Mark Leftly: Chancellor dodges wave of effluent as investors hold their nose and plunge in

Westminster Outlook: George Osborne's legions of anti-austerity critics might well describe his legacy as chancellor with a word related to human excrement - but developments in the infrastructure market could mean he will ultimately delight in the reference.

London’s sewage is overflowing into the Thames, ammonia threatening to poison 125 species of fish, including thick-lipped mullet, smelt, bass, flounder and perch. Edible cockles and whelks caught in the Thames Estuary lose their appeal with every passing flush of a Londoner’s toilet.

A civil engineering masterpiece when Sir Joseph Bazalgette built the capital’s sewers in the wake of the Great Stink of 1858 – a year in which a scorching summer fermented, or cooked, untreated waste in the Thames – the network simply can’t cope 150 years on.

Wisely, Sir Joseph allowed for the capital’s population growth, making sure there was enough capacity to deal with the waste of 4 million people, double the number of the time. Today, though, 8 million are served by what is quickly becoming an open cesspit.

With 600,000 homes needed to meet the capital’s population expansion by 2031, London badly needs the replacement: a £4.2bn, 15.5-mile tunnel running west to east known as the Thames Tideway.

Yesterday, The Independent’s sister paper, the London Evening Standard, revealed that the European Investment Bank (EIB) has agreed to lend the project £1bn. This will provide Thames Tideway with the financial security needed to ensure its seven-year construction programme gets going in 2016.

Thames Water is now looking for an “infrastructure provider” that will in effect bankroll the project. The consortium that is eventually selected will decide whether or not it needs the EIB’s money, but the guarantee of a loan set at highly advantageous terms at least boosts everyone’s confidence.

What Mr Osborne can smile about is the identity of many of the bidders in those consortiums. As well as an international financial powerhouse in the form of the Abu Dhabi Investment Authority and the listed private equity group 3i, a plethora of pension funds are keen to run and finance Thames Tideway. They include Borealis, a division of a Canadian fund for firefighters, police and non-teaching school staff, and the Liverpool-based Universities Superannuation Scheme.

This could be viewed as validation of the Chancellor’s belief that pension funds can be tempted to invest in infrastructure projects at the pre-construction phase.

Historically, pension funds like safe assets and will only invest once a school, hospital or waste-processing plant, say, has been built. The returns aren’t so great then as there are fewer risks – such as discovering asbestos in a building redevelopment or a need for expensive design tweaks – but the returns are predictable, meaning it is easier to match the scheme’s liabilities to its assets.

Mr Osborne placed his trust in an infrastructure boom to boost employment and business – an optimistic view at a time when public finances have been so tight. He needed pension funds to invest alongside more traditional players in the market, like the investment arms of construction companies, to make his plans work.

Thames Tideway is the first big sign that he has convinced a pension fund market awash with money that their investments will be safe in Britain’s roads, bridges and sewers.

Admittedly, it took a government guarantee to ensure their involvement, but Mr Osborne can, for the moment, stare down the many of us who scoffed at his plan.

There is, of course, a caveat. One of the country’s great infrastructure masterminds of the past 20 years reckons the reason is that with so few big projects being built in recent years, pension funds simply had to allocate money somewhere – and so this has proved to be of benefit to Thames Tideway.

Certainly, it will take more evidence than a big sewer to prove Mr Osborne right in the long term, so it’s probably best that he doesn’t shout about the situation when he delivers the Autumn Statement next week.

But at least his critics will have to think twice when choosing their words to describe his tenure at No 11 Downing Street.

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