Gaining speed

Written by William Peakin on 15 October 2014 in Feature

A pioneering investment model will be applied Scotland-wide

With infrastructure investment from both the public and private sectors critical to economic growth, a new way of enabling projects could be applied across the country.

The ‘growth accelerator model’ is a new funding mechanism for the delivery of public sector enabling infrastructure. The idea is that this will create the conditions to support further public-private sector investment, driving economic growth and regeneration.

Additional economic activity results in a series of income streams flowing to local and central government and private sector investors. The model is predicated on diverting a portion of these income streams to repay the initial enabling infrastructure funding. Integral to the model is a sharing of risk across all partners, including private sector investors.

The accelerator, which will complement existing tax incremental financing pilot projects, has its origins in the deal developed to secure the recent St James Quarter investment in Edinburgh. This was a collaboration between the Scottish Government and City of Edinburgh Council to deliver a £850m commercial development including grade A office space, high quality retail space, a 5-star hotel, a 4-star hotel, an apart-hotel, a theatre, restaurants and 138 residential units.

“The collective effort and commitment to breathe new life into the St James Centre were instrumental in creating this unique investment model in record time,” said Sue Bruce, Edinburgh Council’s chief executive. “As a result, the council will swiftly invest £61 million into this very important city-centre regeneration area which will help unlock further investment from the private sector.

“Working in partnership with SFT, whose support and advice was crucial, along with the Scottish Government has enabled us to work with the main investor in developing this major site. The benefits to Edinburgh, and Scotland, in terms of employment, commercial and retail opportunities will be huge. ”

As part of the funding agreement, the Scottish Government committed to a contribution dependent on the investment delivering three outcomes: economic growth from the centre itself; economic growth from the surrounding area; and the provision of training and jobs. As part of the agreement, the developer is also incentivised to drive down costs and is making a contribution to the upfront costs.

News of the model’s rollout came last week with the publication of the Scottish Futures Trust’s (SFT) five-year corporate plan which aims to build on the £4bn of additional infrastructure investment secured, and the £640m of savings and benefits delivered, since the SFT’s inception in 2009.

The £4bn of additional investment is made up of £3.5bn from the non-profit distributing programme, £200m from the National Housing Trust initiative and £350m from the TIF programme. These combine to make the largest infrastructure investment programme of its type across Europe. Among the savings was £250m in the schools programme, which has resulted in building 67 schools for the price of 55.

SFT was established to improve investment in social and economic infrastructure such as in schools, hospitals, roads and council buildings, which when either under construction or operational, stimulate growth, support employment, aid public service delivery and generate community benefits.

The organisation aims to increase investment by continually challenging conventional infrastructure investment models and devising new, more appropriate and commercially attractive programmes. Maintaining its focus on changing the status quo and continuing to increase levels of investment, SFT’s corporate plan highlights new and enhanced areas of work.

These include implementing its growth accelerator model across Scotland’s cities and devising the infrastructure requirement to deliver super-fast broadband. Developing creative financing initiatives to increase the supply of affordable-rent housing, managing an additional £1bn of non-profit distributing funding and SFT’s low carbon work where investment in energy-efficient LED street lighting will quadruple over the next four years.

“Our vision is world-class infrastructure for the people of Scotland,” said Barry White, SFT’s chief executive. “Working towards that, we will continue to deliver innovative economic infrastructure investment models to stimulate additional private sector investment, accelerate economic growth and create jobs. This activity will continue to be the bedrock of SFT’s ongoing success.

“We have built and established a strong and talented team from both the private and public sector, whose commercial expertise will continue to be very much at the heart of SFT’s continued success. Wherever the detailed priorities emerge and evolve, SFT will deploy the talents of our team to where they can make a real difference. We will take bold action in collaboration with our partners across Scotland to challenge the status quo – creating and driving forward new and ambitious ways of doing things.”

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