An evaluation of alternative funding mechanisms to
better support Northern Ireland’s infrastructure
investment.
A Dissertation Submitted in Partial Fulfilment of the requirements for the Award
of MSC in Construction Business and Leadership (with management specialisms)
Belfast School of Architecture and the Built Environment
Crockett, Jonathan
B00792225
September 2020
Dissertation Supervisor: Karen Davison
Word Count:18,958
1
Abstract
Northern Ireland (NI) is currently facing a significant infrastructure deficit that continues to grow. As a
devolved region of the United Kingdom, Northern Ireland remains largely dependent on a block grant
(from Westminster) as its main source of funding. It is currently held by many within the construction
industry (of NI) that this current allocation of funding is not even enough to adequately support existing
assets, never mind invest in infrastructure that is modern and resilient. Furthermore, some commentators
argue that there is existing NI infrastructure (most notably NI water) that will soon come to a halt, if
further infrastructure investment is not made immediately.
This research papers aim to elicit industry opinion regarding current and potential funding models NI
infrastructure. The data will be collected using qualitative methods: principally using a questionnaire to
survey the opinions of relevant parties who have demonstrated significant interest/knowledge around this
issue. Furthermore, in reviewing the relevant literature around this topic and collecting relevant data, the
paper aims to evaluate alternative funding models that are successfully being used in other parts of the
world to fund infrastructure. Finally, the research paper hopes to recommend funding mechanisms that
could better support NI’s infrastructure investment and discuss what needs to happen next.
Acknowledgements
The researcher would like to thank all those who agreed to take part in the survey, as well as those who
helped the researcher attain access to data collections, that he would otherwise not have accessed. The
researcher would also like to thank the paper’s supervisor Dr. Karen Davison for her co-operation and
support throughout the process. Finally, the researcher would like to pay homage to those who continue to
strive for better infrastructure investment for NI; it’s always a day closer.
Declaration:
“I declare that this is all my own work and does not contain unreferenced material copied from any other
source. I have read the University’s policy on plagiarism in the Student Handbook and understand the
definition of plagiarism (above). If it is shown that material has been plagiarised, or I have otherwise
attempted to obtain an unfair advantage for myself or other, I understand I may face sanctions in
accordance with the policies and procedures of the University. A mark of zero may be awarded and the
reason for that mark will be recorded on my file. It is a condition of use of this thesis that anyone who
consults it must recognise that the copyright rests with the author and that no quotation from the thesis
and no information derived from it may be published unless the source is properly acknowledged”.
Student’s Signature:..Jonathan Crockett....................................... Date:…………………
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Contents Page
Title Page
1
Abstract/Acknowledgements & Declaration
2
Contents page
3-5
Lists of Figures/List of Tables
6
Chapter 1 – Introduction and background of study
Introduction: urbanization and the need for 21st century infrastructure
7
The UK government infrastructure plans
7
COVID 19 and the aftermath
8
Northern Ireland and infrastructure
8
NI infrastructure and the problem of funding
8
Northern Ireland: The City Deals and what follows
9
Finding the funding solutions for NI infrastructure investment
10
Structure of Research Paper
10
Chapter 2 – Literature review
Literature review: an introduction
10
A Definition of Infrastructure
11
The growing importance of infrastructure in the 21st century
12
The Recent Decline of UK Infrastructure
13
The UK Infrastructure Revolution
13
Northern Ireland Infrastructure: Revolution or Paralysis?
14
Current performance of NI infrastructure
14
3
NI Infrastructure: Current methods of funding
15
Northern Ireland Infrastructure: Are City Deals a step change?
16
Industry views on an NI infrastructure strategy
16-18
Alternative funding mechanism proposed by Deloitte for NI
18-19
Alternative Funding Models set out by NI Strategic Investment Board
19-20
Research focusing on best practice funding models
20
The inevitable reliance on the private sector
21
Public Private Partnerships as a potential funding solution
21
PPP’s: An Evaluation
21
PPP’s as a convenient driver for investment
22
Criticism of PPP’s
23
The recent evolution of PPP’s
24
Are PPP’s a potential option to fund NI’s infrastructure investment?
23-24
Looking beyond PPP’s: plugging the funding gap
25-26
No silver bullet solution
26-28
Alternative examples of innovative funding methods: NPD Model
29-30
Mutual Investment Model (MIM)
30-31
Tax incremental Finance (TIF)
31
Learning from Cross rail and Thames Tideway Tunnel
32-33
Conclusion
33
Chapter 3 – Methodology
Research Methodology: Using the most appropriate methods to get the best results 34
Sampling
34-36
The questionnaire: Logic and design
36
4
Sequence
Validity and Reliability
Research Ethics
Chapter 4 - Results
An Introduction
Results: The Survey
Results: discussion
The Research Objectives and Results
Areas of conflict AND consensus
36
37
37
Interpretation of findings (within context of literature review)
46
Recommendations
Implications
Limitations
Further Research
Conclusion
References
Appendices
46-47
47
47
48
48
49-55
56-57
38
38-41
41
41-44
44-46
5
List of figures
Figure 1 – UK Infrastructure spend as % of GDP
Figure 2 – Choice of finance for UK infrastructure pipeline
Figure 3 – Funding sources of Northern Ireland Budget
Figure 4 – Annual number/value of UK infrastructure deals completed
Figure 5 – Categorization of infrastructure
Figure 6 - Economic investment for infrastructure needed
Figure 7 – Total cost of annual repayment on private finance loan
Figure 8 –Number of signed PPP deals
Figure 9 – Funding mix of UK infrastructure pipeline
Figure 10 – Flow chart to enable financing decision
Figure 11 – Crossrail funding package
List of tables
Table 1 – NI Audit 2019 Review of flagship infrastructure projects
Table 2 – Budget impact of different financing routes
Table 3 – Comparison between PFI/PF2 and updated PPP
Table 4 – UK infrastructure risk and return profile
Table 5 – NPD model compared to PFI model
Table 6 – Methodology used by study
Table 7 - Selected participants and justifications
Table 8 – Survey questions as linked to study objectives
Table 9 – Sequence of actions (methodology)
Table 10 – Results of survey
6
Chapter 1 – Introduction and background of study
Urbanization and the need for 21st century infrastructure
Globally, between 2014 and 2050, the population in urban areas is predicted to jump by around 2.5 billion
people, making up 66% of the global population (Coalition for Urban Transitions 2018). Most cities
recognise that delivering sustainable, effective and modern infrastructure is essential to provide the
backbone which allows such societies to thrive and prosper (Siemens, PWC and Berwin Leighton Paisner
2019). Furthermore, infrastructure investment is seen by many as a multiplier in our economy in both the
short and long term: in the short term it supports growth, and in the long term it boosts productivity
(KMPG 2015). The need for infrastructure investment is particularly relevant in the UK, where
infrastructure investment as a per cent of GDP has been falling in the UK for the past three decades
(KMPG 2015). To this end, the National Infrastructure Assessment (2018) declared that the last decades
have seen an endless cycle of decay, uncertainty and limited growth in UK infrastructure investment. The
decline in infrastructure investment can be illustrated in figure 1.
figure 1
The UK government infrastructure plans
The UK government has acknowledged that there is an urgent need to invest in modern infrastructure: the
2020 budget (HM Treasury 2020) announced that 640 billion would be set aside for infrastructure
investment. Significantly, 60% of infrastructure investment in the UK government pipeline is set to be
financed by the private sector (Institute for government 2016). There has been an acknowledgement that
whilst capital is not in short supply, there will be a need for sustained co-ordination between the public
and private sector in order to fulfil such an ambitious spending plan (National Infrastructure Invesment
2018). Figure 2 illustrates how the construction pipeline from previous years has been co financed by
both the public and private sector.
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Figure 2
COVID 19 and the aftermath
Evidently the COVID 19 pandemic has disturbed government plans for infrastructure investment (the UK
economy was reported to have been down by a quarter during lockdown), however in response to the
crisis, the Prime Minister (Infrastructure Intelligence June 2020) has promised a ‘Rooseveltian approach’
to UK infrastructure delivery, stating that ‘Britain will build its way back to health’. Swiss Re Institute
(2020) have supported the assertion that on a global level, infrastructure investment will be a core strategy
in kick starting the economy in a post Covid 19 world. Furthermore, the UK government has set up the
‘Project Speed’ body which aims to bring forward infrastructure projects and make them ‘shovel ready’
(construction enquirer 2020), with the PM promising that there will also be accelerated infrastructure
investment in other regions of the UK.
Northern Ireland and infrastructure
Like the rest of the UK, Northern Ireland has suffered from a chronic lack of investment in infrastructure,
and whilst there are now plans to rectify this, the means of funding are unclear (NI assembly research
matters 2017). The ‘New Decade, New Approach’ document put forward by the NI Executive (Gov UK
2020) acknowledged the need for urgent infrastructure investment, setting out plans to ‘turbocharge
infrastructure’. The NI economic thinktank Pivotal (2020) also acknowledged that the need for
infrastructure investment was even more urgent in the light of Covid 19, stating that NI’s recovery in post
Covid 19 circumstances was underpinned by investment in sustainable infrastructure.
NI infrastructure and the problem of funding
Whilst there may be genuine intentions to ‘turbocharge infrastructure investment’ in Northern Ireland, the
reality is, is that NI funding relies heavily on the block grant from the UK government which has been
significantly curtailed in recent years (NI Assembly research matters 2017). Figure 4 is an accurate
illustration of NI funding sources (NI finance department 2020), confirming the almost complete reliance
on the block grant. On another issue, whilst there has been welcome funding from the European Union
(up to 100 million from 2006-2016), Brexit and the potential removal of this source of funding could
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make it even more difficult to source funding for necessary infrastructure investment (NI Assembly
research matters 2017).
Figure 3
Alarmingly, the NI finance minister declared that there would be ‘significant challenges’ in fulfilling the
infrastructure investment set out by the New Decade, New Approach document, going as far as to say that
the block grant from Westminster was ‘woefully inadequate’ for the demands set out in the New Deal
(Belfast Telegraph 2020). Furthermore, a report commission by the Northern Ireland Audit office (2019)
found that ‘funding issues’ were a recurring and significant concern in the delivery of capital
infrastructure projects in the region.
The Construction Employers Federation (CEF) of Northern Ireland released the findings of a survey
reporting that many of those involved in NI construction were unhappy with the pace of funding and
delivery of infrastructure projects, citing the ‘shovel ready’ strategy of the UK government as something
that should be mirrored in Northern Ireland (CEF 2020). Similarly, Deloitte (2018) have echoed this
sentiment, stating that the Executive needs to be more ‘business orientated’ to in order to stimulate inward
investment in infrastructure. In addition, the Belfast Chamber of Trade (Belfast Telegraph 2020) has
declared that the plans for infrastructure investment should now be accelerated as a response to the
negative effects Covid 19 has had on the NI economy.
Northern Ireland: The City Deals and what follows
The NI Executive recently announced a huge investment in infrastructure via the City Deals amounting to
a total of 700 million (BBCNI 2020). Whilst the City Deals have created a great sense of optimism, there
is a fear that other budgetary demands may be prioritized over infrastructure investment (A Feeney 2017).
Furthermore, McClements (2019) has also welcomed the announcement of the City Deals but has limited
its impact to ‘seed funding’, acknowledging that there is still a demand of alternative source of capital to
fund NI Infrastructure.
