The U.K.’s largest insurance companies will invest 25 billion pounds ($41 billion) in infrastructure, the government announced as it prepares to publish new plans for projects from energy and transport to communications.
As part of an updated strategy for its National Infrastructure Plan, the government will also double its target for the sale of corporate and financial assets to 20 billion pounds, including by selling its stake in Channel Tunnel express-train operator Eurostar Group Ltd., the Treasury said.
“It is a fantastic contribution to Britain’s economic future,” Chief Secretary to the Treasury Danny Alexander told a news conference in London today. “The renewal of our infrastructure is renewing the very foundations of our economy” and will lead to “long-term sustainable growth,” he said.
Prime Minister David Cameron has pledged to update Britain’s aging infrastructure amid projections that the U.K. will overtake Germany as the European Union’s most populous country by 2045. For insurers and pension funds, the investment will help preserve returns that have been eroded by record low interest rates and match their long-term liabilities to policyholders.
The plan could lead to private and public investment worth as much as 375 billion pounds up to 2030 and beyond, building on 100 billion pounds of public investment already announced, the Treasury said.
Legal and General Group Plc, Prudential Plc (PRU), Aviva Plc (AV/), Standard Life Plc (SL/), Friends Life, owned by Resolution Plc, and Scottish Widows (SWIPRTA) agreed to collectively invest in U.K. infrastructure over the next five years and will work together with the Association of British Insurers.
“We can now accelerate our plans in this asset class,” Legal & General Chief Executive Officer Nigel Wilson said in a statement. “The U.K. needs modern infrastructure to drive growth forward, and investing in the right infrastructure projects delivers for our customers and U.K. Plc.” Legal & General has already invested 3 billion pounds in infrastructure.
Wilson said in an interview in June that Legal & General (LGEN), the biggest manager of U.K. pension assets, could invest as much as 15 billion pounds in infrastructure if the government revised its planning and energy policies.
New projects announced today include an agreement with Hitachi Ltd. (6501) and Horizon to develop a nuclear power plant in Wales, a further 50 million pounds to redevelop the rail station at London’s Gatwick airport and confirmation of a government guarantee on a planned extension of the London Underground’s Northern Line, according to the Treasury. The government also confirmed it won’t introduce tolls on a planned new section of the A14 highway in eastern England.
“Insurers have a key role to play in contributing to the U.K.’s economic growth, as providers of long-term capital investment,” said ABI Director General Otto Thoresen. “Providing capital for infrastructure projects will help drive a competitive, healthy and resilient U.K. economy.”
The commitment from insurers follows an agreement by European politicians in Brussels last month that paved the way for new regulations, known as Solvency II, to make insurance companies safer by 2016. The deal followed 13 years of wrangling between the industry and regulators.
“Creating the conditions for increased investment in infrastructure from Prudential and the insurance industry has been a key concern of mine,” said Tidjane Thiam, chief executive officer of Prudential and chairman of the ABI. The negotiations in Brussels “made it more likely that insurers can continue to invest.”
Thiam said Prudential has already invested more than 40 billion pounds in U.K. infrastructure across a number of industries including property.
Asked about the planned Eurostar sale, Alexander said no final decision had been made, though he told BBC Radio 4 the government is “raising our ambition in terms of corporate asset sales” and “shouldn’t own things it doesn’t need to own.”
The government also said it expects 40 billion pounds of investment in renewable energy, after shifting incentives toward offshore wind power and away from projects on land in areas where residents object. The Treasury published a list of final “strike prices” for electricity from renewables in its national infrastructure plan today, cutting support for solar parks and onshore wind farms and raising them for turbines at sea.
Today’s announcements come a day before Chancellor of the Exchequer George Osborne presents new fiscal forecasts in his Autumn Statement.
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