With the backdrop of a double dip recession and George Osborne announcing £40bn of Treasury guarantees for investment in infrastructure, ResPublica and the Canary Wharf Group last week published Financing for Growth: a new model to unlock infrastructure investment.
The report proposes a model of ‘Community Infrastructure Bonds’ to attract investment by local citizens and businesses, among others, into a kind of large-scale regeneration social enterprise. While the Treasury’s efforts are focused on nationally significant projects, Community Infrastructure Bonds could help develop the transport, energy, technology and civic infrastructure that the UK needs at a more local and regional level, fuelling the economy from the bottom up.
Infrastructure development is currently financed through various forms of negotiated agreement between the public and private sectors. Acronyms like PPP, PFI and the emerging TIF are all shorthand for some kind of antagonistic finance and risk sharing ‘partnership’ between the public and private sector. Hidden vehicles called SPVs, TOPCOs, OPCOs, CAPCOs and LIFTS are constructed around the assumption that the public sector is useless at this kind of thing and the private sector is out to make a quick buck. Citizens, civil society and businesses for whom this infrastructure is intended don’t even come into the equation.
But by taking inspiration from social enterprise, the report proposes a model that could deliver better value for money, more popular and longer-term models of infrastructure finance, by engaging communities, citizens and local businesses more directly in the financing, control and governance of the physical assets around them.
Some have argued, perhaps unfairly, that Social Impact Bonds apply a PFI (private finance initiative) model to the social sector. Instead, why not apply a social sector model to PFI? Taking this approach, the Community Infrastructure Bond would be issued by an independent Special Purpose Vehicle with a social mission, working in the interests of a defined community of interest, across rigid public sector boundaries and beyond the influence of short-term politics. It could have an asset lock, a dividend cap and surpluses principally reinvested in the community it has been created to serve.
Of course, the investment must promise financial return. These could be generated through conventional means such as public capital budgets and contributions from the private sector, but also through more innovative models such as increases in tax revenue linked to development, value capture mechanisms linked to increases in land or property value in and around the development, or revenue from asset transfer. To be sure it stacks up, the model may still require the public sector to provide a guarantee, invest a tranche of risk capital or the use of appropriate tax incentives.
In theory at least, this model could generate a better deal for the taxpayer, as well as giving local people and businesses an attractive and engaging route to invest. Recent evidence of the success of social enterprises and co-operatives – outperforming their more red-blooded counterparts over the past few years – and the commercial successes of community-owned shops, for example, demonstrates how aligning incentives between investors, enterprises, customers and community can create a virtuous circle and more socially and financially successful business models.
As things stand, very little of our infrastructure is owned locally or directly by citizens or communities. Instead, ownership is removed through layers of abstract and anonymous intermediaries (public or private) which increases complexity and puts a distance between people and the physical infrastructure around them, creating a dangerous ambivalence and absence of genuine ownership.
So the idea here is that social enterprise can offer not just a role in the delivery of public services and private goods but also a model for the physical development of large-scale community assets. In other words, this report is calling for advocates of social enterprise to come forward and engage with debates about who owns our railways, the canals, the Port of Dover, the forests, our broadband network, health, education and sports facilities, electricity and utilities companies.
Here is one model for how this infrastructure could be financed and owned by us in a more meaningful sense, potentially offering a more transparent, inclusive and democratic investment platform and unlocking billions of pounds of latent investment. We can raise our sights.
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