Finding the funding solutions for NI infrastructure investment
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This research paper seeks to make a contribution of some level to the growing debate on how Northern
Ireland can fund a program to ‘turbocharge infrastructure’. Evidently, there is a very significant need for
infrastructure investment in Northern Ireland, and consequently a growing demand on the relevant parties
to source alternative methods of funding that could bolster this investment drive and have very positive
consequences on our economy for years to come.
Therefore, the overall aim of this paper is to: evaluate funding mechanisms to better support infrastructure
in Northern Ireland.
In doing so, the project will set out to fulfil the following objectives:
1. assess the importance of infrastructure for NI
2. evaluate the current methods of funding of infrastructure in NI
3. investigate industry views in relation to future investment needs for NI infrastructure
4. critically assess existing and best practice funding models for infrastructure
5. and finally based on the results of my research: to recommend innovative methods of funding to better
support NI infrastructure
Structure of Research Paper
This dissertation is organized into five chapters. Chapter One provides the introduction and background
of research. Chapter Two presents the review of literature associated with funding mechanisms for
infrastructure investment. Chapter Three presents the methodology. The final chapter (4) present the
results and conclusion to the study.
Literature review: an introduction
There has been a plethora of evidence demonstrating the link between infrastructure investment and
economic prosperity (see Citibank/OECD/Diamond research below). It is also largely agreed that the UK
has undergone a sustained period of underinvestment in infrastructure spending (RICS 2020). In recent
years however, there has been a significant increase recently in signing off infrastructure deals by the UK
government (RICS 2020 see figure 4). This increase in infrastructure investment would appear to
correlate with the rhetoric of an ‘infrastructure revolution’ set out by the UK government. Nevertheless,
RICS’ (2020)‘Bridging the Gap’ reported that the UK still suffered from several barriers in infrastructure
investment, principally funding and financing project delivery.
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Figure 4
As for Northern Ireland, it has already been stated that overall funding is heavily reliant on the block
grant received from the central UK government. The Strategic Investment Board NI (SIBNI which is in
charge of planning, managing and delivery infrastructure projects for the region), reported that their sole
source of funding was the block grant, and even expressed concern that between the years 2010 and 2015,
the block grant was expected to fall by 34% (SIBNI 2011). As a result, the SIBNI have declared that they
are actively seeking alternative methods of funding for infrastructure investment.
With the demands of COVID 19, it could be argued that the funding that NI Executive normally have
access to has been even further depleted. Whilst the NI budget 2020-2021 (Finance NI 2020) allocated 1.6
billion to infrastructure investment, it was noted that such allocations were ‘overshadowed’ by
unprecedented health crisis brought on by the pandemic. Considering the context of these budget
constraints and the need to kickstart an economy that could slope into its worst recession for years
(Belfast Telegraph 2020), it could be strongly argued that now more than ever, is the time to find innovate
means to fund infrastructure investment.
In the next section, the paper will be evaluating and reviewing relevant literature on potential funding
mechanisms that could better support NI infrastructure investment. The research will be looking at the
importance of infrastructure for economic growth and how similar regions and economic entities to
Northern Ireland are managing to find best practice models of infrastructure investment.
A Definition of Infrastructure
The UK the National Infrastructure Delivery Plan defines ‘infrastructure as the foundation on which our
economy is built’ (NIDP 2016). Whilst the World Bank (1998) has defined infrastructure as the ‘glue
which holds communities together’. Furthermore, the Organization for Economic Co-operation (OECD
2016) and Development defines high-quality public infrastructure as paramount to supporting growth,
11
improves well-being and generates jobs (OECD, 2016). RICS (2013) in figure 5 has categorized the
different types of infrastructure: between economic and social infrastructure.
Figure 5
The growing importance of infrastructure in the 21st century
Citibank (2016) found that on average, a 1% increase in infrastructure investment is associated with a
1.2% increase in GDP growth. Whilst, the organization for Economic Cooperation and Development
(OECD 2007) estimated that the world needs to spend US$53 trillion, (2015) US$71 trillion, (2017)
US$95 trillion to 2030 averaging US$6.9 trillion per year when incorporating a low-carbon future-based
scenario. See figure 6 for the increasing need for infrastructure investment (Diamond, 2019).
Figure 6
Furthermore, the International Monetary Fund IMF (2014) reported that increased public infrastructure
investment raises output in both the short and long term as economic growth is generated in two central
ways: directly boosting activity and underpinning productivity. Whilst on the other hand, inadequate
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infrastructure slows and even reverses economic growth, driving unemployment, crime, and urban decay
(Woetzel and Pohl, 2014).
McClements (2019) further highlights the prevalence of infrastructure investment as a catalyst for socioeconomic development as it can be influential both in the short-term through job creation, as well in the
medium to long-term through wider benefits and externalities. Similarly, Feeney (2017) underlines the
impact such investment can have on Northern Ireland in particular: infrastructure systems and economies
are intricately intertwined; infrastructure increases connectivity, facilitates productivity, creates jobs and
stimulates trade – all key enablers of the step change in economic growth Northern Ireland urgently
needs.
The funding gap in Infrastructure Investment
Atkins global (2015) states that National governments across the globe are facing increasing challenges in
the construction of modern infrastructure, with the estimated shortfall in global infrastructure debt and
equity investment at least US$ 1 trillion per year. In addition, AECOM (2020) reports that the demand for
substantial investment in infrastructure has been well documented, with ‘the McKinsey Global Institute
estimating that US$3.3 trillion must be spent annually through to 2030, just to support expected global
rates of growth’. Furthermore, the United Nations Finance Task Force (2020) stresses that for many
countries a lack of infrastructure investment is partially down to inadequate infrastructure plans and an
insufficient number of well-prepared investable projects, which reasserts the need for governments to
develop methods to fund the infrastructure gap. Significantly within the UK, this gap is made even
prominent with the potential loss of the European Investment bank after Brexit (National Infrastructure
Commission 2018).
The Recent Decline of UK Infrastructure
In the UK there are pertinent signposts indicating a necessity to counter historical underinvestment and
upgrade much needed services and facilities (National Audit Office NAO, 2015). A failure to keep
investment pace with other nations has meant that UK infrastructure now ranks 24th internationally and
has subsequently fallen behind many of its competitors (World Economic Forum, 2016). HM Treasury
(2011) states "Britain will not be able to compete in the modern world unless we improve our
infrastructure". Deloitte (2018) reports that the UK are suffering from an infrastructure deficit as city
populations continue to rise, increasing demand for services, thus the UK are facing a real funding
challenge.
The UK Infrastructure Revolution
On the other hand, the UK government is among one of the nation's leading the 21st century strategic
investment in infrastructure: signaling the beginning of a ‘Infrastructure Revolution’, with 640 billion set
out in 2020 budget (HM Treasury 2019). Significantly, HM Treasury (2019) have noted that of the 640
billion to be invested in infrastructure, around half of it will come from private investment.
Northern Ireland Infrastructure: Revolution or Paralysis?
For the last number of years, the UK government has implemented an austerity policy meaning budgetary
cuts; coupled with the political impasse at the NI Executive - which has resulted in paralysis and
13
economic inactivity (NI Assembly Research Matters 2017). KMPG (2017) acknowledges that this
political uncertainty has been deeply disappointing and may have had an impact on the delivery of
essential infrastructure projects. The NI Assembly Research and Information Service (2016) noted that
whilst Northern Ireland’s infrastructure department had a broad range of planned projects, the timeline for
delivery these (if they get delivered at all) is highly uncertain, mainly due to funding. Green (2020)
blames the lack infrastructure development on the nature of the block grant, arguing that funding for
infrastructure needs a huge rethink in order to drive things forward at the necessary speed to stimulate the
economy in a serious way. Webb (2020) has also encouraged new thinking on different funding models
beyond the ‘traditional stumping up of cash by the government’. Furthermore, Stapleton (2020)
acknowledges the stark reality that they will never be enough public money for all the challenges
Northern Ireland is facing, and like his counterparts, sees a real need to put the ‘right models in place to
enable and unlock funding for infrastructure’.
Current performance of NI Infrastructure
An NI Audit (2019) report criticized "cumbersome governance and delivery structures" in the public
sector and said a change of approach is needed. None of the 7 flag ship projects will meet their original
time and cost estimates, with the Audit citing funding issues as a recurring and significant issue for most
of the projects. (table 1)
Endeavors over recent years to address low productivity and grow the economy have continually
encountered several challenges, which include an increasing economic and social infrastructure deficit.
(Agenda NI 2017) Furthermore, when compared to Scotland infrastructure investment and delivery in
2015, it was reported that 88 projects were delivered; whilst in NI 39 were delivered in last 15 years , with
60 percent of NI infrastructure spend being on backlogs/refurbishments (McClements 2015)
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Table 1
NI Infrastructure: Current methods of funding
In the latest 2020-2021 budget, the Northern Ireland Executive (2020) acknowledged that the budget was
set out in a particularly difficult financial context, even before the COVID-19 pandemic had to be
considered. Whilst there has been additional funding injected to deal with the pandemic (1 billion to
protect public services), the Executive (2020) has admitted that it simply does not have the funding to
implement all that it set out to do in the New Deal, New Approach document (2020). Additionally,
Deloitte (2018) in their publication ‘State of the Nation - Northern Ireland’ have raised serious concerns
about the overall sustainability of NI’s current financial situation, stating that it is unsustainable as the
demand for services increase and budgets continue to be constrained, going as far to state that the NI
financial situation is nearing a ‘cliff edge’ scenario. Once again, all the evidence is pointing towards a
need for additional funding beyond the block grant, accounts for 85% of funding for NI (figure 3).
NI Assembly Research (2017) confirms the stark reality that the Executive faces huge infrastructure
challenges that far exceed the current level of capital investment. Significantly NI Assembly Research
cites the OECD which argues that despite the recent financial crisis and recession, countries with good
15
strategic infrastructure plans linked to assured funding are continuing to build the strategic infrastructure
that they need. OECD have also noted that these countries have been able to do this by adopting
alternative funding sources (NI Assembly Research).
Northern Ireland Infrastructure: Are City Deals a step change?
Stormont recently announced a huge investment in infrastructure via the City Deals amounting to a total
of 700 million (BBCNI 2020). On top of the 1 billion expected to be generated from the Belfast City
Region Deal, the National Infrastructure Development Plan (2015) has promised to deliver:
-public capital investment of over £100 billion committed to 2020-21, part of a £483 billion project
Pipeline. (NIDP 2016)
-A spending Review in 2015 delivered significant real-terms increases to the capital budgets of the
Northern Ireland Executive, Scottish Government and Welsh Government meaning extra funding was
available.
-Finances available for infrastructure investment via the block grant through to 2020-21 rose by £600
million, £1.9 billion and £900 million respectively. (NIDP 2016)
-£200 million (allocated from confidence and supply deal) for capital spending on key infrastructure
projects. (Finance NI 2018)
KPMG (2017) sees the City Deals specifically as an opportunity to develop a new approach to
accelerating infrastructure investment and supercharging economic growth in Northern Ireland;
forecasting that the City Deals could deliver a step-change in the prioritization of infrastructure
investment. Similarly, McClements (2019) argues that this new development could be the key to
unlocking transformative social and economic infrastructure: acknowledging there is greater appetite for
augmented private-sector involvement in public-services and infrastructure provision, which could be
decisive for setting off growth in the whole region. However, McClements (2020) has also cautioned that
the City Deal packages only amount to ‘seed funding’, and that we need to build around this with
alternative avenues of funding.
