Generating social and economic value across the UK - investment flows in practice

The reality is that many councils have been forced to cut services or drain reserves in order to balance the books.² In particular, both due to rising construction costs and interest rates on Public Works Loan Board (‘PWLB’), borrowing has become prohibitively expensive, so that levelling-up projects have been stalled or cancelled completely.³

This presents a timely opportunity for pension insurers. Pension insurers have very long-term horizons since we will be paying pensions decades into the future. This means that partnerships with pension insurers and councils with shared long-term interests, can ensure that significant infrastructure investment can be shaped in a way to suit both parties. Private capital from pension insurers is bridging the viability gap, allowing local councils to invest in urban regeneration, and infrastructure developments but also in ordinary services. This is genuine impact investing in motion, where a long-term investor leverages its balance sheet to deliver projects and services local councils desperately need and a catalyst for wider economic prosperity.

Looking beyond traditional sources of borrowing to help bridge infrastructure funding shortfalls, or find innovative ways to provide ordinary services is now helping a number of far-sighted local authorities. Low-risk finance from institutional investors such as pension insurers is funnelling billions of pounds of policyholders’ pension savings into productive assets to support local UK infrastructure. 

This type of funding does not only need to be for project-based finance. Bromley Council were faced with the challenge of housing families in temporary accommodation. It was bad for families, who were often moving between accommodation depending on availability, and it was bad for the council, who faced burdensome costs, sometimes resorting to purchasing hotel rooms in order to meet the demand. The Council were able to borrow £67 million from PIC, which was used to purchase 300 affordable properties outright. This significantly reduced their cost of emergency nightly accommodation by eliminating reliance on hotel rooms for families in need of temporary accommodation across the Borough. The council was able to save around £1.5 million a year while providing certainty of accommodation to the families in need.

What this means in practice

Birkenhead, in Wirral, on the opposite bank of the Mersey from Liverpool, was once a thriving dockyard and booming economic hub. Now, it is an area ripe for regeneration. It features in the Index of Multiple Deprivation as one of the 20% most deprived communities in the UK.

It was clear that the area needed investment to kick-start its revival, however Wirral Council could not fund this alone and is facing the same financial pressures felt across every council, including funding shortfalls in its budget. ⁴Part-funded by central grants, and partly through innovative financing with institutional investors, Wirral Council is working with developers to restore the former dockland into a new economic and residential hub.

PIC’s £130 million investment in a new waterfront neighbourhood, Miller’s Quay, is the anchor project of Peel L&P’s Wirral Waters, the UK’s largest urban regeneration project and a key part of the levelling up agenda. The project will transform the banks of the Mersey over the next 30 years, create 20,000 permanent jobs, build new neighbourhoods, and is now the largest regeneration project in the UK.

Sources:
¹Chancellor must act to protect local services from threat of spiralling costs - LGA | Local Government Association
² UK councils slashing services to meet £3.2bn budget shortfall | Local government | The Guardian
³ Inflation surge forces councils to cut UK ‘levelling up’ projects | Financial Times (ft.com)
⁴ Wirral Council budget update - Birkenhead News