

of ﬁnance

Infrastructure requires a signiﬁcant up-front

capital investment, and may require specialist

knowledge and experience, as well as the

capacity to deliver the construction phase

then manage assets and services for a long

period of time.

There are four basic methods by which

councils may use capital investment for

infrastructure:

• Capital loan: to provide loan funds, or

investment capital for infrastructure or other

developments that will be paid back over

time.

• Managed asset: capital stock purchased

and managed on behalf of the public sector

to provide investment capital into a special

purpose vehicle that builds and manages

a public asset, and they are paid back

their investment plus a return over time.

• Direct investment: to attract capital to

invest in plots of land, buildings or other

assets that are part of a regeneration

programme or investment framework.

• Lending to or shareholding in public

commercial organisation: to use capital

for investment as part of a council owned

asset or service that operates commercially

to provide delivery efﬁciencies or increase

return.

There are a wide variety of investors who are

keen to work with councils on infrastructure

projects. One of the critical drivers of

success is the ability to identify and approach

the most appropriate investors. Navigating

this landscape can be complex and

requires either in-house knowledge, a track

record built through previous projects and

relationships, or working with a neighbouring

council or an agent.

Globally there are large sources of ﬁnance

that are looking for investments. Foreign

Capital Investment (FCI) is sourced from

other countries or international organisations.

Sources of large-scale, long-term FCI include

Sovereign Wealth Funds and Pension funds

– which tend to look for stable, lower, but

predictable returns – and have a track record

of investing in infrastructure projects.

At the other end of the scale, sources of

short-term ﬁnance include risk-ﬁnance

which requires a high return on investment.

Investment funds may search for, and manage

investments themselves, or they may use

managing agents. They may also invest with

other investors in joint ventures or syndicates

to spread the risk.

Often project ﬁnance deals will involve a

signiﬁcant number of different sources of

debt. For instance, offshore wind project deals

can often involve multiple banks, the EIB,

export credit agencies and institutional debt.

Financing infrastructure

13 Attracting investment for local infrastructure

Table 1: Some examples and typical features to illustrate the complexity

of funding landscape

Type Examples Governance

Public Sector

- Grants Housing Infrastructure

Fund, Department for

International Trade etc

Only available to unlock other infrastructure

Time limited competitive application rounds

Passive

- Debt Public Works Loan

Board, Homes

England

Lender of last resort

Limits on use, terms and purpose set by HMG

Mainly Passive

- Equity Local Government

Pension Funds

Local Investment investing in local economy

Similar look and feel to Private Pension Funds

Low to Medium Risk/Return proﬁle

Minimum investment >£20 million prefer >£50 million

Medium Active

Private and Institutional

- Debt Municipal Bonds,

Financial Institutions

Broad range of return rates, risk appetites and time horizons

Mainly Passive

- Equity Financial Institutions,

Pension Funds

Very Broad range of return rates, risk appetites and time horizon

Pension Funds tend to look for 20+ year stable revenue stream

Minimum investment >£10 million prefer >£50 million

Passive

Very Active

Foreign Capital Investment

- Debt International Banks Medium Term Specialist Loans

Passive

- Equity Sovereign Wealth

Funds (SWF), New

Perspective Funds

(NPFs), State Owned

Enterprises (SOE)

Very Low Risk: Lower Return: Long time Horizon

Minimum thresholds >£100 million, some >£500 million

Very Passive

There are notable exceptions

Investors expect a return on their capital.

Private capital is provided on a commercial

basis and requires ﬁnancial returns. For

public sector projects, it can be challenging

to develop income streams to repay the

interest and capital, as ﬁnancial institutions

can’t monetise social value.

An investment proposition needs to articulate

costs and how the returns will work, even if

at a high level. Typically returns are made by

generating revenues or income streams from

an asset or service, or result from the sale of

the asset.

14 Attracting investment for local infrastructure

In more detail: public sector funding

There are many sources of public sector

funding both grants and loans (debt and

equity). Many of these have ﬁxed application

deadlines and have prescribed uses, such as

by project type or purpose and the timescale/

phasing of expenditure. Decision-making

and the award of funding can be a lengthy

process.

• Grants are a non-repayable ﬁnancial award

paid for a speciﬁc purpose, as deﬁned

in a grant agreement with the relevant

government department or agency. The

Department for Transport (DfT) typically

funds transport infrastructure with grants.

Case study: Worcestershire County

Council

Project: DfT Grants

The DfT and Worcestershire County

Council (WCC) are funding a new bypass

in Worcester

which will halve peak journey

times along the A4440, relieving congestion

for residents and businesses, and boosting

jobs and economic growth in areas like

Great Malvern by transforming access to the

M5, Birmingham International Airport and

Worcestershire Parkway Station.

The £62 million cost of building the new dual

carriageway will be footed primarily through

a DfT grant, (£55 million) topped up by

councils funding (£7.5 million WCC) whilst

the anticipated beneﬁts of this expenditure

for the local area are expected to come

not only via improved journey times for

commuters and businesses but also through

the creation of more than 6,000 jobs and the

development of up to 5,600 new homes.

Key learning:

By identifying additional sources of grant

funding, Worcestershire County Council

has signiﬁcantly increased their ability to

instigate social/economic beneﬁts within

their local area at no extra cost.