Additionally, the Belfast City Region Deal (2019) acknowledges that the region and province ‘continues
to wrestle with the consequences of underinvestment in infrastructure’. Whilst, the Belfast Region
Infrastructure Investment Framework (2018) also recognizes that the traditional methods of public
traditional funding sources are stretched protecting frontline services, meaning that new sources of
funding for infrastructure will need to be found.
Alternative funding mechanism proposed by Deloitte (State of the Nation Northern Ireland 2018)
Deloitte (2018) shares SIBNI’s idea that a body should be established to investigate what ‘surplus’ assets
can be used to raise funds for infrastructure investment. Deloitte point to the policy undertaken by
Toronto whereby surplus waterfront assets were sold to private investors who co-operated with the
government in developing affordable social housing and services, whilst the revenue raised from the sale
was used to invest in further infrastructure Toronto (see appendix 1 for details).
16
Deloitte (2018) also argues that due to long lead in time for infrastructure investment, some of the
following short term solutions should be considered (see appendix 2 for full details):
• Tolling as a method of also reducing congestion, with the Yorkstreet Interchange and A2 two potential
routes.
• Charging new developers a premium rate around the new Belfast Transport Hub (for example radius of
1 – 2 kilometers) similar to the land value capture model being utilised in England.
• Charging for on-street car parking over 30 towns and cities and extending the current controlled parking
zone in Belfast. The Department of Finance has reported that an estimated £3 million could be generated
in year 1 and £5 million every year thereafter.
• Ceasing new applications for the 60- 64 Smart Pass and linking the age of eligibility to the State Pension
Age. This would alleviate pressures on the scheme by £1.5 - £4 million rising to £8 million per year over
time.
• Charging non-vulnerable customers for water usage. Currently only about 18% of the NI Water budget
is raised by charges from non-domestic properties.
Deloitte (2018) concludes that the Budget Finance Outlook is that the outgoings are increasing more than
the budget is rising, making it ultimately unsustainable. Deloitte suggests that the only way to balance the
buget is to invest in long term infrastructure, whilst also making use of some of the shorter-term solutions
above.
Alternative Funding Models set out by NI Strategic Investment Board (SIBNI)
Within the Investment Strategy for NI document 2011-2021 (SIBNI 2016), the board clearly recognizes
that the vast majority of their funds for infrastructure comes from the block grant. As a result, they state
that they are actively exploring all options to achieve the level of investment necessary.
In line with the UK Infrastructure policy (HM Treasury 2019), SIBNI (2016) has said that they are
committed to working with the private sector in order to share the ‘burden’ of investment to transform
infrastructure. SIBNI has also reaffirmed that finding innovative partnerships with the private sector is
especially important in the light of the block grant being reduced (2016). Furthermore, SIBNI have also
acknowledged that other regions within the UK have created ‘infrastructure banks’ and notably the NI
Investment Fund has recently been created, which sets out to offer favorable commercial rates for those
investing in infrastructure and regeneration projects (NI Investment Fund 2020).
As well as the intention to work with the private sector, the SIBNI’s 10-year plan has outlines other
potential funding models for infrastructure investment. The SIBNI (10 year plan document p.46) put
forward the possibility of “realising the value of surplus/underutilized assets” within the province. The
Strategic Board has endeavoured to set up an ‘Asset Management Unit’ to investigate such buildings that
are no longer in use but are still money to manage. Furthermore, when the market is right, the board
intend to take advantage of potential sales of such properties (SIBNI 2016).
17
It is worth noting that the next ten-year SIBNI investment strategy is currently being drawn up; the
possibility that some alternative methods of funding infrastructure investment have at least been
rigorously explored is to be warmly welcomed.
Industry views on an NI infrastructure strategy (as related to objectives of study)
As part of the literature review, the research has explored industry views in NI about infrastructure and
how it is funded, as well as exploring best practice models that are successfully being deployed in other
parts of the globe.
The research has noted that this topic (infrastructure investment) is becoming more and more to the
forefront of the public eye in NI, with a range of round table discussions and podcasts recently exploring
the issue. Within the literature review, the study has sought to explore these views against the objectives
of the study. Later in the paper, the study will critically evaluate the results of the survey against the
views expressed in the literature review.
1. Importance of infrastructure of NI economy
Feeney (2020) highlights the importance of infrastructure to improve NI’s poor productivity levels, and
also expressed concern about the lack of long -term infrastructure planning. Feeney states that it all comes
down to funding, because if we don’t fund our existing infrastructure (like electricity and wastewater)
then it will not enable economic growth. Stapelton (2020) argues that infrastructure is a real stimulant for
economic growth whilst Webb (2020) states that it is true that infrastructure investment can either enable
and amplify economic goals.
Furthermore, in a YouGov poll conducted on behalf of ICE (2020), it was found that 84% of NI adults
agreed that NI requires a national strategy for its infrastructure, while 86% believed that decisions on NI’s
infrastructure requirements should be informed by an independent advisory body made up of industry
experts. In addition, the same poll found that only 11% of NI adults agreed that the level of investment in
NI’s infrastructure since 2010 has been sufficient for the region’s needs and growth. Feeney (2016) also
supports this sentiment, eloquently stating that NI’s infrastructure needs are increasing whilst the
Executive’s ability to fund infrastructure is failing. Feeney (2017) concludes by stating that given this
‘funding gap’ for infrastructure investment in NI, then there is an urgent need to embrace innovative
approaches to infrastructure investment.
2. Opinions on current funding model for NI infrastructure
Green (2020) criticizes the conflict between different department for ‘one pot of money’, this is largely
supported by Conway and Harper (2020) who state that whilst each organization has their own strategic
aims, they are all competing for the same pot of money, arguing that a long-term plan is more attractive to
investors. Kirk (2020) declares that NI has a very ‘traditional’ funding model, and that there aren’t
enough projects to attract large scale pension fund infrastructure. Furthermore, Kirk points out that recent
research showed “NI is spending 1,900 per capita in NI, compared to 4,000 per capita in Scotland,
suggesting that Scotland is a potential model to follow”. Furthermore, NI Assembly Research Matters
(2017) states that it is likely public sector budgets will continue to be squeezed, with the possibility of
being further depleted by the COVID 19 pandemic and the implications of Brexit.
3. And 4. Alternative funding models and how they could be applied to NI
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Feeney states that anything that is going to accelerate our infrastructure projects should be considered,
seeing planning procedures are one of the main obstacles. McKeown (2020) supports the UK
Infrastructure advice to “adopt low carbon and digital sector enhancement, suggesting the use of a carbon
tax”. Webb (2020) acknowledges the talk of a “UK infrastructure revolution but also cautions an over
reliance on the block grant, suggesting we follow Scotland lead on PPP’s, or find novel ways of tapping
into the Irish diaspora”. Gallagher states that we cannot afford not to invest, there needs to be more of a
“commercial approach” from the NI government, starting by investigating the use of private finance.
Public Private Partnerships or use of private finance (PPP’s) - Feeney states that it’s fair to say that there
is “much aversion across NI to the use of alternative finance modelling such as PFI and PPP’s generally”.
However, Feeney urges revisiting the use of private finance with more robust assessments. Feeney claims
that there is a wall of capital on a global level yet acknowledges the NI’s government’s aversion to the
use of PPP’s. More specifically, Feeney supports the use of private capital as a way of “accelerated
investment”, supporting the use of bonds investment for NI as a way of replacing and enhancing EU
funding McConway states that there are some lessons being learnt from the use of PPP’s, and “some
creative models could be adapted here”. McKinnon (2020) suggests that there are challenges with PPP’s
and argues for a cocktail of funding sources as the way forward. Stapelton strongly argues for the use of
private capital delivery with public policy, so a hybrid PPP.
Kirk “cautions against putting extra burdens (charges) on a relatively low-income economy that thrives on
consumer spending”. Green (2020) encourages the sourcing of an alternative investment bank for the
European Investment Bank (EIB). Ahern suggests that pension funds are very interested in infrastructure
investment because it aligns them with what they need. Ahern also highlights the fact that “big
institutions will only get involved when planning is improved”. Larkin (2020) decries the over reliance on
Westminster, and urges the pursuit of alternative funding models, to manage NI water (such as water
charges), stating that if that falls behind then it will be even harder to attract inward investment. Ahern
(2020) calls for the alignment of infrastructure and planning to attract more private investment. Larkin
(2020) urges long term investment in NI water, which would provide a “trickle-down effect for the rest of
the economy”. Finally, Feeney claims that half of NI’s population is under 40 and if we don’t invest now
then we could lose out on homegrown talent as well as private investors.
5.What needs to happen next for NI infrastructure to develop sufficiently?
Stapelton (2020) we need the “same urgency as we dealt with the pandemic as we plan to deal with
neglected infrastructure”. McKinnon (2020) states that we have had enough false promises and good
intentions (like those expressed in the New Deal document), arguing that we need to follow Scotland’s
approach in quickly funding and delivering infrastructure.
McKeown (2020) states that the UK’s 2050 “carbon targets are a good policy driver for integrated and
strategic infrastructure investment”. Feeney reports that half of NI’s population is under 40 and if NI
doesn’t invest now, then NI could lose a lot of home-grown talent. Feeney criticizes the planning system,
stating there is much more room for improvement in the planning system, as this would be a key feature
for economic development. Glass (2020) urges the need for infrastructure planning, that “should cut
across the whole infrastructure rather than being an isolated sector”. Glass goes on to say that the
demands and challenges between now and 2050 will be “unprecedented and will change considerably,
therefore it will need innovative decisions”. In light of the COVID 19 pandemic, budget demands will be
even more severe therefore setting up an infrastructure advisory body should take up extra urgency
(Murnaghan 2020). Infrastructure and planning need to be joint at the hip (Sheffield 2020).
19
Finally, Feeney supports ‘shovel worthy’ and not ‘shovel ready’ projects and argues that they should be
assessed in this way. Feeney encourages building now rather later, arguing that an infrastructure advisory
panel would take politics out of the issue, urging the introduction of a fiscal council, claiming that every
£1 needs to go further in this economic climate.
Granted, the Executive has responded to some of this pressure by setting out to ‘align itself to a multiyear budget with a sustained approach to public finances and prioritized investment in infrastructure and
public services’ (New Deal, New Approach, p.4). Nevertheless, it has noted that there are still ‘important
challenges’ in funding infrastructure, with no clear strategy to source alternative funding sources in sight.
Research focusing on best practice funding models
Strickland (2016, p.18) makes a clear distinction between public funding sources and private funding
sources, starting that ‘private funding sources include project-generated revenues (such as user fees) and
other commercial revenues (such as land sales or advertising revenue), while public funding sources
comprise taxes and assessments, public sector availability payments, grants, and other government
contributions’. Strickland (2016) also adds that it is also possible to be funded by private and public
sources simultaneously, such as in ‘instances of joint development where factors such as public
ownership can actually add value to an otherwise privately funded project’ (2016, p.18). KPMG
International (2011) reassert the reality that governments only have two options when it comes to
financing urban infrastructure: – taxation or user fees – with both needing taxpayers to pay their way in
the long run. As a result, many governments are increasingly seeking alternative approaches to funding
infrastructure with private financing for project development becoming ever more important (KPMG
2011).
PWC (2020) also emphasizes the financial instruments used to attract private investment (of which the
UK government expects 50% infrastructure investment to be generated from). PWC argues that there are
three primary ways in which cities can look to raise money for urban infrastructure:
• Asset sales and land development.
