Road to recovery


The UK is in the infrastructure slow lane, rated 34th behind Namibia and Spain, despite being the 6th richest country in the world. This poor infrastructure is important as transport, utilities and communications are powerful drivers of growth and represent the best value for government spending. The OECD’s most recent survey of the UK economy found that inadequate investment is a key reason for low productivity – Britain spends less on this area as a proportion of GDP than any other OECD country. Yet the Government plans to halve public capital spending from 2010-11 to 2013-14. The Opposition proposals to protect health spending would add further pressure to capital spending.

The infrastructure departments are mired in confusing targets and politicised priorities. The Department for Transport (DfT) spends around £2 billion per year to promote “equality” and “fairness”; the Department for Energy and Climate Change (DECC) picks winners in energy production. The cross-party interest in a “green technology revolution” is a new corporatist agenda with as little hope as the “white heat” of the 1960s.

As a result, some projects have gone ahead that, on economic grounds, should not have done so (the Sheffield Supertram). Some projects have been blocked because they did not involve public finance (the Central Railway Group freight railway from Liverpool to the Channel). Some essential developments have been blocked by lack of political will (water metering) and political debate is dominated by white elephant projects without economic merit, such as high speed rail and offshore wind turbines.

A decade of fiscal tightness is the best possible backdrop to the new infrastructure policies recommended below. The impossibility of big public spending promises will shift attention to consumer charging and private sector investment, unlocking financing for many projects. Governments will no longer be able to fund infrastructure in the vain hope of stimulating general economic growth or securing some short-term political advantage. Instead, both public and private sectors will focus on augmenting existing infrastructure to get more for less.

A look at the recent history of UK projects reveals a clear road ahead:

A presumption for private rather than public finance, through a greater use of public private partnerships.
Case studies: Crossrail; Sizewell C nuclear power plant.

Charges not taxes. Regulated charges and metering on all infrastructure, from roads to water, and the phasing out of levies and taxes such as Renewable Obligation Certificates and the proposed broadband tax.
Case study: London congestion charging.

A government role focused on real economic benefit rather than social or industrial policy. DfT can save £1 billion in subsidised bus and train fares. DECC can save £1.3 billion in industrial subsidy and administration.
Case studies: A1 separated junction scheme from Peterborough to Blyth; the Docklands Light Railway.

A withdrawal of government from rail, road and renewable energy operations.
Case study: the M6 Toll Road.

Transparency in Whitehall decision-making. Publication of economic analyses of projects before and after completion.

Democratic accountability and market mechanisms for the Infrastructure Planning Commission.

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