8 www.worcestershire.gov.uk/info/20623/the_a4440_

worcester_southern_link_road_improvements/1017/the_

a4440_worcester_southern_link_road_improvements

Case study: Devon County Council

Project: Housing Infrastructure Fund

Devon County Council received £55 million

funding from the Housing Infrastructure Fund

from the Ministry of Housing, Communities

and Local Government (MHCLG) to support

the early delivery of infrastructure to support

key improvements to transport links in

south-west Exeter. This will help instigate the

development of 2,500 homes, a Primary and

Secondary school, and employment land

identiﬁed in the Teignbridge Local Plan

and Exeter Core Strategy.

This funding will help support the early

delivery of infrastructure to support key

improvements to transport links including

widening sections of the A379, development

of new junctions to serve the new

development and building a pedestrian/

cycle bridge, serving a school campus

and community facilities.

Key learning:

HIF can be used to target infrastructure

improvements that unlock new

developments, making them attractive

to investors.

• Loans are repayable, with terms set by the

lender. The main sources of loans used in

the past have included the Public Works

Loan Board and European Investment

Bank.

Case study: The Public Works Loan

Board (PWLB)

The Public Works Loan Board (PWLB)

which is a government agency that

makes available loan ﬁnance to public

authorities and councils. There is an

arrangement fee payable whilst associated

rates are set by statute with repayments

made half-yearly. Any borrowing is secured

by an automatic charge on the revenues

(not the property) of the council.

9 www.gov.uk/government/publications/housing-

infrastructure-fund

10 www.dmo.gov.uk/responsibilities/local-authority-lending-

pwlb

15 Attracting investment for local infrastructure

Two types of loan are available from the

PWLB: Fixed rate loans, where the interest

rate is ﬁxed for the term of the loan, minimum

term 12 months and maximum of 50 years;

and variable rate loans, where the interest

rate is variable at one, three or six monthly

intervals, minimum term 12 months and

maximum of 10 years. The principal and

interest can be paid either in 6-monthly

instalments, or the interest alone can be

repaid every six months, with the principal

repayment due at the end of the loan term

Key learning:

Public sector ﬁnancing options are not

solely limited to grants, increasingly there

are source of loans and equity ﬁnance.

There is limited accompanying expertise

with some of these forms of ﬁnance, leading

to potential mismatches between payback

periods and loan types.

• The Local Government Pension Scheme.

Recent freedoms have allowed Local

Government pension schemes to invest for

the beneﬁt of local areas.

Case study: Local Government

Pensions Funds (LGPFs)

Local Government Pensions Funds (LGPFs)

invest in local projects on a similar basis to

many private sector pension funds. LGPFs

typically involve investments of £50 million

and upwards which are considered to be at

the lower risk end of the spectrum, though

smaller projects are considered if they

are ‘standard projects, without too many

complications’. This said, LGPFs can usually

accept more risk than council themselves.

Like pension funds they are more interested

in investments with long term stable returns

(eg onshore wind farms) than faster capital

sale projects.

Typically, for housing investments, LGPFs

require the developer to put up 50 per cent

of the funding.

11 www.dmo.gov.uk/responsibilities/local-authority-lending-

pwlb/

Key learning:

Using local LGPFs can be a great way of using

local money to improve the local economy.

In more detail: private sector and

institutional funding

• Private and institutional nance might

work for you if you need a large amount of

capital for a large-scale or complex project.

In addition some ﬁnancial institutions

can provide specialist technical, project

development and management skills or

capabilities that you could beneﬁt from,if

you don’t have them in your council.

Private and institutional ﬁnance may be

suitable if you can generate a return on your

infrastructure, once built, to pay the interest

on ﬁnance and repay the principal. You

may be a council who own a commercial

company and are willing to give equity

shares in return for investment capital.

A project may be too big, too risky, or the

returns may take too long (eg over 50

years) to be suitable for PWLB funding.

You may wish to put the infrastructure

project, investment and repayment vehicle

into a special purpose vehicle. Perhaps

your project, or end solution needs to be

commercially-facing and market viable,

and you need institutional ﬁnance to make

this happen.

• Municipal Bonds are a form of debt ﬁnance

for local government, where private investors

purchase shares in the bond – which pays

either a regular return or a one-off ﬁxed

return once it matures. Founded by councils

in 2014, the UK Municipal Bonds Agency

(UKMBA) is Local Government Funding

Agency that exists primarily to reduce

councils’ capital long term ﬁnancing costs

in the United Kingdom. It allows councils

to diversify funding sources and borrow at

a lower cost than is available from central

government via the Public Works Loan

Board. The agency will sell municipal bonds

on the capital markets, raising funds that it

will then lend to councils.

12 www.ukmba.org/

16 Attracting investment for local infrastructure

Case study: Aberdeen City Council

Project: Local Bond issue

In 2017 Aberdeen City Council secured

£415 million of private sector investment

through a dedicated bond issue, enabling it

to fund the development of a new Arena and

Conference Centre which would reinforce

the area’s standing within the oil and gas

sector and its status as as Europe’s offshore

industries capital.

Key learning:

By funding the work in this way the council

was able to beneﬁt from more favourable

repayment terms, increased investment

(the original target was £370 million) and

have also enhanced the knowledge of their

ﬁnancial team signiﬁcantly.

