Tony Dolphin: Infrastructure must not lose out to infighting

INVESTMENT is crucial for the growth of the economy. It ensures that the latest, most efficient technology is brought into production processes and increases future productivity. But the UK has a poor record on investment spending. As a share of GDP, it has been lower than in other major economies throughout most of the last 30 years.

Under-investment in infrastructure – the energy supply system, transport links, communications, flood defences – has been an important part of the UK’s poor historical record on investment spending. As a result, much of the UK’s infrastructure is now creaking. In the calculations for its 2012-13 Global Competitiveness Index, the World Economic Forum ranks the UK a lowly 24th in terms of the quality of overall infrastructure.

In response to this failing, the Government promotes its National Infrastructure Plan (NIP): a pipeline of projects valued at £374bn, including £110bn needed to upgrade and decarbonise the energy system as mandated in the 2008 Climate Change Act.

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In reality, however, the NIP is not so much a plan as a wish-list. It is estimated that 85 per cent of the project pipeline will have to be funded from private sources, and the government has not said how it will ensure the necessary investment takes place, raising concerns that it will fall well short of the target figure.

It is against this backdrop that the report on long-term infrastructure planning from Olympic Delivery chairman Sir John Armitt has to be seen. Labour commissioned Sir John to examine why a country that could deliver a successful Olympic Games on time so often fails when it comes to other infrastructure projects. His conclusion is that the UK’s political system, with its confrontational nature and a five-year electoral cycle, make it very difficult to take the 25 to 30-year view that is needed to deliver a successful infrastructure strategy.

Sir John’s proposal to get around this problem is, on the face of it, a simple one: the creation of an independent National Infrastructure Council that would determine the country’s needs for “nationally significant” infrastructure, assess whether the Government’s plans were sufficient to meet these needs and monitor progress on implementation.

The idea has been warmly welcomed by business groups, including the CBI, as a way of breaking the political deadlock that so often delays major infrastructure projects in the UK, though groups like the Campaign for the Protection of Rural England are less enthusiastic.

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However, ironically, the biggest hurdle to the implementation of Sir John’s plan to take the politics out of long-term decisions about infrastructure spending will be the politicians themselves. Although Labour warmly welcomed his ideas – no surprise as they commissioned his report – the Government’s response, from the Treasury minister David Gauke, highlighted the difficulties of achieving political consensus. He argued that Labour had failed to tackle Britain’s infrastructure challenges and that the coalition was doing much better now – a view that might not attract widespread support given cuts in the government’s own investment spending, slow progress on HS2 and the expansion of airport capacity around London, and growing concerns about electricity supply.

The Government’s apparent reluctance to consider Sir John’s idea is disappointing. The independent National Infrastructure Commission he proposes would represent a significant improvement on current arrangements, enabling projects to be prioritised.

However, there is one further problem to be tackled: who will pay? If the UK is to have a world-class infrastructure, it has to be prepared to spend more money on it. Sir John’s recommendations, if implemented, could well lead to future governments devoting more public spending to infrastructure, but most of the resources needed to deliver the upgrades in, for example, electricity supply, will have to come from the private sector. The missing element remains a means to increase investment spending by the private sector.

The lesson from the Olympics is that three things are needed to deliver a successful major infrastructure project on time and within budget: political support from all sides, money and a deadline. Sadly, there are very few other projects that can muster all three. Indeed, there are divisions within the major political parties, not just between them, on HS2 and Heathrow.

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Sir John Armitt’s independent Council has the potential to create political support and deadlines. But it will only be successful if it can also mobilise the money to pay for the much-needed major upgrading of the UK’s infrastructure. That is the biggest challenge of all.

• Tony Dolphin is a senior economist  at the Institute for Public Policy Research.

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