• Public-private partnerships; and
• Asset monetization / securitization.
In addition, the Center for Cities in their report ‘Funding and Financing inclusive growth in UK Cities’
(2017) outlined four potential funding methods:
1. Taxes and fees – raising or retaining income from taxes, charges and fees
2. Partnerships with financial intermediaries – entering into financial partnerships to support inclusive
growth and generate revenue streams
3. Asset and property management – ways of leveraging investment from the private sector to support
economic regeneration
4. Convening private investors – maximizing collective spend within cities and city regions, and leverage
further co-investment
20
Clearly, there seems to be some consensus between the different publications as to what is considered
best practice funding models. There appears to be a recognition that raising taxes or charging user fees for
new infrastructure is inevitable, whilst many of the publications also view asset and property management
as a good way of leveraging investment from the private sector – Deloitte had referred to the successful
case study of Toronto using this model. In addition, most of the reports (as well as industry views from
NI) strongly encourage the use of collaboration with the private sector, a topic the study will explore now.
The inevitable reliance on the private sector
As evidenced, much of the literature (as well UK government policy) has pointed towards a significant
reliance on the private sector to fund infrastructure, with the UK government estimating as much as 60
percent will be funded privately.
Public Private Partnerships as a potential funding solution
The PPP Knowledge Lab (2014) defines a PPP (public private partnerships) as "a long-term contract
between a private party and a government entity, for providing a public asset or service, in which the
private party bears significant risk and management responsibility, and remuneration is linked to
performance”. Launched in the mid-1990s by the then Conservative Government, PFI reached popularity
under the Labour Government between 1997 to 2010. Designed specifically for large-scale, high value
projects such as road/rail infrastructure networks or hospitals, PFI is a result of the shift to privatisation.
(CIOB 2009)
PPP’s: An Evaluation
A CIOB survey: Procurement in the Construction Industry (2009) found that with PPP’s the loss of
control by the public sector makes accountability difficult and raises questions over whether value for
money is really being obtained. This is further supported by other sources that assert PFI is now regarded
as ‘tarnished’, repeatedly associated with ‘massive overspends, tragic delays, botched construction
projects and needless bureaucracy’ (BBC, 2010; NAO, 2011). NBS (2018) echoes this point: suggesting
that PFI in particular seems to have been largely tarnished, and attention is increasingly turning to the cost
of maintaining PFI buildings, often through highly prescriptive, long-term contracts.
However, following on from the HMT report (2012), the Government has attempted to rectify these
failings and in doing so introduced a number of new reforms. These new measures have led to the
development of new PPP models including which have been successfully deployed in other parts of the
UK (ISURV 2019).
McClements (2019) holds that PPP remains a critical mechanism for social infrastructure provision in the
UK, citing successful models such as Scottish Future Trust (SFT) in Scotland which have unlocked 6
billion in infrastructure investment. The world bank blog (2017) acknowledges that new developments
such as SFT and Mutual Investment Model in Wales (MIM) continues the trend we have seen in the UK
of PPP models evolving to meet local political and market needs; however they do caution whether this is
this a case of one step forward and two steps backwards? The World Bank blog (2017) concludes that the
true test will be whether such new models can deliver additional infrastructure investment on time and on
budget.
PPP as a convenient driver for investment
21
Amongst the many benefits of PPP’s, arguably the most significant benefit is that considering public
sector budgetary constraints (which has proven to be the case in NI): the alternative to a PPP project is no
project or at least not one anytime soon (RICS 2013). NAO (2015) supports this view, arguing that if
departments have insufficient monies to fund the construction of a building, then sometimes private
finance is the only option. Certainly, PPP seems to be the preferred option for those who want to get cash
flow moving and think about the cost later. In a report conducted by the European Investment Bank
(2005), interviewers applauded PPP’s stating that they were the ‘only game in town’; and the interviewees
seemed to concur that PPP was fulfilling the urgent need to bridge the infrastructure gap and avoid what
they called ‘paralysis by analysis’ (RICS 2013).
Below is a comparative table indicating the short term and long-term consequences of public and private
finance (NAO 2015):
Table 2
Of course, the benefits of using PPP’s go much further beyond satisfying the demands of those who want
to build now and pay later. NAO (2015) acknowledges that although private finance is more expensive
than public finance it can represent value for money if the benefits, for example risk transfer, outweigh
the higher cost. RICS (2013, P.63) highlights “one of the key drivers behind the international roll out of
the PPP model as the premise that partnership-based procurement is inherently more ‘efficient’,
minimizes large cost overruns and delays endemic within traditional design and build or design-bid-build
public procurement and as a consequence delivers better VfM”.
In addition, this premise seems to be supported by Bains (EIB report on PPP’s 2009, p.4) who claims that
“85% of the EIB’s PPP projects were delivered within budget, providing price certainty to scheme
promoters and financiers. EIB claims that this is in-line with findings from UK research conducted by the
National Audit Office and HM Treasury (79% and 80% respectively), which is the only EU country with
a substantial portfolio and regular performance analysis”.
Significantly in a relatively recent report (2018, p.8) on PPP’s, the NAO confirmed that “HM Treasury
considers that the risk transfer to the private sector can result in benefits which can outweigh the higher
financing costs”. In a final point and perhaps tellingly, the NAO report (2018) stated that five out of the
six government departments said that capital budgets would not have been sufficient for new investment
had they not used PFI.
Criticisms of PPP
22
The NAO (2015) acknowledges the flexibility and near immediate potency of private finance to capital
investments, however they state that only in the long term will the client determine the final cost of
private finance, by which time there is no practical mechanism to reconsider the choice of finance. In
their more recent report NAO (2018, p.4) also highlights the stark fact that there are currently over 700
operational PFI and PF2 deals, with a capital value of around £60 billion, with annual charges for these
deals amounted to £10.3 billion in 2016-17, meaning that even if no new deals are entered in the future,
charges which continue until the 2040s amount to £199 billion”. The chart (figure 7) illustrates the
disproportionate amount of interest throughout the lifecycle of a PPP (NAO 2018):
Figure 7
Significantly, the NAO (2018) ran its version of public sector comparator, and over the full cycle of a
PPP. As opposed to what the government’s borrowing costs, the PF2 unitary charges were considerably
higher; implying that the benefits of a PPP need to offset the higher costs. The red line is the PF2 unitary
charges against the yellow which is the PSC.
As for the benefits of PPP’s outlined earlier, RICS (2013, p.64) cites Winch et al. (2012) who claims that
“any potential benefits of PPPs are eroded by inflexible contracts, high transactional costs and an unfair
balance of commercial skills between the parties involved”. The NAO report on PFI and PF2 (2018) also
highlights the possibility of inflexible contracts and excessive transactional costs; providing an example:
“an additional capital works of approximately £60,000 in a local authority PFI school increased to over
£100,000 once fees were factored in – the local authority challenged this and the SPV agreed to reduce
some of the management and approval fees although bank fees of £20,000 will still have to be paid”
(NAO 2018, p.11) The report concludes by stating that the deals leave a legacy with a long lasting impact
meaning it is difficult for public bodies to make savings and budges are squeezed as a result (NAO 2018).
The recent evolution of PPP’s
Following on from the HMT report (2012), the Government has attempted to rectify some of the above
failings and in doing so introduced several new reforms. These new measures have led to the
development of new PPP models including: LIFT, MIM, NPD etc (Isurv 2019). The pattern of changes
23
made to different PPP’s can be seen below (NAO 2018). The main changes appear to be focused around
public equity involvement, transparency regarding returns for investors and the exclusion of soft services:
Table 3
Within the UK specifically, HM Treasury claimed that while it will honor past PPP deals it would no
longer be using PF2: the chancellor claimed that the “model created a fiscal illusion and a long-term fiscal
risk for the taxpayer, inflexibility for public service providers, and operational complexity for public
sector contract holders” (HM infrastructure finance review 2019, p.24). Despite this and actual cheers
from parliament when PF2 was essentially outlined; in the same document, the government announced
that it is “committed to the role of private investment: stating that out of the expected 600 billion
infrastructure investment pipeline for the next ten years, half is forecast to come from the private sector”
(p. 7). I will look at some of these alternate private finance methods later in the report.
Are PPP’s a realistic option for funding NI infrastructure investment?
RICS Global Infrastructure Challenge (2013, p. 60) succinctly sums up the two polarized views on PPP:
“proponents of the PPP approach emphasize that private capital makes available infrastructure and
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services that would not otherwise have been attainable or affordable through direct government funding.
Whilst In contrast, opponents have continuously stressed that PPPs suffer from ‘faulty economics’
(Broadbent et al., 2006) and have elevated costs associated with the quality of products and service
delivery and are in the long-term unaffordable”.
Regardless of your opinion on PPP’s, undoubtedly they have played a played a “pivotal role in the
provision of global infrastructure” (RICS 2013), and although (figure 8) their popularity has lessened in
recent years, there is no doubt that in the current drive for infrastructure investment, PPP’s or some hybrid
of what we know as PPP’s will be at the forefront of the government’s mind, and could be a possible
solution for us here in Northern Ireland.
Figure 8
Looking beyond PPP: plugging the funding gap
The British government claims to have 600 billion in the pipeline for infrastructure projects over the next
ten years (GOV UK 2018), however it is a foregone conclusion that a sizeable portion of this pipeline
must come from somewhere other than public finance. NAO (2015) has presented a pie chart displaying
the funding mix for the infrastructure pipeline, clearly indicating the need for private funding.
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Figure 9
Alarmingly, a government commission found “there had already been an 87% drop in EIB funding for
UK projects since the EU referendum in 2016, and a 91% decline in funding from the European
Investment Fund (Pinsent Masons 2019)”. Coupled with the fact that PFI/PF2 has been effectively
tarnished by the UK government, the need for innovative means of funding for the planned infrastructure
pipeline becomes very pressing indeed. PWC (2015) argues that the UK government needs to be more
creative in their funding/financing mechanisms, and move away from traditional options such as :asking
developers/landowners to pay new levies, capturing the uplift in new sources of taxation acting as a
commercial develops who participates in buying/selling land.
No ‘Silver Bullet’ solution
In the process of deciding how to fund and finance an infrastructure project, the Federation of Property
Society (2015, p.10) outline the accumulative process that should take place in choosing between public
financing and private finance:
26
Figure 10
Whilst HM Treasury Investing in UK Infrastructure (2014) outlines some of the most popular forms of
financing infrastructure and their characteristics:
27
Table 4
Whilst there appears to be a multitude of options for financing infrastructure, clearly, as PWC (2015)
argue: there is no ‘silver bullet’ approach for funding infrastructure, with each model having their
drawbacks. However, this is the challenge we have set ourselves: to find innovative ways to build
essential infrastructure.
Pinsent Masons (2019) cites a House of Lords report which found that "devolved governments in Wales
and Scotland demonstrate there is still a place for public-private partnership models alongside other forms
of procurement and funding for projects." Whilst the NAO report on the lessons from PFI and PF2 (2011)
argue that private finance is still very much an option if lessons are learnt. The NAO report recommended
a host of changes including:
• more informed clients
• increased transparency and accountability
• understanding the whole lifecycle data in order to get better deals.
• More commercial awareness regarding the dynamics of the contract
Therefore, apart from the more abrasive and less popular financing routes such as road tolls, and
increasing taxes and levies, innovative ways of using private finance and particularly PPP’s still appear to
be the way forward. There are a number of these alternative sources of funding which could be deployed
for Northern Ireland infrastructure.