• Institutional investors, such as pension

funds, are another source of ﬁnance.

Private UK and international investors are

also willing to invest in local infrastructure

projects directly. In the UK there is a wide

range of ﬁnance available from small

developer ﬁnance schemes through to

multi-billion-pound regeneration schemes.

There are both active and passive

institutional investors. Active investors

are keen to get involved in the day-to-day

aspects of the developments and bring their

own expertise.

There will be levels of ﬁnance and

commercial models available to suit almost

any commercially viable proposition.

Institutional investors are unlikely to invest

below £10 million. Investors are happy to

look at both debt and equity ﬁnancing and

both short-term capital returns as well as

long term income streams. Typical returns

range from the gilts rate plus basis points

or above for low risk long-term income

streams through to 15 per cent and above

for commercial regeneration / construction

short-term capital returns. Another source

of private investment is Foreign Capital

Investment, outlined in the next section.

13 www.publicnance.co.uk/feature/2018/02/building-big-bond

Case study: Newcastle City Council

Project: Long term investment

partnership with Legal & General

As one of the biggest urban regeneration

projects of its kind in the UK, Newcastle

Helix is set to create over 4,000 jobs,

500,000 sq ft of ofﬁce and research

space, and 450 new homes. The aim of

the development is to become a major UK

hub for scientiﬁc research, and technology

businesses, creating knowledge-based

jobs for future generations in Newcastle and

extending the Northern Powerhouse to “the

North of the North”.

In June 2016, Legal & General became the

long-term investment partner of Newcastle

City Council (NCC) and Newcastle University

(NU), to build and ﬁnance the Newcastle

Helix development. The partnership is

working in collaboration to deliver this

landmark regeneration project.

Key learning:

Regeneration projects are long-term

relationships, forming a partnership with

the primary investor at the beginning of the

project allows the development to beneﬁt

from a wider range of expertise.

In more detail: Foreign Capital

Investment

• Foreign Capital Investment involves capital

ﬂows from one country to another, granting

extensive ownership stakes in domestic

companies and assets. Sources of foreign

capital include 37 sovereign wealth funds

which are collectively worth over US $7.6

trillion (such as Kuwait Investment Authority,

China Investment Corporation, and Temasek

Holdings of Singapore), national pension

funds (such as South Korea’s National

Pension Fund with assets of US $272 billion)

and Norway’s ‘Government Pension Fund’

($1 trillion), and State-Owned Enterprises

that have accumulated mineral-based

wealth from mining and oil and gas (such as

Gazprom, Petrobras, Statoil, ENI, Sinopec

and many from China).

17 Attracting investment for local infrastructure

Foreign investment denotes that foreigners

have an active role in management as a

part of their investment, or they may use fund

managers to act on their behalf. Funding

sources such as Sovereign Wealth Funds

tend not to seek to control or manage

investments themselves, but do this via a fund

manager. They tend to be passive investors.

Typically foreign capital investors are looking

for opportunities worth over £100 million

and they tend to look for low risk, long-term

investments. Many will not get involved in the

project development stage at all as it is too

high risk. This means that councils must do

the work to bring a fully speciﬁed, costed and

planned project to investors for review.

The Chinese can be notable exceptions

to this, often being active investors involved

in the development stage of the project.

Case study: Manchester Airport City

Project: Long term investment

partnership with BCEGI (Beijing

Construction Engineering Group)

BCEGI UK has been an equity and

construction partner in the £1 billion Airport

City project at Manchester Airport since 2013.

The development will deliver ﬁve million sq ft

of ofﬁces, hotels, advanced manufacturing

logistics facilities and ancillary retail space.

Working alongside Manchester Airports

Group and The Greater Manchester Pension

Fund. It is one of the largest joint venture

developments in the UK.

BCEGI is a large state-owned investment

conglomerate. BCEGI has opened an ofﬁce

in the city and Manchester now has direct

ﬂights to Beijing and Shanghai. BCEGI has

ofﬁces in Manchester which has enabled it

to successfully work in partnership on other

£1 billion regenerations in Manchester.

Key learning:

FCI partners look for long-term relationships.

Nurturing these can lead to not only follow-

on investments but more opportunity for

wider international trade and investment

between the countries.

If you have a project where you think that

foreign capital investment is suitable, then

the Department for International Trade

) can

work with you to make your infrastructure

project and investment proposition attractive

to investors.

DIT can help you through the FCI investment

process to ensure your project is likely to

meet investor requirements, offering councils

support as they go through a two-stage

process which involves proﬁling the project

being assessed to see if it aligns with investor

preferences, and then a ﬁnal stage to build a

more detailed project proﬁle with supporting

information that investors are likely to require.

DIT has an in-depth knowledge of the

international investor landscape and is

able to target investors who are looking

at speciﬁc shapes of investment return.

Projects that are then approved are promoted

with foreign investors through both DIT’s

international network and with inclusion in

national material in both online and ofﬂine

pitch-books, and advice on marketing

at international events such as MIPIM

international property event held in France

each year.

There are also other sources of foreign

investment to emerge in recent years, such

as the providers of Forward-Starting Loans

– loans where the amount of loan and the

interest rate (typically ﬁxed) is agreed up-front

with a predetermined drawdown date.

