So, the results are in, but what lies ahead for private capital investment in UK infrastructure following the Labour Party's victory in the UK general election? Here we share our initial thoughts on how the change in government might impact private capital investment in infrastructure.
Will the election have any impact on the fundamentals in this sector with regards to private capital investment?
The UK election is unlikely to change the fundamentals with respect to the levels of capital required to modernize core infrastructure assets across transport, power, utilities and the industrially innovative sectors in the UK.
This underlying need plus an increasingly sophisticated consumer demand for new infrastructure technologies in key sectors (e.g., clean and green fuels) will mean that there will very likely be a continuing material interest in private capital investment in the asset class for the long term no matter who is in power.
What do we know about Labour's policies?
One of the key features of the election campaign was Labour's continued message of 'time for change'. Whilst this is an understandable political slogan, details about how that change would impact on infrastructure development and investment in the UK remains a little rough round the edges.
There is the headline objective of Great British Energy (a nationally-owned clean energy company which has echoes of the UK's green investment bank, which was set up by the UK Government in 2012 and which was then sold to Macquarie in 2017) which, as per the Labour manifesto, will be capitalized with £8.3 billion over the course of the new parliament. The stated aim of Great British Energy is to co-invest in leading technologies and support capital intensive projects.
The manifesto also highlights the need for planning reform across the UK in order to encourage development in:
- Onshore wind (in particular ending the existing nominal "ban on development");
- Traditional infrastructure areas such as transport;
- 5G and gigabit broadband rollout; and
- Updating the UK's electricity grid.
Finally, these stated goals sit adjacent to the proposal for a National Infrastructure and Service Transformation Authority and a new ten-year infrastructure strategy which is aimed at aligning infrastructure investment with industrial and regional development priorities.
The details about which key target projects and underlying new technologies will benefit from additional focus and support will undoubtedly take time to develop once the strategies, authorities and institutions have taken form. It will be interesting to see whether new and novel technologies which, on paper, have the capacity for rapid economic growth (such as new energy storage technologies) will receive the governmental support required for success or if they are shunned in favour of more traditional policies (e.g., rail infrastructure).
Also interesting is that there is a clearly a key focus in having a national governmental led view of developments for strategic infrastructure rather the devolving decisions to local authorities.
Welcome planning reform to accelerate data centre developments
In their manifesto, Labour pledged to reform the planning regime and slash red tape to make major projects faster and cheaper in a number of key areas. A welcome focus is on removing planning barriers to the development of new data centres.
The UK's existing planning frameworks are silent on the data centre sector, meaning the planning process can be arduously slow and lacking in clarity. Such level of uncertainty and delay is, of course, diametrically opposed to the need for infrastructure investors to move quickly when deploying capital in this highly competitive market and the race for scale to support the UK's AI and tech ambitions.
The Labour Party has also promised to increase resource and update national planning policy to make it easier to build digital infrastructure and gigafactories throughout the UK. We expect these commitments will also reduce planning uncertainty and generate further investment in these trending sectors.
How much money is there to spend?
The new Chancellor, Rachel Reeves, made it clear during the campaign that spending discipline is likely to be a feature of the new administration.
Given that classical infrastructure projects are capital intensive it may be the case that the success or failure of the new Government in terms of investment in the sector will be linked to encouraging private co-investment to contribute to the costs of these new projects.
Conclusion
We can only wait for the fully formed details to emerge with respect to the new industrial and infrastructure strategies. It is, however, clear that the new government is, on paper, committing the time and intellectual capital to the infrastructure sector generally and that we should expect additional details to be forthcoming.
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