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Alternative examples of innovative funding methods: Non-Profit Distribution Model
Staying close to home, one possible solution could be Scotland’s NPD. The NPD (non-profit distributing)
by 2015 delivered 464m of infrastructure projects across the Scottish hubs. Additionally, it has also
delivered much wider tangible benefits in the local such as supporting 8,000 jobs across Scotland (SFT
2017). Furthermore, ISURV (2019) states that between PFI and NPD, these models have funded over 100
projects in Scotland, with a combined capital value of almost 9bn which includes 58 schools, and 45
hospitals and other health facilities.
Some of the key advantages of NPD include optimum risk allocation, performance-based payments to the
private sector, operational surplus profits redirected back to public sector and capped profits for private
party and finally a transparent and active role for public (ISURV 2019). Holyrood current affairs (2014)
cites a College Head who has had some experience of both, stating “NPD isn’t PFI/PPP – I’ve had
previous experience of those and I would say that the public sector has come an awful long way in
learning from the past; the process is much more in favour of the end user than it ever was”.
Audit Scotland (2020) have published a table (table 5) comparing the NPD model to the PFI model:
Table 5
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Whether or not NPD is the silver bullet, by all appearances NPD looks very attractive and applicable to a
province like Northern Ireland : issues over transparency seem to have been rectified, there is now a
bigger role for the public, and perhaps more importantly - surpluses are redirected to the public. Yes,
there is still the financial drain of unitary charges, however this could be negotiated with a more active
public role, and the surpluses could mitigate some of the outlay. Still, the success of NPD is not a
foregone conclusion; Audit Scotland (2020) recently requested more clarity and transparency over
decision making in order to show projects represent value for money.
Mutual Investment Model: MIM
Another alternative source of funds worth considering is the Mutual Investment Model. MIM is a Welsh
innovative PPP model that is delivering over 1 billion investment infrastructure in Wales and has also
been recently introduced in Scotland. The main advantages include an onus on the private sector to create
community benefits I.e. apprenticeships; enhanced stakeholder involvement through the Welsh
government as a board member. Like NPD, MIM appears to have incorporated the lessons learnt from
PFI/PF2 failings, and have implemented the some of these into the framework: significantly this includes
more transparency with a more structured project board, robust scrutiny of the project, exclusion of soft
services, increased flexibility as regards charges and early contract involvement from the authority.
Announcing the MIM in the Welsh Assembly, Cabinet Secretary Mark Drakeford stated (2017) ‘these
measures will see an additional investment in public infrastructure of some £1.5bn, representing a proper
balance between ambition and affordability that otherwise would simply not have been undertaken’.
Like NDP, amidst the enthusiasm there has also been an element of caution with IWA (2019) urging that
“on a project by project basis we will need to know the lifetime cost and the rate of return being achieved
by the private sector, before coming to any conclusions regarding value for money”.
Tax Incremental Fund (TIF)
ISURV (2019) defines TIF as an innovative private sector investment model that invests in local Public
infrastructure which has the potential to generate and sustain economic growth. FPS (2015, p.18) states
that a lead agency – a local authority, private sector partner or some combination – raises money upfront
to pay for infrastructure, on the basis that the increased business rate revenues generated by the scheme
can be used to repay that initial investment. Unlike PF2 or NPD, TIF does not seek private sector
investment directly; rather it enables the delivery of public sector infrastructure through locally generated
public sector revenues (e.g. non-domestic rates). Although TIF is relatively new to the UK, it is expected
that TIF will unlock up to 1.3 billion of private sector investment.
TIF offers several benefits (ISURV 2019):
•TIF provides a transparent link between investment and outcome in the community.
•Facilitates return to capital markets with appetite for long-term investment.
•Institutions will be encouraged to investing TIFS or infrastructure bonds on the basis of incentives
provided through guarantees of tax incentives (PWC 2011).
30
The House of Commons Library (2019) cities the Centre for Cities’ 2011 report, A Taxing Journey,
which argues that tax increment financing (TIF) is only likely to be suitable where substantial business
rate growth is a realistic prospect, meaning that areas with struggling economies (like Northern Ireland)
may not be an appropriate policy tool in this instance.
An alternative option initially referred to as ‘TIF2’, and subsequently rebranded in the 2012 Budget as the
‘New Development Deals’ could be a possible financing option for Northern Ireland. The deal works
when government selects a geographical area which would not be subject to future levies and resets,
thereby creating an area (and a stream of revenue) which is outside the Business Rate Retention Scheme,
in which the local authority will retain 100% of business rates growth for the next 25 years (House of
Commons Library 2019). However, once again you could argue that this method relies on a significant
business rate growth and may not be appropriate for Northern Ireland for now, but this would need further
analysis.
Learning from Cross rail and Thames Tideway Tunnel
Both Cross Rail and Thames Tideway Tunnel were two very large and expensive infrastructure projects
that were delivered as a result of using innovative funding mechanisms. Whilst both projects are in a
whole different stratosphere of scale compared to the demands of Northern Ireland infrastructure, there
are lessons to be learnt. PWC (2014, p.25) has outlined some of the main contributors to the crossrail
program:
• “the Business Rates Supplement (BRS) was established in London specifically to fund Crossrail 1 and is
generating a steady flow of income that is being used to repay debt raised to finance the project’s
construction”.
• “Along with BRS, the Mayoral Community Infrastructure Levy (Mayoral CIL) is a charge on all new
development in London. Its purpose is to contribute to the cost of additional infrastructure required
because of new homes, offices and other buildings”.
Additionally, the National Audit Office (2019) has published a breakdown of the contributions to the
crossrail funding package. Whilst much of the package is made up of government funding and loans,
there is a significant portion raised from innovative means such as developer and business contributions:
31
Figure 11
Likewise, the Thames Tideway Tunnel introduced some revolutionary financing mechanisms: the project
was partially paid by Thames Water customers through their bills, this was initially envisaged to be a
significant rise in payments, however thanks to cheaper finance and efficiency savings, the costs will rise
to no more than 25 pound per year. In addition, Thames Tideway Tunnel innovated a regulated asset base
(RAB) approach, which is an alternative model that could reduce the cost of financing infrastructure and
risk for developer's while limiting the impact on consumers’ bills in the long term (Gov UK 2019).
Basically, RAB offers investors a long term rate of return which is paid through the bills of the customers,
whilst the project is financed privately and kept off the balance sheet, yet as with NPD and MIM the
public retain a strong level of control.
Conclusion (as related to objectives of study)
Importance of infrastructure for NI Economy: Infrastructure investment on a global level is widely being
viewed as an enabler for economic growth and productivity, with many arguing that an acceleration of
infrastructure investment is one of the few solutions that will prevent a recession of epic proportions
(Swiss RE Group, Belfast Chamber of Commerce 2020). Within Northern Ireland, there appears to be a
consensus that infrastructure has been neglected for decades, and there is now a challenge to find the
funds to ‘turbocharge infrastructure’. Arguably the UK’s plans for an infrastructure revolution and NI’s
intentions to ‘turbocharge infrastructure’ are indicative of the importance of infrastructure to the general
well-being of an economy.
Evaluation of current funding mechanisms for NI infrastructure: Clearly, the relevant literature shows
that there is serious deficit in infrastructure investment in the UK, and perhaps even more so in Northern
Ireland. The government literature related to Northern Ireland (including the NI Audit, SIBNI document,
New Deal, New Approach document, and the latest budget 2020) all show that the use of the block grant
is becoming increasingly insufficient to maintain current infrastructure. As the most recent budget has
reported (Executive 2020), the demand on public finances will be even more strained dealing with the
32
challenges and repercussions thrown up by the COVID-19 pandemic. Therefore, the literature clearly
recognizes that if we are to invest in infrastructure as a stimulant for our economy, then alternative
funding methods will have to be readily available.
Alternative funding models being used: Significantly, there is an array of funding models available for
infrastructure investment, and some of these are being evidently deployed with success such as NPD,
MIM, TIF and other models that have been reviewed in some detail. Clearly, there seems to be a high
usage of PPP models, and whilst there is an evident amount of bad press surrounding these models, there
is also evidence that the such public and private partnerships can be adapted to the needs of the region.
Furthermore, it is evident that there is a movement towards more devolution of fiscal powers to cities and
local councils, and this can only be a positive thing when it comes to innovating funding models. For
instance, the cross-rail project in London has seen an array of funding models being innovated, which
could revolutionize funding models elsewhere.
Funding models that could be specifically adopted to NI: It is somewhat inspiring to see different
jurisdictions innovate new funding mechanisms which have yielded massive infrastructure investment.
This is particularly relevant in the cases of Scotland and Wales, who find themselves in very similar
positions to Northern Ireland as devolved regions of the UK. There are also cases whereby the local
powers are leveraging private investment from their current stock of assets (as referred to in the Toronto
case study). In addition, there have also been calls for water charges to be introduced, especially
considering the current financial difficulties that NI Water finds itself in. Whilst, Northern Ireland is
indeed a place apart and will need a customized model (s) to suit its needs, there is certainly a wealth of
knowledge out there that needs to be explored and adapted to the shores of NI.
What needs to happen next... The literature review (especially the review of NI industry views) would
appear to reveal that there is a growing momentum, even urgency to accelerate infrastructure investment
and find the funding to make projects ‘shovel worth and shovel ready’. It is also apparent that many are
somewhat skeptical whether the NI Executive has the political will and know how to become more
‘business orientated’ and drive forward a long term infrastructure plan that makes use of innovative
funding mechanisms, and indeed bring about the economic (and social) transformation that this small
region needs. What is also evident from the literature review is that many other regions and countries are
making giant leaps forward in this field of infrastructure investment. Alarmingly, there is a serious
possibility that NI will be left behind, if it doesn’t innovate and accelerate infrastructure funding models.
Chapter 3 - Methodology
Research Methodology: Using the most appropriate methods to get the best results
The methodology used by this paper was qualitative and took the form of a single questionnaire with 5
clear and relevant questions that had an inextricable link to the objectives of the study. The questions
were open ended and unambiguous and were designed to elicit the opinions and perspectives of relative
parties who have publicly demonstrated a significant level of knowledge about NI infrastructure and how
it is funded. Within the table (6), the method is presented and explained, as is the logic behind sampling.
Table 6
Method
Sampling
Justification and reflection
1, A cross-sectional
questionnaire was used.
The sample population
consisted of those who had
Method: the use of a short, focused (5
questions) questionnaire with open ended
33
The questionnaire
consisted of 5 questions
that were clearly
representative of the
objectives of the research
paper.
The 5 questions were in
clear and unambiguous
language. Open questions
were used to produce rich
qualitative information.
The questions were sent
via email, and the
participants responded via
email.
On occasion, it was
necessary to speak to the
participant by telephone in
order to clarify the
purposes of the research.
published material/or were
regular commentators on
this topic, and/or those
from organizations that
had a significant level of
relevance to this topic (for
example if they were a
representative from a large
construction body or from
a government body that
was linked to
infrastructure).
questioning was chosen because it was
considered the best method to record
opinions and perspectives related to the
objectives of the study.
The use of a questionnaire also allowed the
study to collect data that was clearly linked
to the actual objectives (the 5 questions
asked were inextricably linked to the
objectives of the study). Furthermore, the
method of email, meant that the participant
could be completely objective as there was
no external influences.