14 www.great.gov.uk/

18 Attracting investment for local infrastructure

Case study: Barnsley Metropolitan

Borough Council

Project: Forward Starting Loans

Barnsley Metropolitan Borough Council, has

secured a £20 million forward starting loan

from pbb Deutsche Pfandbriefbank to help

fund future spending – particularly on capital

projects. Funds will be drawn down in 2020

whist repayments will be made over a 27 ½

year period and according to a pre-agreed,

ﬁxed rate of interest.

Key learning:

Forward Starting Loans enable councils to

ﬁx interest rates and project ﬁnance years

before development begins reducing

interest rate risk and adding certainty to

project returns.

15 www.room151.co.uk/treasury/barnsley-becomes-second-

authority-to-sign-forward-loan-deal/

19 Attracting investment for local infrastructure

The role of councils in

providing infrastructure

Councils often lead the delivery of local

infrastructure improvements and are

speciﬁcally tasked to provide sufﬁcient

infrastructure to support local plans.

Councils also plan and invest strategically

to support local economic strategies, and

to unlock local housing and employment

opportunities. They negotiate agreements

with property developers to gain contributions

(through Section 106 agreements) to local

infrastructure, including road building and

social infrastructure such as schools and

community facilities. Councils integrate their

infrastructure planning and investments with

unique features of the area driven by national

infrastructure upgrades such as major new

rail investments (such as HS2) or major

transport gateways such as airports.

Although councils have had limited transport

powers over recent decades, this is changing

and there are examples of councils – working

individually or together – increasing their

powers, responsibilities and control over

resources for transport – through passenger

transport executives, or through the recent

establishment of combined authorities and

Subnational Transport Bodies. These new

bodies have responsibility for planning and

prioritising long term transport investment,

approving road and rail investment decisions,

and in some cases making capital grant

awards.

Some councils are also commercial property

owners and developers – of ofﬁce, industrial

and retail premises which they lease out,

with the revenues contributing towards

council ﬁnances. Councils also own and rent

social housing – with their role in this set to

increase in importance as restrictions on

them borrowing against their social housing

revenues have been lifted.

Attracting private investment both UK and FCI

is increasingly an option for councils to deliver

vital infrastructure to unlock local plans. For

the best chance of attracting this globally

mobile ﬁnance it is important to understand

the Why? How? When? Who?

Practical guidance

for attracting private

and foreign investment

into local infrastructure

20 Attracting investment for local infrastructure

WHY? Why would someone

invest in your locality?

This is the critical factor that investors look for.

Investors will compare investment

opportunities on a global basis. Whilst there is

little apparent shortage of global ﬁnance for

investment, investors must have conﬁdence

and trust in the investment, the public sector

partners, and the local business, economic

and social environment.

For an investor to regard a local investment

opportunity as a serious proposition, they

must have trust in the governance and

capability of the council concerned. This can

be demonstrated by leadership, local vision,

political stability and access to managerial

and technical capability and capacity. The

investment period is almost certain to last

more than one election cycle and investors

need conﬁdence in the durability of the vision

for the duration of the investment.

The nature of the proposed infrastructure

project and ownership of the land/property

is also important in securing investor interest.

If the infrastructure project is clearly linked to

a local policy or strategy, supports strategic

sites, or enables signiﬁcant transformation of

the economy – this gives the proposition a lot

more credibility. A willingness to co-invest by the

council also signals serious commitment.

Knowledge of the users and beneﬁciaries

of the infrastructure, once complete, is also

important as this will inform the potential

payback for the investment, and will give

external investors more detail on revenues

and project feasibility. If the project is to

deliver property, and tenants have been

identiﬁed or have committed to the project

– this also helps prove the economic and

commercial feasibility of the project.

Private investors are only interested in

commercial propositions so there needs to

be a credible account of how the infrastructure

or capital development will pay back the terms

of the ﬁnance (such as interest and principal).

Because investors typically specialise in the

types in infrastructure they support, they will

be adept at identifying early on the feasibility

and attractiveness of an investment opportunity.

They may be willing to help to optimise the

development and will help to further reﬁne and

build a detailed business case with you as part

of the next steps. It is useful to have a realistic

appreciation of the commercial returns typically

expected to private investors for such projects.

Putting an unrealistic return on an investment

is likely to put them off.

In summary, if approaching private investors,

including foreign investors, they will normally

require proof of land ownership or control,

outline planning approval, and feasibility

analysis. Contingencies such as road access

or other infrastructural access to sites will

also need to be resolved. A site ready for

construction – “shovel ready” – also provides

greater conﬁdence that target returns will be

achieved through greater cost certainty and

reduced risk of delay. Funding contributions

for other government programmes or sources

also help to provide greater conﬁdence.

21 Attracting investment for local infrastructure

Top-tip: developing investor trust –

leadership and capability

Leadership, local vision, political stability

and (access to) capability and capacity,

can be demonstrated by:

• senior representation (leader and

CEO) at initial meetings with investors

are critical to signalling the importance

of the infrastructure project and investment

• cabinet/committee support for the

infrastructure investment, and clarity

that this will continue beyond the next

election cycle

• part of a local strategy – the

infrastructure project is clearly part of

existing local strategies, local plans, and

identiﬁed strategic sites

• council ownership of the land or

property asset, or an agreed path to

council ownership is vital

• transformative potential of the

infrastructure project – eg energy plant in

Bristol, new rail link in Luton, BBC and/or

council anchor tenant

• planning permission – the project meets

the designated land use permissions in

a Local Plan, or planning permission has

been gained

• co-investment – if the council has a

ﬁnancial interest in the project this can

signal commitment to another co-investor

• route to cover funding shortfalls

– is there line of sight on grant

(eg HIF) applications

• local sustainability – the project

contributes to environmental and

social sustainability.

