Community infrastructure bonds: a solution for challenging times?

How do you get investment in infrastructure when the economy’s nosediving? You stop pursuing old avenues and go for something new, says Dan Gregory

This week it emerged that economic output fell by 0.7% between April and June 2012, following a 0.3% fall in the first three months of the year. In a perfect partnership between metaphor and reality, George Osborne has been donning his hardhat and peering into holes in the ground for a number of photo opportunities to highlight the government’s efforts to attract investment into the UK’s infrastructure.

So we know that the economy is in a mess and investment in infrastructure is part of the answer. But with the slow death of PFI and with the public finances in a frightening state, it is less evident how such investment can be found and channelled into the projects that will deliver sustainable growth.

This was a timely week then for ResPublica and the Canary Wharf Group to publish a new report, Financing for Growth: a new model to unlock infrastructure investment. At the heart of the report is the idea that for too long, infrastructure finance has been conducted as an antagonistic tussle between the public and private sectors. As the benefits of infrastructure development can accrue disproportionately to certain private actors, the report suggests that we must look beyond the public sector to provide finance, while the state must of course still play an enabling role as a cornerstone investor.

Equally, we need to reach out to the private sector without ceding undue ownership or profits to the detriment of taxpayers and citizens. But breaking new ground, the report proposes that we look beyond this blinkered and binary view. Instead, ‘community infrastructure bonds’ could deliver better value for money, more popular and longer-term models of infrastructure finance, engaging communities, citizens and local businesses more directly in the financing, control and governance of the physical assets around them.

The community infrastructure bond would be issued by a special purpose vehicle – or a kind of social enterprise writ large – working in the interests of a self-defining community of interest, across rigid public sector boundaries and beyond the influence of short-term politics. The bond’s viability would be underpinned ‘underneath the bonnet’ by a range of revenue streams, including conventional public budgets, contributions from the private sector, additional or future tax revenues, value capture mechanisms, fees and charges and other means. National or local public bodies could help ensure the bond stacked up through tax incentives, guarantees (much like the UK Guarantees announced by Treasury last week) or an equity stake.

What would this model offer? Well, while recent years have witnessed the emergence of peer-to-peer and community financing models such as Zopa, Kiva, Abundance, SpaceHive, Allia, Funding Circle and others, little of our infrastructure is owned locally or directly by citizens or communities. Instead, ownership is removed from communities by large layers of intermediaries that have increasingly become abstracted and anonymous bodies, increasing complexity, cost and confusion. Yet forgotten and emerging models of alternative, peer-to-peer, social and community finance, and the successes of social enterprises and co-operatives – outperforming their more red-blooded counterparts over the past few years – can help inspire better models for financing infrastructure development.

The staggeringly tiny failure rate of community-owned shops, for example, demonstrates how aligning incentives between investors, enterprises, customers and community can create a virtuous circle and more socially and financially successful business models. In the simplest terms, if people care about something, it is more likely to succeed than if they don’t.

Small-scale, grassroots social and community enterprise can be a wonderful thing. But the social sector should also raise its sights and weigh in to more macro level debates. If we shy away from these discussions and leave the construction of, for example, models of infrastructure development finance to the accountants, private sector consultants and the Treasury then we mustn’t grumble when we are handed down models as flawed and antisocial as PFI.

The inspiration of the social enterprise Eden Project, the mutually owned Welsh Water, the new Canal and River Trust and the ambition of the people of Dover to create a ‘people’s port’ demonstrates that models with community at their heart can capture both imagination and investment. Right now, the UK economy is in desperate need of both.