Sampling: Participant selection should have
a clear rationale and fulfil a specific purpose
related to the research question
(Collingridge & Gantt 2008).
Out of the ten participants, all of them have
either individually (or as representatives of
their respective organizations) contributed to
the growing debate around NI infrastructure
and how it is funded. Some of the
participants have contributed to the debate
by publishing articles, others represent
organizations who have given a review of
the issue (Deloitte for example), whilst
others have taken part in significant NI
conferences that have been focused on local
infrastructure.
Therefore, arguably participant selection had
a clear rationale and formed a specific
purpose related to the research focus.
On reflection, it would have been
enlightening to have a representative from
the department of infrastructure represented
as part of the data collection, however they
did not respond to the invitation to take part.
Sampling
The table explains which organizations/persons participated in the questionnaire and why this participant
was chosen:
Name
Representative
Organization
Strategic Investment Board
Northern Ireland
34
Reason for selection
The SIBNI oversees planning,
managing and delivering
infrastructure investment, and is
a government body. They
regularly present their
Dr. Sharon McClements
Lecturer at Jordanstown
Martin Harran
Professor at Jordanstown
Paul Gosling
Writer and Broadcaster
Steve Bradley
Writer and Regeneration
Consultant
Representative
Institute of Civil Engineers in
Northern Ireland
Representative
Deloitte Infrastructure
Spokesperson
Representative
Construction and Procurement
Delivery (CPD), Northern
Ireland
Representative
Construction Employers
Federation (CEF), Northern
Ireland
35
perspectives at infrastructure
conferences and discussions.
Sharon has collaborated with
government agencies regarding
introduction of PPP’s in NI.
Sharon is also author of the
ISURV infrastructure channel.
Martin is a Professor of Real
Estate and Urban studies has
recently contributed to RICS
report: Bridging the gap –
private investment in
infrastructure.
Paul is a freelance journalist
whose work focuses on the
economy, public sector and
finances. Paul’s work has
regularly featured in the
Financial Times, the Irish times
and other respected newspapers.
Steve works as a regeneration
consultant, writer, commentator
and social entrepreneur. Steve
regularly writes for NI news and
opinion portals such as Slugger
O’Toole.
ICE is a highly respected
organization within the
construction industry; and were
at the forefront of calls to set up
an infrastructure advisory board
in NI (which has since been set
up).
Deloitte is a leading global
provider of audit and
consultation; they published the
state of the nation NI in 2018
which looked at NI
infrastructure amongst other
things.
Construction and Procurement
Delivery (CPD) helps clients
across the NI public sector
deliver successful projects, and
therefore strongly interlinked
with how infrastructure is
funded and delivered in NI.
CEF is the certified professional
voice for NI construction
professionals. They have been
William Curry
William is a Partner in the
Belfast office, specializing in
Corporate Commercial matters
including procurement,
information technology, and has
provided investment advice to
numerous government
departments in NI.
outspoken about the need for
immediate infrastructure
investment, especially in the
wake of COVID 19.
William advised the Department
for the Economy in relation to
its grant funding of the £200M
expansion of the gas network in
Northern Ireland. In addition,
William was a guest presenter at
the 2018 infrastructure
conference along with Martin
Spollen and Sara Venning
(among others).
Table 7
The questionnaire: Logic and design
Harvard Survey Research (2007) state that the ideal survey question should accomplish three things: the
question measures the question it is trying to tap; it doesn’t measure other concepts and it means the same
to all the participants. Whilst MacDonald and Headlam (2009) state that a qualitative social survey will
make more use of open questions where respondents can give their own response to a set question.
As evidenced below, one can see that there are inextricable links between the objectives of the study and
the questions asked of the participants. On reflection (having gathered the results), it seemed evident that
the questions were clearly understood and meant the same to each participant, with each question
prompting a cohesive and at times impassioned response from participants.
Objectives of research paper
Assess the importance of infrastructure for
Northern Ireland
Evaluate the current methods of funding of
infrastructure in NI
Survey questions
How would you describe the current importance
of infrastructure for the NI economy?
What is your opinion of the current method of
funding for NI infrastructure?
Investigate industry views in relation to future
investment needs for NI infrastructure
Critically assess existing and best practice funding
models for infrastructure
Are you aware of any alternative funding
mechanisms that are being used elsewhere?
Do you think any one of these could be used
specifically for NI? And why this method or
methods?
What do you think needs to happen next for NI
infrastructure to develop sufficiently?
To recommend innovative methods of funding to
better support NI infrastructure
Table 8
The sequence
The sequence of data collection followed first steps: searching, collecting and presenting.
Action
Searching for valid participants
– the study used a range of
different tools including google,
LinkedIn, university connections
Justification
It was important to source valid
participants who have a
significant amount of knowledge
on the topic and were willing to
36
Result
The study found university
connections to be very helpful,
some construction and
government bodies were also
(previous lecturers), and NI
information sources such as
agenda NI, local RICS office,
local ICE office, local CEF
office etc.
participate in the data collection
process
Collecting data from the
potential participants, explaining
the purpose of the study and
dealing with any other enquiries.
This required some persistence
until 10 responses were
received.
It was important to get a
reasonable number for the
sample population, and also that
the sample was valid and met
the above criteria (either a
regular commentator on the
subject or from an organization
who had influenced or interests
in the topic)
Presenting the results - the
study faced a difficult challenge
in presenting the results in a
cohesive and presentative
manner, as the results were in
the form of long answers. It was
decided that key words that were
repeated would be highlighted,
and areas of consensus and
conflict would be drawn from
this.
Table 9
Within a table format with
highlighted key words, it was
clear to see what issues were
coming to the fore either as
points of agreement or conflict.
In addition, by presenting
extended “extracts”, it also gave
the research some validity.
very helpful as well including
CPD, CEF, SIBNI and ICE. The
study also tried to contact
representatives within the
department of infrastructure, and
those parties who were recently
(August 2020) appointed to the
NI infra advisory board, but
attempts were not successful
At times it was quite difficult
and the study was struggling to
gather enough responses to
justify my data collection;
however those participants who
had response (in agreement at
least) the study would politely
remind to take part, and in the
end, they did and some of them
actually remarked on it being a
worthwhile research project.
See results (table 10)
Validity and Reliability
In order to ensure the validity of the different data collection instruments, the research paper has written
the questions in such a way that the responses provided would only contain the information that is
relevant to this research focus. At all times, the participants had been told the focus on the research
project and therefore the questions that followed were valid to this end. In addition, most participants
gave lengthy answers, which seemed in some way to validate the appropriateness of the questions.
Research Ethics
In considering the methodology, the researcher was conscious of the ethical implications of his research
and selected appropriate participants accordingly. The researcher also verified that the questions within
the survey were ethical and did not create any issues for participants. In order to manage this system
within the university guidelines, the methodology and its ethical implications was discussed with the
supervisor of the project, and consequently a consent form was sent to each participant.
Chapter 4 Results: An Introduction
Results: The Survey
37
In order to represent the validity and variety of the research and display a robust methodology, the study
has taken the following steps to present the results in a clear and comprehensive manner.
•
•
•
Highlighted key words in summary of interviews
Presented word bank of key words and presented findings in line with study objectives.
Explore areas of consensus and conflict between literature review AND survey findings
Questions (correlated to objectives)
How would you describe the current
importance of infrastructure for the
Ni economy?
What is your opinion of the current
method of funding for NI
infrastructure?
Summarized answers
ICE (2020) argues that in general infrastructure spending
is probably the quickest way to stimulate the economy,
stating that “£1 spent on infrastructure, adds about £3 of
economic value”. CPD (2020) states the NI construction
employs around 60,000 people and contributes 3 billion
to the economic wellbeing of the local economy,
therefore it has an “extremely important role”. Both
Harran (2020) and Deloitte (2020) see infrastructure as a
“credible economic stimulant” and highlight NI Water
as an area that needs immediate investment, in order to
allow other developments to take place. Curry (2020)
also refers to the immediate challenge of funding NI
water, which could literally either be an enabler or
disabler for further economic development.
McClements (2020) states that NI infrastructure “lags
well behind the 3 countries in Great Britain, arguing
that this is down to 3 reasons: lack of private sector
funding, strategic governance and lack of political will”.
CEF (2020) argues that infrastructure is crucial to
“enhance NI’s attractiveness as a place to invest in”,
believing that there needs to be a prioritization of projects
that will potentially deliver more economic benefit.
Bradley (2020) argues that infrastructure is an enabler
for economic productivity; however, he states that NI
infrastructure investment has a “geographical imbalance
between the East and West which needs to be resolved
to focus on regional development as a whole”. SIBNI
(2020) also consents that good infrastructure “enables
economic development by moving people and goods”.
Finally, Gosling states that infrastructure investment is
the “core ingredient of an efficient economy which
supports and spreads wealth growth”. Curry (2020)
agrees that infrastructure is vital and can act as “an
enabler” for economic growth.
ICE (2020) states that revenue funding from the block
grant doesn’t even allow us to “adequately maintain the
current infrastructure assets”. ICE only cautions
against signal year budgets which don’t encourage long
term infrastructure investment and joins calls for the
setting up of an infrastructure advisory board. Harran also
criticizes the lack of long-term infrastructure planning,
arguing that “NI infrastructure spending needs to follow a
strategic path”, and allow each project an appropriate
38
Are you aware of any alternative
funding mechanisms that are being
used elsewhere?
source of funding. Deloitte states that the current funding
method (block grant) is widely held to be an
“unsustainable approach”, claiming that while the New
Decade, New Approach document had lots of plans, it is
unclear as to how the projects will be funded. CPD
also calls for an “integrated, long term and strategic
approach to infrastructure investment”. Whilst CEF
states that the block grant is basically the same as it
was in 2007/08, if you include construction inflation,
echoing others’ opinion that it is unsustainable method.
Bradley (2020) agrees that the block grant is not
sufficient, claiming that “most investments are road
focused, rather rail focused”. SIBNI confirms that
investment is centered around the block grant
allocation, adding that the NI investment now makes
finance available at an infrastructure market rate. Curry
describes the block grant funding process as “limiting”
as so many departments have to compete for the same
pot. Finally, Gosling states that “NI could spend a
decade’s worth of regular infrastructure investment
and still have weak infrastructure”. He adds that the
current usage of business rates is “out of date and stupid,
stating that they should be based on turnover rather than
mortar and bricks”.
ICE states that the NI Executive needs to investigate the
possibility of using private finance. As forms of user
charges to raise funds, ICE suggest that Water charges,
and tolling (selective) should be introduced, but
“questions whether the politicians here are up for it”.
Harran supports the “use of a hybrid, modern Public
private partnership”. He argues that NI should adopt
borrowing powers and use the private sector for
“delivery and operational use”. McClements cautions that
NI hasn’t used private sector funding for over 10 years,
and points to the global success of hybrid PPP’s as
indicators of success elsewhere. Deloitte also focuses on
the use of water charges and selective road tolling as
short-term alternatives, claiming the Republic of Ireland
is a good example of tolling. CPD refers to the infamous
Edinburgh schools project disaster as a lesson against
PPP’s, suggesting that Business Supplement Rates is a
good option, which has been successfully used in the
Cross Rail project. SIBNI states “that there is no
standard model, arguing that each government requires
a different set of criteria”. SIBNI also states that most NI
infrastructure is publicly owned, so the private sector
have less influence and participation. Gosling supports
the use of congestion charging, which is essentially car
park taxation, he refers to Nottingham as a good case
study for this. Furthermore, Gosling supports
investigating risk share partnerships with the private
39
Do you think any one of these could
be used specifically for NI? And
why this method or methods?