HOW? How do you make

the commercial model

work?

Councils have a track record in accessing

private ﬁnance to invest in infrastructure, and

there are eight main methods that they use to

do this:

• Capital loans provide loan funds, or

investment capital for infrastructure or

other developments that will be paid back

over time. This is debt ﬁnance and tends

to be passive.

• Managed assets are where an asset is

purchased, built and managed on behalf of

public sector: to provide investment capital

into a special purpose vehicle that builds and

manages a public asset, and they are paid

back their investment plus a return over time.

• Direct investment into plots of land,

buildings or other assets that are part of

a regeneration programme or investment

framework.

22 Attracting investment for local infrastructure

Case study: Luton Council/J2 Global

Corporation Limited

Project: Direct Investment

As part of the £1.5 billion Luton Investment

Framework

, the ‘J2 Global’ managed

Napier Quarter site has attracted £300

million from investors to regenerate and

transform the old Vauxhall site into a leisure

and residential hub. The Napier Quarter will

encompass residential, housing, retail and

leisure developments along with a medical

centre, landscaping and a landmark tower

building.

“We are especially delighted that nearly

one tenth of accommodation to be built

on this browneld site will be for social

housing, underlining our commitment to

tackle the housing crisis facing so much

of the country.”

Key learning:

The Luton investment Framework set out an

ambitious vision for the area across multiple

sites. Working closely with investors allowed

the council to specify areas of social and

economic infrastructure that needed

to be included.

• Lending to or shareholding in public

commercial organisation provides capital

for investment as part of a council owned

asset or service that operates commercially

to provide delivery efﬁciencies or increase

return.

16 www.luton.gov.uk/business/lif/Pages/Luton-Investment-

Framework.aspx

Case study: Manchester Airports

Group Plc (M.A.G)

Project: Lending to shareholding in PCO

Manchester Airports Group Plc (M.A.G)

operates three airports - Manchester,

London Stansted and East Midlands, and

serves around 42 million passengers every

year. It is the country’s largest UK-owned

airport operator with majority ownership

(64.5 per cent) held by the ten councils of

Greater Manchester and Manchester City

Council in particular (35.5 per cent).

Though originally wholly owned by the

public sector, private investment was

sought in 2012 to provide extra capital for

future investment and takeovers of airports

ie Stanstead and in 2013, IFM Investors

purchased a 35.5 per cent share in the

group.

Key learning:

Private investment into existing council

owned assets can free up money for

wider investments or service improvement

initiatives.

• Developer contributions to public

infrastructures are often made by private

developers via Section 106 contributions

as part of the planning process. Examples

include: primary schools, broadband,

spur roads.

• Development partners can be sought and

appointed to design, construct, build and

seek end users or tenants in partnership

with a council.

• A franchised operator is when a private

company is contracted to provide services

on a publicly owned asset – such as a

railway line.

23 Attracting investment for local infrastructure

Case study: Merseyrail

Project: A franchised operator

The Merseyrail network has 68 stations

and75 miles of route and carries around

34 million passengers per year. The

network is operated by a joint venture

between Serco and Abellio under a

franchise contract spanning 25 years

which is due to expire in 2028.

Using a franchise model allows services to

be delivered in the short term by specialist

service providers and investors, whilst

ultimate ownership remains public.

Key learning:

This connection with the public sector has

enabled integration with/enhancement of

other services ie with Merseytravel’s City

Region-wide pass system, which also

encompasses the Mersey Ferries and

city and regional bus networks and the

Walrus smartcard.

• Revenue management services are

where a private company is contracted

to collect revenues for public use of

infrastructure, such as parking, roads,

bridges and tunnels. The private company

providing upfront investment in the

infrastructure allowing them to collect

revenue.

Top-tip:

Building a robust commercial model

Different investors prefer different types

of commercial models. Understanding

the investor landscape and the type of

investments they undertake will help you

ﬁnd the most appropriate investor.

Knowing the key features of your investment

will lead you to the appropriate investor pool:

• Investment and return period: is it a

short term opportunity for capital re-sale

or a longer term opportunity with 20+

year revenue streams?

• Income generation: what are the income

streams or revenue mechanisms eg rent,

service delivery payment schemes from

council, capital sale?

• Ownership and control: are you looking

to keep control of the asset via debt

funding, franchising or happy to share

the risk/reward via an equity model?

• Risk proles: what is the risk proﬁle of

the project? What is your risk tolerance?

• Project size: is it under £100 million

Gross Development Value? FCI is unlikely

to be the route. Can you bundle multiple

sites to get to critical mass?

24 Attracting investment for local infrastructure

WHEN? When should you

talk to potential investors?

There are many suitable points in any

development process to bring in investors.

Much of this will depend on the skills and

capabilities available within the council. As

a general point of guidance the less internal

resources available the earlier to consider

bringing an investment partner in.

