How the economy operates affects everyone. Investing in infrastructure is essential, giving the country a firm base from which to grow. We all contribute, in different ways.
What is infrastructure investment? Put simply, it is capital investment in the essential systems and services that the country needs to work and function properly. To differing extents, this is true in all countries around the world.
That means the power stations, cables and pipes to carry electricity and gas to homes. It is also investment in green technologies like wind, solar and tidal energy sources.
Don’t forget the road and rail systems, and the communication networks. Think Fibre cables across the country to give gigabit-speed Internet for businesses and homes.
How often have you heard the Prime Minister mention that recently?
Who pays for infrastructure investment
In the UK, we are all infrastructure investors. The capital outlay for such large-scale infrastructure projects can be huge. The money often comes from taxes paid by the working population.
Ongoing charges to use roads, bridges and railways are then reinvested.
Individuals do not make specific investment choices. However, how people vote in elections determines the government’s spending priorities.
For example, money is allocated to the Education Department. Some funds go to the National Health Service, Defence and other essential elements of the domestic budget.
Remaining tax revenues top up departments that need additional funding. Moreover, cash goes towards specific initiatives and infrastructure projects.
Sometimes, it’s not enough. Governments that are under pressure often need the private sector to provide extra finance.
This happens with hospitals, power station builds, and also train operating companies. In return, the government guarantees returns to the financiers.
When do individuals invest in projects?
When private companies finance smaller infrastructure projects the public can be involved directly. They are invited to invest minimum amounts for expected (but not guaranteed) returns.
Popular examples in recent years have been construction schemes and green energy projects – like onshore windfarms.
Sometimes, larger pension providers have funds that are focused on infrastructure projects. These investments are considered to be safe and defensive. Transportation, sewage and water schemes are popular as they are always required.
Being involved in infrastructure financing can be exciting as investors can earn interest and see completed projects that benefit communities or the wider economy.
Please be aware the value of investments or income from them can fall as well as rise.
If you would like to discuss investments or how pension funds are invested or managed, come and chat to our friendly independent advisers.
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