Credit;PA
With various projects—Build, Build, Build, Let’s Build Back Better, and Planning for the Future—the Johnson administration is announcing paltry sums to seed-fund a construction revolution to act as an economic stimulus. But Britain’s economy has been sold out to industries that make money from money: asset managers, equity firms, hedge funds, pension companies, etc. Already, these giants are eyeing ways to profit from public subsidies, expand their portfolios, and use people’s pensions as investment capital.
Boris Johnson is just the man to head a new generation of construction follies likely to enable wealthy corporations to pocket lots of cash. In 2014 during his second term as Mayor of London, Johnson approved the Garden Bridge scheme: a proposed pedestrian bridge across the Thames. It cost taxpayers over £50m, profited the engineering firm Arup by £7m and the building company BTP-CJV by £21m, but was never constructed.
High Speed Rail 2, linking London to Birmingham with branches to Leeds and Manchester, was proposed by New Labour in 2009. The Tory-Liberal coalition (2010-15) agreed to the plan, but to this date over £7bn has been wasted demolishing buildings—including people’s homes—along the route. The company HS2 Ltd. acquired a property portfolio worth £600m from the houses listed for destruction. In 2018, Mobeus Equity Partners bought £14m-worth of shares in Geotech, the company making soil stabilisers for the project. Johnson has been in power for a year, with no sign of the project even starting.
Johnson is the mastermind behind the proposed bridge linking Portpatrick or Kintyre (Scotland) to Larne or Torr Head (N. Ireland), a £20bn “vanity project” (Scotland’s Transport Minister, Michael Matheson), which to date has gone nowhere. Johnson also proposed the construction of a £100bn-plus bridge to France, which also went nowhere.
Johnson was in Theresa May’s cabinet when the construction giant Carillion collapsed, following successful efforts by hedge funds and similar institutions, including Capita and Coltrane Asset Management, to short the company’s stocks, making £200m in the process. In addition to contracting Tory donors and Brexiteer firms JCB and Dyson to build ventilators for COVID-19 patients—which were not needed because the most vulnerable were left to die out of sight in carehomes, Johnson oversaw contracts for unusable PPE. The Tories awarded £252m to the private equity firm, Ayanda Capital Ltd., which as TLE reported, has links to the Trade Secretary Liz Truss, via her advisor.
After Johnson secured a massive Parliamentary majority at the general election 2019 (in which fewer than 14 million people voted for his party), Housing Sec. Robert Jenrick’s team introduced the policy paper, Planning for the Future. Experts at the real estate consultancy firm, Knight Frank, spoke of the paper’s backing of perverse financial incentives to demolish buildings. “Research regularly supports that heritage assets bring social and economic benefits,” says their report: “with strong correlations to where businesses want to locate, and where people want to live, shop and engage.” The researchers ask: “Why are we incentivising demolition before buildings can become heritage assets?”
On 6 August, Jenrick announced the consultation phase to build affordable homes, make green and well-insulated properties, and boost smaller developers. With regards to planning and zoning, however, The Times reports: “Once agreed, … local politicians will have little or no say over specific applications that fit the rules.” The Royal Institute of British Architects agrees and adds: “[there is] every chance they could also lead to the creation of the next generation of slum housing.”
Polly Neate, head of the housing charity Shelter, warns about the consequences for social housing: “If the government now removes the requirement for developers to build their fair share it could face extinction. Over a million households on waiting lists for social homes risk having their hopes dashed.”
Britain’s financial sector is concentrated and powerful. Just a couple of thousand asset managers, banks, credit rating agencies, hedge funds, insurers, liquidity providers, pension companies, and private equity firms constitute nearly 7 percent of GDP, with around half located in London. An investigation by openDemocracy puts it simply: “Finance is the Conservative Party’s largest source of funds because it has become by far the UK’s biggest industry.”
The global management consultancy firm McKinsey & Co. states that the new circumstances prompted by COVID-19 “will prompt businesses to seek new ways to improve their cost-competitiveness.” It notes that, “[i]n recent recessions, extraction, basic materials, and some manufacturing sectors have fallen into this category, as well as construction and parts of transportation and storage.”
In these uncertain times, investors seek secure assets, like physical structures. Aviva Investors write: “Long-income real estate has historically performed well in difficult periods.” But the difficulty is in finding “tenants … of a high quality [that] remain solvent.” The report also suggests how to profit from the taxpayer and the broader stakeholder: “Assets let to high-quality counterparties, like those in the public sector, have a broadly positive income outlook.”
Why is Business Sec. Alok Sharma talking up sustainable development, such as solar power? Aviva also notes that “unlevered subsidised UK renewables will deliver higher expected returns than other asset classes, albeit with more risk.” Aviva notes that the only cloud on the horizon is too much state intervention by Tories in the bond and loan markets.
Citing the 2016 Thames Tideway Tunnel built with money from pension funds, the Financial Times reported that the Tories proposed reforms “to encourage more pension funds to invest in similar infrastructure projects.”
The investor Legal & General (L&G) advocates for the production of affordable housing, green energy, low-carbon transport, fibre optic broadband, and urban regeneration. It considers infrastructure to be a Defined Benefit (DB). But risk must be transferred from investors. “A significant and growing number of companies are ‘de-risking’ their DB,” says the company, “through what we call ‘Pension Risk Transfer’ (PRT).” PRTs are premiums paid to insurers to secure retirement benefits. This, the company hopes, could unlock £190bn-worth of investments for infrastructure over the next ten years.
In 2015, the Tories promised to build 200,000 “starter homes” a year, particularly for the under-40s and first-time buyers priced out of the market. The programme was actually a land-grab for private owners: asset managers and private equity firms. “No Starter Homes have been built to date,” the National Audit Office reported in late-2019. “The funding originally intended for Starter Homes has instead been spent on acquiring and preparing brownfield sites for housing more generally.” So, who bought the land and houses?
The property analyst LD Events notes that, following the Tories’ deregulatory Housing and Planning Act 2016, the New York-based private equity firm Blackstone established Sage Partnerships “to funnel additional investment into the UK housing sector.” Not only were British properties bought by American corporate giants, Sage worked “in collaboration with public and private landowners, local authorities, housing associations and developers,” blurring the lines between public ownership and private profit.
A Labour government could put the power back into the hands of local authorities, providing them with budgets where necessary. In addition to building genuine public housing, Labour could also discourage financialisation by taxing transactions.
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