For an infrastructure project it is important to

understand the main processes of planning

and delivery, and when it is appropriate

to involve private investors. Typical stages

might be:

I. Investment planning: providing

a solution to identied needs

An investment in infrastructure provides social

and economic beneﬁts. Due to the cost and

longevity of infrastructure, the proposals need

to make the economic and business case for

these, and propose a long-term solution. The

evidence and understanding that has led to the

social and economic needs and beneﬁts being

identiﬁed, with new or additional infrastructure

being proposed as the solution – usually is part

of an overall strategy or policy.

For councils, this strategy or policy could be

local planning policy, or a local infrastructure

or transport strategy. Or it could be part of

an economic strategy or strategic housing

market assessment. The challenges of

infrastructure provision are often that the

beneﬁts are long-term and will only be

realised after a sizeable investment. Once

a formal commitment is made to seek an

infrastructural solution to a need or problem,

the potential delivery options are identiﬁed,

and a concept design or plan is put together.

Involving prospective investors at this stage

can be helpful as they may provide capacity

and expertise to help identify solutions,

delivery models and likely costs. Or it can

be a way of sounding out the market to

see if private ﬁnance is suitable or viable

for your particular project. Feedback from

private investors may be particularly useful

if the type of infrastructure is of a scale or

complexity that lies outside the capability of

the council to deliver on its own. Alternatively,

expert support and advice can be accessed

through commercial consultancy or

government-supported sources such as

local partnerships. If potential investors are

involved at this stage it is important that they

have a track record and interest

in the size, type of project, timescale and type

of ﬁnancial vehicle or return that is envisaged.

If you do not have a good understanding

of the investor market then it is an idea to

speak to agents or learn from other councils

or DIT.

II. Project planning and specication

This stage involves the detailed speciﬁcation

of needs and strategic objectives, planning

for project delivery, identifying resources

and ﬁnances, appointing a lead delivery

body or team, project governance, setting

out procurement options, and tendering the

project out or putting the project out into the

market as an investment proposition.

Major infrastructure projects require a

detailed feasibility appraisal and a full

ﬁnancial appraisal, covering funding sources,

cashﬂow forecast, revenue and future budget

implications. Expected external ﬁnance

contributions, whether from public or private

sources, will need to be detailed.

It is important that you are able to bring

sufﬁcient resources, capacity and capability

to this stage of the project. One of the

advantages of working with investors

is the strength of support they can offer.

25 Attracting investment for local infrastructure

Involving prospective investors at this stage

is crucial because this is the main stage

for securing investment commitments to

infrastructure projects. If the council is

seeking a development partner to co-invest in

a regeneration area, or business park – this

is also a vital stage in which to advertise for

interested developers and ﬁnanciers to make

their proposals. Councils may borrow from any

willing lender including banks, other councils

or principal authorities, public trusts and

foundations (eg Playing Fields Associations,

Natural England). The council then needs to

obtain a borrowing approval from MHCLG

– which includes a requirement for prior

consultation with electors/residents as a pre-

condition of borrowing approval. MHCLG will

send the council a borrowing approval letter

which will set out a number of conditions that

need to be fulﬁlled and specify how much

the council can borrow, and the maximum

term of the loan period. Using external equity

investments can be an alternative to borrowing

(debt ﬁnance).

There are a wider variety of options now

available including a full tendering process

where the developer might bring ﬁnance,

PWLB, Homes England and other grant

funding. It will also allow priority inclusion

in pitchbooks (subject to certain size

restrictions) supported by DIT. Other ways

of engaging investors may be more open

at this stage of the process, allowing investors

to bring a variety of ideas forward.

Case study: Bristol Council

Project: Openly engaging with Investors

Bristol City Council (together with partners

from the public and private sector) has

launched the City Leap Prospectus with

the aim of attracting up to £1 billion of low

carbon and smart energy infrastructure

investment over the next ten years. The

council has taken a soft market testing

approach with City Leap – advertising the

programme in a concise format, openly on

the web and inviting broad expressions of

interest (EOIs) from any interested parties

– the aim being to gather a large amount

of varied responses at the early stages of

the programme, which can subsequently

be evaluated and ﬁltered down by the project

partners. The council has now completed

a detailed options appraisal and formed

a recommendation on the type of energy

partnership that will deliver on Bristol’s

carbon neutral ambitions.

Key learning:

Councils do not have to be overly

prescriptive when seeking investment

partners, by staging the application process

and courting different approaches more

innovative and ﬁnancially beneﬁcial input

may arise.

26 Attracting investment for local infrastructure

III. Procurement and construction

This stage involves putting together a detailed

set of proposals and procedures in place to

approach the market with a detailed deﬁnition

of requirements and conditions. Once a

preferred supplier is found, the contract

management and delivery phase begins.

The organisation that does the procurement

could be a council, which is backed by

external ﬁnance, or it could be a private sector

organisation which has agreed to manage the

design and build of a project in return for a

revenue stream, or repayment schedule.

The requirements to follow procurement

frameworks will vary dependent on the

exact structure of the commissioning body.

Engagement with investors at this stage

will be mostly about monitoring their

performance, and compliance with council’s

contractually agreed terms – whether this

is by the councils repayments to a private

investor, or the investor’s management of an

asset or revenue stream, if that is the ﬁnance

vehicle being used.

