Funding new rail infrastructure

We recognise that expanding combined – or strategic – authority devolution powers will create exciting new opportunities to significantly reshape how funding and finance is accessed and deployed by the public sector going forward to support funding new rail infrastructure.

The funding and finance models that we have successfully deployed on rail schemes in the past are adaptable and scalable to support combined authorities deliver their longer-term rail programmes.  Below are some high-level areas where we believe combined authorities can utilise their role and devolved powers and unlock new opportunities:

1. Greater control over local funding tools

Combined authorities with devolved powers can tap into funding mechanisms previously restricted to central government:

• Mayoral precepts and business rates supplements – Devolved authorities can raise additional revenues locally and identify areas that will directly benefit from the creation of new rail infrastructure and access to generate equitable funding streams for long-term rail projects.
• Land value capture – With planning powers and control over transport investment, better integrated plans can be created that position new rail corridors / station access as a key development catalyst, leading to more effective engagement with landowners to share the uplift in land to support project funding.

2. Access to National Investment Pipelines

Devolution will provide opportunities for combined authorities to secure longer term funding settlements and access national frameworks:

• Long-term capital allocations (e.g. five-year settlements) allow better planning of rail schemes and reduce reliance on fragmented central bidding. This will also provide more confidence to the construction industry and supply chain, when tendering and delivering projects.
• Joint decision-making – Combined authorities are likely to take a stronger role, either leading or co-developing business cases with the rail industry (DfT, Network Rail and future Great British Railways) allowing more influence and credibility in accessing national funds like the Rail Network Enhancements Pipeline (RNEP).

3. Leveraging private investment

With new powers, combined authorities can become more attractive counterparts to private investors in the property and infrastructure sectors.

• Devolved planning and transport powers, when integrated into clear and well evidenced strategic visions, can make projects more commercially viable, thus improving financial benefits to support funding the project.
• Bespoke development and delivery vehicles can be created by the combined authority, such as development corporations or joint ventures to package, and share risks between the public and private sector to fund and deliver rail schemes.
• Combined authorities have the ability to trial and test alternative finance models that draw upon broader financial revenue streams that are within their authority and control, which could incorporate the following:
  • Tax Incremental Financing (TIF): This would allow future increases in business rates around new rail infrastructure to be identified and strategically captured to support funding the project.
  • Green bonds or social impact bonds: The increased scale of transport investment that a combined authority programme will bring could support economies of scale and make it viable to source green or social impact bonds for rail investments.
  • Public sector pension fund investment: We anticipate devolved regions to develop strategic investment partnerships with local pension funds with the aim of co-investing in new infrastructure that can generate long term index linked returns.

Talk to us about a funding and finance strategy for your aspirations, contact tony.cahill@slcrail.com.