What do you think needs to happen
next for NI infrastructure to
develop sufficiently?
sector, and encourages borrowing powers being granted
to NI. Curry states there are some public sources such as
the Financial Transaction Capital funding (FTC), as
well as matched funding through the City Deals, and
grants traditionally supplied by the EU (which he
cautions might not happen anymore).
ICE refers to the potential options of water
charges/road tolling, but questions whether there would
be enough political will for this. Harran states that Sinn
Fein and the Democratic Unionist Party are strongly
against PPP’s, therefore they are unlikely to happen
anytime soon. Harran supports the formation of an
infrastructure board, but also doubts the political will
that could push such developments. McClements states
that Wales Mutual Investment Model, Scotland’s PPP
(Nonprofit distribution) model or TIF could be used in
NI. McClements also supports “the use of larger
infrastructure projects that could be shared with Republic
of Ireland”. Deloitte highlights the fact that “NI
customers spend a 1/3 less on utilities bills than those in
GB, implying that water charges need to be
introduced”. CPD agrees with the introduction of water
charges, and argues for a climate change or carbon tax
to be introduced. CEF strongly supports the use of the
mutualized model that allows sustainable borrowing
and could be a political alternative to PPP’s. Whilst
Bradley firmly advocates the use of borrowing and
convincing the UK government to devolve borrowing
powers which can be assessed “on a case by case basis”.
SIBNI states that alternative finance is “already being
used to the extent that it can due to the existing
ownership and control profile of assets”. Curry states
that once we move away from public funding, then we
must “think outside the box”, and mentions the
mutualized model, as well as the NPD model being used
in Scotland.
ICE repeats calls for the formation of an infrastructure
advisory board. Harran supports this idea, but once
again cautions against the idea of politics getting in the
way of strategic, objective investment. McClements
states that “a review of infrastructure needs is
particularly important in a post COVID 19 world,
stating that there needs to be a creative, strategic and
can-do attitude deployed”. Deloitte argues for a review
of planning, and states that infrastructure will only
happen if there is money and political will. CPD
encourages the formation of a multi-year budget and
supports calls for a more integrated and strategic
approach. Whilst Curry acknowledges that funding is a
big issue going forward, he also believes that “planning
and practical delivery” are major challenges,
40
referencing a litany of larger infrastructure cases that
failed to obtain planning permission “promptly”. CEF
welcomes the recent formation of an infrastructure
advisory board and supports the use of some sort of
fiscal council to enhance borrowing powers but cautions
whether this will get the cross political momentum
necessary. Finally, SIBNI states that the Strategic
Investment Board are currently working on their next tenyear plan which “will set out to enhance and extend
infrastructure investment”.
Table 10
Discussion of results
When the study first set out with its overall aim to evaluate funding mechanisms to better support NI
infrastructure investment; there was a motivating rasion d’etre that there were indeed long standing
challenges with the current system of funding that needed to be urgently addressed. In addressing this
issue, the paper set out to capture a wide range of relevant industry views on the importance of
infrastructure of NI and how it was funded, and to explore and evaluate other alternative methods of
funding that could be specifically adopted to NI. The results below (as seen through the focus on the
study’s objectives), aim to contribute to the growing debate regarding NI infrastructure investment: how it
is funded and how NI can find innovative ways to better support investment.
The Research Objectives and Results
1. assess the importance of infrastructure for NI
Word bank of key words from questionnaire
Infrastructure as economic enabler/core ingredient of economic recovery/extremely importance
role/vital/backbone of economy/makes NI attractive to potential investors/lagging behind GB
Largely, there was an agreement between all participants that infrastructure is the backbone of society and
has increasingly been viewed as an “economic enabler” that can empower other areas of the economy,
including wealth creation and productivity. Several participants referred to the formula that “£1 spent on
infrastructure, equates £3 contribution to the economy".
There was also a recognition that NI infrastructure has been “neglected” and suffered from
underinvestment, “lagging behind” its counterparts in these islands. Some of the participants expressed
immediate concern that a lack of infrastructure investment (especially in NI Water) is holding up other
economic developments across the region. As well as the functional importance of infrastructure, several
participants highlighted the importance of having “modern, resilient infrastructure to in order to attract
investors”.
On another issue, both Gosling and Bradley agreed that there was a “geographical imbalance” in
infrastructure investment, arguing that a more regional (rather than Belfast centered) approach to
infrastructure investment is necessary.
2. evaluate the current methods of funding of infrastructure in NI
Word bank of key words
Unsustainable/downward spiral/limiting/short -term planning/not strategic/insufficient/centered
around block grant.
41
Out of the 10 participants who participated, there was no evidence of support for the current method of
funding. Many participants criticized the system as being “unsustainable”, with many representatives
from different sectors bemoaning the fact that they must fight over the same pot of money. ICE argues
that the current funding is barely enough to maintain our current infrastructure needs, never mind manage
any type of investment, whilst Gosling goes even further by stating that “10 years of regular infrastructure
spend would still leave us with weak infrastructure”, such is the extent of the current situation. Harran
reflected on the extremity of the situation, by claiming that recent housing developments have had to
install their own on-site sewage system, because NI water was unable to fund the infrastructure
themselves. Furthermore, many of the participants expressed concern that the European source of funding
(after Brexit) would not be replaced by another source.
Many participants also criticized the “lack of a strategic approach to infrastructure spending that worked
on a long-term plan and is also cross departmental”, calling for the annual budgets to be converted into
multi-year budgets.
3. investigate industry views in relation to future investment needs for NI infrastructure
Word bank of key words
Need for strategic, long term approach/lack of investment in NI Water is disabler instead of
enabler/need to accelerate funding/need to become more commercially minded
The 10 participants by and large seem quite impassioned about the subject of infrastructure investment.
Harran states that a lack of infrastructure investment in water and wastewater systems is “becoming more
of a disabler than enabler for NI economic development”.
Most of the participants have welcomed the restoration of the NI government in January 2020 and the
subsequent publication of the New Deal, New Approach document; however, Deloitte questions how this
‘turbocharging’ of infrastructure will be funded. Considering the COVID 19 pandemic, many of the
participants feel that now is the time to “accelerate the investment process in infrastructure, otherwise we
are facing a long recession”. Deloitte and McClements states that the NI Executive needs to take a more
business, commercial mindset.
4. critically assess existing and best practice funding models for infrastructure AND 5. and finally based
on the results of my research: to recommend innovative methods of funding to better support NI
infrastructure
Word bank of key words
Borrowing/fiscal council/integrated planning system/hybrid PPP’s/bonds/mutualized model/no
standard model/road tolls/water charges/business rates supplement/carbon tax
Borrowing: A lot of the data seems to support the use of borrowing powers for NI. Most of the
participants highlight the fact that borrowing can be got at a favorable rate and would give the NI
Executive “more power to invest and become more commercially minded”. Furthermore, Bradley states
this borrowing could be done through Westminster on a “case by case basis” and would take the
responsibility of UK debt away from Westminster. Gosling also supports the use of borrowing and
potentially using bonds as a way of funding infrastructure projects.
Use of Private finance: McClements praises the successful use of PPP’s used elsewhere, claiming that the
Scottish models (NPD and TIF) and the Welsh model (MIM) could easily be adopted here. On the other
hand, many of the participants acknowledge that PFI’s and PPP’s have suffered from a bad reputation in
recent years and question the value for money in such schemes. However, Harran encourages the use of a
“hybrid model whereby the public can use the private sector expertise for delivery and operation” and
42
allow the Executive to borrow at a more favorable rate than using a typical PPP. SIBNI acknowledges
that private finance is already being used in NI but is “limited due to the public ownership profile of NI
infrastructure”. SIBNI goes on to claim that there is “no standard model”, stating that each model must
suit the appropriateness of the location and its needs.
Other suggested methods:
Road tolls: Many of the participants argue that road tolls for schemes such as the York Interexchange
should be introduced to fund infrastructure, with some participants alluding to the successful usage of
road tolling in the Republic of Ireland. Whilst many participants see this as a good idea, some caution
whether there will be the “political will” for such a move. On another point, Gosling raises the idea of
using a “congestion tax” for parking in city centers, referencing the successful use of this in other UK
town centres, including Nottingham.
Water charges: Many of the participants also support the introduction of water charges, with Deloitte
claiming that NI pays 1/3 on utilities than the rest of the UK. For many of the participants, NI Water was
a very serious concern and was seen by many as currently being a “disabler” for economic growth,
therefore for many the implication of water charges seems inevitable.
Business Rates Supplement: Gosling supports the use of a business rates supplement, like the one being
used to fund the Cross-rail project. Deloitte suggest the adoption of a similar system whereby you can
“charge new developers a premium rate around the new Belfast Transport Hub (for example radius of 1 –
2 kilometres) similar to the land value capture model being utilised in England”. All of this runs in
agreement with demands by other participants that the Executive become more commercially minded.
The Next steps: Most of the participants highlight the urgent need for infrastructure investment,
specifically as “economic enabler” in response to the COVID 19 pandemic. However, several participants
also question the “political will and lack of strategic governance” within the Executive.
A lot of the participants also encouraged the formation of a NI infrastructure advisory body (recently
established in August 2020), and highlight the positive effects of having a long-term plan. As well as
considering alternative funding models, most participants want to see a “more integrated approach with
planning and the adoption of a fiscal council as highly beneficial”. Harran supports this view, claiming
that we need to make projects “shovel ready” in order to accelerate the investment process.
Areas of conflict AND consensus between literature review and survey findings
The Role of infrastructure: Within the literature review and survey findings, there appears to be
unanimous agreement that NI infrastructure investment is extremely important for economic development
of NI, and that the current system is not “sustainable” to maintain and enhance an appropriate level of
infrastructure in the long term. There was also significant recognition that NI’s current level of
infrastructure was below par compared to other parts of these islands; and there was absolutely no
evidence within either the literature review (industry views) and within the survey of any person extolling
the positives of our current system of infrastructure. Many participants and the literature review alluded to
the view that infrastructure was an enabler for economic growth, and with a huge economic recession
looming, infrastructure investment at a fast rate was more paramount than ever.
Current method of funding: Once again, seemingly all the research conducted (including data collection
and literature review) pointed towards criticism of the current method of funding. Many of the
participants felt that the current method of funding was “inadequate and unsustainable”, with some
43
participants stating that the NI economy was teetering over the edge, with the COVID 19 pandemic
further depleting resources.
Interestingly and perhaps alarmingly, in reviewing industry opinion that had been voiced and comparing
this to the survey results, there definitely appeared to be a tangible sense of exasperation and frustration at
the current method of funding, with many in the industry calling for urgent action to be taken. In many
cases, this seemed to go beyond rhetoric: the many references to housing developments being held up due
to a lack of funding for NI Water, as well as the “cumbersome” delivery of flagships projects referenced
by the NI Audit is testament to this real challenge of changing the current system of funding and even the
delivery of infrastructure investment.
Industry views around NI infrastructure: There was also a strong level of consensus that the Executive
needed to develop a long term and more integrated approach to infrastructure investment; by streamlining
planning, introducing a fiscal council and forming an infrastructure advisory board (since set up August
2020). Some of the research hinted at a “regional imbalance” between East and West that had to be
corrected, suggesting there was a need to move away from Belfast centered investment. Others
commented that there was a lot of cynicism in the air with previous infrastructure plans building hope and
then coming to a standstill. On this point, much of the research welcomed the New Deal, New Approach
but like the finance department, they queried where the money would come from.