Top-tip:

When should you onboard investors

Investors can be brought into your project

at various stages and through a variety of

mechanisms.

• Passive or Active Investors.

◦ Active Investors can bring ideas to

optimise the project for your KPIs and

expertise to turn it into reality. Getting

them involved early can cover a lack

of capacity, experience or capability

internally.

◦ Passive Investors tend to provide

investment only eg much FCI,

and many public sector sources.

• Different stages suit different investors:

There might be different investors involved

at different stages of the infrastructure

delivery.

• Procurement: There is no need to go

through complex procurement processes,

such as OJEU, if you are looking

for investors (as you would delivery

partners). You can satisfy value for money

requirements via alternative methods.

This is a complex area and specialist

advice should be sought.

• Clarity of process: You should be clear

with investors your engagement process

from the outset. Investors value their time

more than anything else, you get one

chance.

27 Attracting investment for local infrastructure

WHO? Who should be

involved in the process?

To successfully deliver an infrastructure

project, there are a range of skills,

capabilities, resources and stakeholders

that need to be involved and coordinated.

A single council, or a group of them are

critical to drive the early stages of the

infrastructure project, identifying the

infrastructure needs and beneﬁts and the

solutions options. As well as the council

Leader and CEO, this is likely to involve

the corporate ofﬁce, project management

ofﬁce, ﬁnance department, councillors (and

appropriate committees)

as well as specialist teams such as economic

development, transport and housing.

Some areas have local expert advisors, who

act as honest brokers to develop project

ideas, have commercial knowledge about the

property market and development process.

These can range from non-proﬁt organisations

such as Cheltenham Development Trust,

to private consultancy services such as

commercial property agents, property

development companies, infrastructure

delivery specialists, and project managers.

Expert advisors can help to shape a project’s

speciﬁcations, advise on commercial

feasibility, sources of ﬁnance, and can also

make introductions to relevant development

partners or investors. Homes England maintain

a specialist panel of experts that can be

accessed on housing led projects.

Subnational organisations have played a

signiﬁcant role in recent years in advocacy

and campaigning for local infrastructure

prioritisation and investment. Organisations

such as the Northern Powerhouse and

Midlands Engine provide this advocacy

role within a wider strategic rationale, and

economic growth narrative. For larger

infrastructure investments where the beneﬁts

cross multiple council areas, they can be

useful partners and provide increased

credibility.

17 www.gov.uk/guidance/technical-panels

In particular, the transport initiatives of the

Northern Powerhouse and Midlands Engine –

Transport for the North and Midlands Connect

respectively have provided a powerful voice

and leverage for increased investment in local

transport infrastructure.

Who should be involved

in the process?

To successfully get investment for an

infrastructure project, there are a range

of skills, capabilities, resources and

stakeholders that need to be involved

and coordinated. Documentation from the

Infrastructure and Projects Authority gives

some great ideas of the breadth and depth

of the team involved.

Key partners might include:

• other councils who can advise you

what worked, the LGA is a useful conduit

• expert advisors and commercial

property agents who can steer you to

appropriate investors and advise you on

costs

• subnational organisations and

transport bodies who can link to other

local investment opportunities or build

commercial models over a wider area.

Specialist public sector resources are

available in speciﬁc circumstances:

• Department of International Trade:

Over £100 million Gross Development

Value? DIT have resources and expertise

to make your proposition attractive

to investors and link you to the most

appropriate international ones. Signiﬁcant

projects typically take a minimum of

three years from initial conversations to

investment.

• Homes England: Housing led

development? Homes England Technical

and Property Panels are pre-approved

experts you can commission to help.

28 Attracting investment for local infrastructure

Infrastructure plays a critical role supporting

local communities and the local economy.

Infrastructure can unlock an area’s

transformational potential, enable residents

to access new education, skills, and work

opportunities, support local retail and

business areas, and increase the viability of

new sites for homes and businesses.

In the Infrastructure Finance Review

Consultation Paper issued by HM Treasury in

March 2019, it was highlighted that at least

£300 billion of the projected infrastructure

investment pipeline for the next 10 years

will come from foreign and private capital

investment.

New roles and powers for local government

have emerged in recent years which make it

more viable to access up-front investment for

infrastructure that can be repaid or serviced

by revenue streams from taxes, services,

infrastructure use or enhanced land values.

For the right project, these sources of ﬁnance

are virtually unlimited, rapidly deployable and

can come with the experience and expertise

to support delivery. It is a complex landscape;

understanding the Why? How? When? Who?

is essential for success.

• Why? Demonstrate why the infrastructure

is important to you and that you will deliver.

• How? How does the investment work and

ﬁt with the investor’s risk/reward model?

Is the investment above the minimum

threshold (>£100 million for FCI).

• When? Could the additional support from

early engagement with an ‘Active’ investor

help get the most out of an investment?

• Who? Have you engaged and partnered

with the right people to reach and reassure

the investors?

