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Seven Conservative MPs have teamed up with the Centre for Policy Studies and ConHome to propose ideas to turbo charge the UK economy. Yesterday, Chris Heaton-Harris advocated scrapping European laws that hinder job creation. Below, Claire Perry hails the government’s planning reforms as a way to help Britain’s crumbling infrastructure receive new investment.
Claire Perry is the Member of Parliament for Devizes.
Many countries all around the world are “going for growth” by rolling out substantial infrastructure spending and Britain should too – both to kick-start growth across all regions but also to address the legacy of a lost decade of investment.
From 2000 to 2007 the UK invested less in infrastructure than any other OECD country and was ranked 21st out of 25 OECD countries for infrastructure spending between 2004 to 2008. The World Economic Forum now ranks us 33rd out of 139 countries for infrastructure quality (despite the UK being the 6th largest economy in the world), while a recent CBI report highlighted a bleak picture of the state of our energy infrastructure, citing the potential loss of secure energy supply as the biggest concern among businesses in Britain. No wonder that 70% of senior business figures consider Britain’s infrastructure to be poor, while 85% of respondents said that this had affected their investment decisions.
We must build more. But there are three big constraints.
First, in the infamous words of Liam Byrne, Labour’s former Chief Secretary to the Treasury, “there is no money”. Despite this, the Coalition government has prioritised capital spending in the tough departmental settlements with £3 billion for a Green Investment bank, £10 billion for road networks, £16bn for CrossRail, £500 million for superfast broadband and a ring-fenced science budget of £4.6 billion. But the Treasury must urgently investigate which projects can be pulled forward and assess whether longer-term projects could begin work now. New financing pools should also be tapped to ease the strain on the Treasury. The Localism Bill has introduced new powers for local authorities to borrow against predicted growth in their locally-raised business rates and this will be used to fund key local infrastructure projects and work is on-going to leverage UK institutional money back in to the sector at a national level. However, with base rates at historic lows for the foreseeable future, retail investors are keen to find higher rates of return and the Government could mimic the National Infrastructure Bond model introduced in Australia, as a way of accessing cheaper financing for infrastructure and providing savers with guaranteed rates of return.
Second, the UK is one of the most expensive countries in which to build infrastructure with civil engineering works costing about 60% more than in Germany. This results from a toxic combination of planning sclerosis, poor contract structuring and material costs. In contrast, the Government’s proposals to simplify planning frameworks make contracting more transparent and encourage local “ownership” of development proposals. This must be implemented as soon as possible to start bringing the work costs down.
Third, the public sector has become over-reliant on the Private Finance Initiative model for the construction and operation of critical infrastructure developments and as a result has wasted billions of pounds of taxpayers’ money. PFI was introduced by the Conservatives in 1992 as a specialised way to fund long tail infrastructure investments but Gordon Brown treated PFI borrowing commitments as off-balance sheet and used the model extensively to reconcile the tension between his promises of investment and supposed fiscal prudence. As a result, a structure meant for specialized, long term financing for assets with simple ownership structures and long term predictable cash flows, was applied to all forms of capital spending no matter how inappropriate and more than 640 PFI contracts were signed between 1997 and 2009 with the taxpayer now committed to repaying almost £206 billion of gross PFI liabilities over the next 40 years.
With canny private sector companies lined up to take advantage of the Labour government’s largesse, typically pitting years of commercial nous against decentralised and often inexperienced public sector procurement teams, the result was a boom in returns for suppliers with construction companies admitting that they expect to make between three and ten times as much profit on PFI deals compared to their traditional construction portfolio. Tackling this legacy of poor contract management must be a Coalition priority and both legacy and new PFI contract management expertise should be centralised within Infrastructure UK while public sector financial managers must be given explicit incentives to re-negotiate existing contracts.
Fixing Britain’s crumbling infrastructure is going to be a financial challenge given the parlous state of the nation’s books. But, with new sources of capital, a simplified planning system and a relentless focus on getting the best value for money out of suppliers, the growth potential of these vital weeks can be realised.
Date Added: Sunday 20th November 2011