Much of the research and literature review showed that there was also significant support for use of the
private sector on some level, with some supporting the use of fully functional PPP’s, whilst others
supported the use of hybrid private finance and pointed to the expensive lessons of using PPP’s in
Scotland and England. Regardless of the conflict of opinions around the use of the private sector and what
form that should take, there was almost complete agreement that private sector expertise and finance
should be utilized at some level.
Alternative methods of funding: Between the literature review and the survey results, there was a vast
array of methods proposed. The literature review focused largely on the reliance of the private sector and
PPP’s and this trend was repeated in the survey results. Much of the literature review referenced the
seemingly successful use of PPP’s in different parts of the world (Scotland and Wales for e.g.). The
support for such schemes was repeated in the survey results, with some participants cautioning the use of
PPP’s and others suggesting that it is an inevitable tool for infrastructure investment. Even more
progressively, from the literature review and the survey reviews, there appeared to be a trend to evolve
PPP models to better suit different clients and remove the negative elements from them.
Other models referenced within the literature review were innovative funding models being developed by
local and city councils across the UK – for instance the Business rates supplement. Similar results were
found in the survey with people encouraging the creation of a fiscal council, and others suggesting that
there should be more creativity from government around funding innovation. For instance, potential
carbon taxes or congestion charges were floated within the results of the survey. Finally, within the results
survey there is a big push for borrowing powers to be granted, with numerous participants referencing the
use of bonds in order to get the infrastructure investment process going.
Methods that could be adopted by NI specifically: As expected, there was some conflict within the
(survey especially) as to what other methods of funding could be used: this was echoed by some industry
opinion who voiced their support for the short-term usage of water charges and road tolls, with some
stating that the people “who benefit from the infrastructure should be paying”. Some participants in the
survey whilst agreeing with the logic behind water charges/road tolls, questioned whether there was
“enough political will” to get such charges across the line, considering “they are not exactly vote
44
winners”. On the other hand, some within industry acknowledged that NI was a “consumer-based
economy”, and any additional burdens on low income households (such as water charges and tolling)
would only hamper the economy in other ways.
As stated within the survey, there was also a significant level of support for borrowing powers to be
introduced for NI, and many participants acknowledged that borrowing for infrastructure could now be
made at favorable rates, with SIBNI alluding to the introduction of the NI Investment Fund as a possible
route. This seemed to run parallel with the literature review which suggested that countries like Scotland
were borrowing heavily in order to get the ball rolling with the infrastructure investment drive.
Some within the survey talked about presenting a ‘case by case’ borrowing mechanisms to Westminster
which would also take the pressure of the UK government. Whilst other participants mentioned the
possibility of funding and delivering all Ireland infrastructure projects in partnership with the Republic of
Ireland. Furthermore, the need a for fiscal council expressed by many within the survey mirrored the
movement by many councils to introduce innovative funding mechanisms for large scale infrastructure
projects.
What happens next....Within the survey and the literature review, there was much consensus about the
need to accelerate the infrastructure investment process and have shovel ready projects that mirrored the
spirt of the UK’s so called ‘infrastructure revolution’. There was a feeling by some participants that with
the removal of EU funding, NI would be left neglected once again, and different sectors would once again
have to squabble over “the same pot of money”. This was evident in the literature and the survey.
The acknowledgement shared by the literature review and the survey results that infrastructure is
paramount as an economic enabler seemed to have been a catalyst for infrastructure investment becoming
such a hot topic (as can be seen from the frequency of round table discussions and the Executive forming
an advisory body). The literature review also illustrated the flurry of activity and the apparent success of
other governments to ‘turbocharge infrastructure’ and this seems to have jolted many within the industry
in NI to move forward and to move quickly. Furthermore, this momentum has seemed to have manifested
itself into a significant consensus (within review of industry views and survey results) that the Executive
need to make giant leaps forward and become more “commercially aware” so that it can be implement
such fiscal measures, streamline infrastructure investment and start ‘enabling’ economic growth.
Interpretation of findings (what did we learn)
Before collecting the findings, the research paper was aware of a growing debate around infrastructure
investment. However, it was surprising and encouraging to observe the increasing intensity of this debate.
Indeed, what the findings appear to demonstrate is that the current system has been failing NI society for
a long time, and there is now an urgent desire to resolve this, and ‘turbocharge infrastructure’.
Whilst the findings have confirmed what many already were aware of: that NI’s funding method for
infrastructure investment is insufficient and ultimately unsustainable in meeting the challenges of 21st
century society, it is less clear as to what the solution should be and that takes the reader back to the
overall aim of the research paper: to evaluate funding mechanisms to better support NI infrastructure.
Spollen had stated that whilst there is a multitude of alternative funding models, there is “no standard
model”. Furthermore, McKinnon argues that there should be a “cocktail of funding methods used”.
As demonstrated by the research findings, whilst there is some consensus about the Executive becoming
more commercially minded and adopting a long term infrastructure strategy, there is much conflict about
what exact funding mechanisms should be used, a topic that has been catapulted even more onto the
45
Executive’s table considering the implications of Brexit and the financial strain of dealing with the
COVID 19 pandemic. Nevertheless, it can be acknowledged that whatever model (s) are implemented
then they need to be suitable and appropriate for the local political and economic climate and garner the
public and political will needed.
Recommendations
Kneale and Santy (1999) state that each recommendation must be clearly related to the data and findings.
Following this line of logic, it is a challenge to form recommendations whenever the data isn’t conclusive,
containing some consensus and some conflict as well. Nevertheless, as researcher there is a task to find
recurring themes across the data, and justify these recommendations with evidence:
1. Borrowing
Justification: Findings have shown there is significant support behind the idea of borrowing as a
starting point to fund and accelerate the infrastructure investment process. Many of the participants
also state that borrowing is currently a viable option as borrowing rates for infrastructure are
favorable. Furthermore, SIBNI refers to the establishment of the NI Investment Fund which has
established for this exact purpose. As stated previously, many of the participants have also demanded
a more ‘commercial approach’ from NI, therefore borrowing for investments that could bolster the
economy and reap economic rewards is certainly a convincing argument for many of the participants.
Furthermore, by borrowing at favorable rates, there would be less pressure to implement user charges
for the public, and also less need to enter into typical PPP arrangements whereby the private sector
pays for the construction and then is repaid over a long period.
2. Use of hybrid PPP’s
Justification: Several participants referred to the tarnished reputation of PPP’s, and to the ‘aversion’
within Northern Ireland to it. On the same note, many participants encourage the use of private
finance at some level, with some claiming that there are some creative models that could be adopted
to NI. Furthermore, the fact that the UK has stated that 60 percent of its infrastructure pipeline will be
privately financed is further evidence of this trend. SIBNI also acknowledges that private finance is
already being used in NI, and states that SIBNI are actively pursuing more public private
partnerships. In addition, the findings support the push for the Executive to be more ‘commercially
minded’, and in establishing a fiscal council/infra advisory board, they would be better placed to
create hybrid public private partnerships that are suitable and beneficial to NI.
3. Carbon tax
Justification: Whilst many of the participants have focused on more familiar funding mechanism like
PPP’s and water charges, there were a number of participants who referenced the challenge of
meeting the government’s carbon targets, and also how some other cities have implemented taxes
around this. McKeown (2020) states the carbon targets for 2050 should be a good policy driver for
infrastructure funding, whilst ICE and CPD both acknowledge the huge challenges coming with
climate change and view some sort of carbon tax as a feasible option which the public could support.
Furthermore, Gosling references the use of a parking tax that is being rolled out across other cities in
the UK. This would be particularly relevant for Northern Ireland, as a report recently found that
Belfast was one of the most congested cities in the UK (Inrix 2016). A tax such as this is also bound
to grow in the coming years, and the it is something that would be arguably easy to digest for the
public.
46
4. Water charges and road tolls
Justification: Clearly, there is a level of consensus around the introduction of water charges and less
so around road tolls (for specific developments). The findings show that the introduction of water
charges is becoming ever more immediate as NI Water struggles to cope with increasing demand. The
findings also show that the Republic of Ireland has successfully piloted road tolls, and therefore it
should be adopted here as well. In addition, the findings also show that NI are paying a 1/3 less on
utilities than the rest of the UK, and there is a growing consensus that the people who benefit from
infrastructure should be the ones paying. Whilst, the findings show that most participants are in
favour of water charges, they are skeptical whether the NI Executive would have the political will to
implement this.
5. A reconfiguration of local taxes regarding development
Justification: Much of the research conducted in the literature review, and some of the findings
suggest that there is a growing trend of local councils being given devolved powers to create innovate
taxes that bolster economic investment and development. McClements references the use of Tax
Incremental financing being used in the UK, whilst Gosling references the use of a development tax
on landowners whose land value increases due to public infrastructure. In addition, Deloitte support
the use of a business rates supplement, such as the one being used to fund the Cross-Rail project
(referenced in the literature review). Any of these could be adopted to Northern Ireland and is another
way in which NI can move from a barely functional assembly to a dynamic and innovative governing
body.
Implications
The research paper will be sent to all those who took part and will also be sent to the department of
infrastructure and the advisory board for infrastructure. From there, it is difficult to predict what the
implications of this study will be. Nevertheless, if the research paper has prompted further debate, or even
contributed to a growing debate, then it is possible that it has already had some positive implications.
Limitations
Ryan, Coughlan and Cronin (2007) states that the researcher should discuss the findings in the context of
what is already known. In the case of Northern Ireland, this is quite difficult (due to the political make up
of NI), it is a state that has never developed alternative funding models and any funding models that have
been researched, have been researched on the basis of being used elsewhere, therefore there were always
going to limitations within the research project. As SIBNI (2011) stated, there is no standardized model
for infrastructure investment, with its implementation determined by so many external factors such as risk
appetite, public feeling, political urgency etc. With this in mind, it is very difficult to find the ‘right’
funding model for Northern Ireland.
Further research
The limitations acknowledged clearly give rise to further research. It could possibly be worthwhile
assessing the investment profile of NI, and the evaluate the areas in which NI needs to change and adapt
in order to have the powers (such as borrowing powers and reconfiguring certain taxes) and to create an
attractive option (for private investors) to invest in.
Summary/ Conclusion
47
Clearly, the findings have shown that infrastructure is of “paramount importance” to economic
development on a global and local level (Harran 2020). Findings have also shown that NI infrastructure
has been largely neglected for decades and will continue to be if the current method of funding is not
changed. The findings also show alarm and concern regarding the loss of European funding and how
budget spending will be further constrained with the burden of COVID 19.
Fortunately for those living in NI or for those have an interest in it, there seems to be burgeoning
momentum around improving infrastructure investment. As discussed, there is no shortage of funding
models, but further research on the investment profile of NI will be needed in order to ascertain what
models are most suited. Nevertheless, it is also worth noting that there is no guaranteed model for success,
and that each model contains an element of risk. As one participant remarked, we cannot afford not to
invest at this point, and another remarked that now is the time be innovative and brave and bold, and the
study hopes that the research undertaken contributes to the growing momentum around this issue.
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APPENDICES
Appendix 1 Deloitte use of Toronto waterfront asset sales as case study
55
56
Appendix 2 – Deloitte short term solutions to enhance NI’s budget
57