Conclusion

29 Attracting investment for local infrastructure

Local Government Association

www.local.gov.uk

Department for International

Trade - Capital Investment team

www.gov.uk/government/publications/uk-

capital-investment/uk-capital-investment

The Infrastructure and Projects Authority

Project Initiation Guidance

www.gov.uk/government/publications/

improving-infrastructure-delivery-project-

initiation-routemap

National Infrastructure and Construction

Pipeline

www.gov.uk/government/publications/national-

infrastructure-and-construction-pipeline-2018

Homes England

www.gov.uk/guidance/technical-panels

HM Treasury Green Book and Business

Case Guidance

www.gov.uk/government/publications/the-

green-book-appraisal-and-evaluation-in-

central-governent

Further contacts for

advice and support

30 Attracting investment for local infrastructure

Active investors will want a hands-on role,

providing experience and expertise to shape

the project.

Additional business rates retention

represent the new business rates that may

arise from new business activities that result

from an infrastructural investment.

Basis points (BPS) are a unit of measure used

in ﬁnance to describe the percentage change in

the value or rate of a ﬁnancial instrument. One

basis point is equivalent to 0.01 per cent.

City deals are agreements between cities

and city-regions, to provide advanced funding

for infrastructure which will be repaid by

additional business rates retention.

Economic Infrastructure - the ‘hard

infrastructure’ that provides transport, energy

supplies, ﬂood protection, water supplies and

waste treatment, telecommunications and

digital networks.

Equity is the provision of funds in return for

an ownership share of a company or asset.

Foreign Capital Investment (FCI)

is a particular source of private investment,

which has been successfully used in the past

for appropriate infrastructure projects as it

typically invests large sums, over long time

periods, at stable interest rates to enable the

development on infrastructure. It excludes the

secondary purchase of existing assets for the

purpose of income generation.

Foreign Direct Investment (FDI) refers to

investment into business interests.

Gilts are bonds that are issued by the

British government, and they are generally

considered low-risk investments.

Government grants are public subsidies

or ﬁnance awards offered to a recipient

for public or private purposes that are not

expected to be paid back.

Gross Development Value (GDV) A calculation

of what a development property should be

worth on the open market.

Infrastructure is the basic physical and

organisational structures and facilities

(eg buildings, roads, power supplies) needed

for the operation of a society or enterprise. In

this report, we divide infrastructure into two

types: economic infrastructure and social

infrastructure.

Internal Rate of Return (IRR) is a measure

of an investment’s rate of return.

Land Value Capture Major transport

investment can signiﬁcantly increase the

value of land, particularly if it is close to a train

station or transport hub. Land value capture

is a term used to describe the use of this

increase in land value to fund investment

in public services, such as transport.

Loans/ Debt Funding are the provision of

funds for an expected return, such as interest

payments, and the return of the principal

(initial sum) lent.

Local Government Pension Schemes

(LGPS) Specialist pension schemes for local

government workers. Recent freedoms have

allowed local government pension schemes

to invest for the beneﬁt of local areas.

Managed assets are where an asset

is purchased, built and managed on behalf

of public sector.

Glossary

31 Attracting investment for local infrastructure

Municipal bonds are a form of debt ﬁnance

for local government, where private investors

purchase shares in the bond.

Passive Investor tend to provide ﬁnance

only, though will likely want to be involved in

governance, particularly for signiﬁcant projects.

Payback mechanism typically returns are

made by generating revenues or income

streams from an asset or service, or result

from the sale of the asset.

Payback Period the length of time required

for an investment to recover its initial outlay in

terms of proﬁts or savings.

Pension Funds is any plan, fund, or scheme

which provides retirement income. Pension

funds typically have large amounts of money

to invest over a mix of timescales and yields.

Private investment and capital is the

provision of ﬁnance from private institutions,

businesses, and organisations, commonly on

a commercial basis that expects a ﬁnancial

return such as fees or interest payments.

Private Finance Initiative (PFI) is a mechanism

by which the private sector can invest in a

public asset – usually to plan, construct and

manage it on the government’s behalf.

Public Works Loan Board (PWLB)

is a government department that makes

available loan ﬁnance to public authorities

and councils.

Revenues from assets and services are

the income streams derived from user

charges for the use of an asset or the

operation of a service in an asset.

Section 106 (S106) Agreements are

legal agreements between councils and

developers They compel the developer

to make a ﬁnancial contribution towards,

or provide improvements to mitigate against

the impacts of the development.

Social Infrastructure that provides the

environment and buildings for social and

market activities to take place, and for the

public to access services and interact –

and includes facilities such as schools,

universities, hospitals, care homes, social

housing, private housing, business parks,

industrial parks, science parks and retail sites

and premises.

Sovereign wealth fund (SWF) or sovereign

investment fund is a state-owned investment

fund that invests in real and ﬁnancial assets.

State-owned enterprise (SOE) is a legal

entity that is created by a government in

order to partake in commercial activities

on the government’s behalf. It can be either

wholly or partially owned by a government

and is typically earmarked to participate

in speciﬁc commercial activities.

Tax revenue is deﬁned as the revenues

collected from taxes on income and proﬁts,

social security contributions, taxes levied on

goods and services, payroll taxes, taxes on

the ownership and transfer of property, and

other taxes.

Yield refers to the earnings generated and

realised on an investment over a particular

period of time, and is expressed in terms

of percentage based on the invested amount.

Local Government Association

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London SW1P 3HZ

Telephone 020 7664 3000

Email [email protected]v.uk

www.local.gov.uk

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REF 5.54