After three years of vigorous disagreement the political and economic commentariat seem to have found common ground. Infrastructure. Left and right now agree that it’s vital for the UK’s economic renewal, requires much greater infrastructure investment, and the Chancellor looks set to move it closer to the centre stage in the Budget.
Less has been said on what kind of infrastructure we need, and what its impact will be on the economy. The Treasury claim to like anything that is "shovel ready". This presents an image of kindly but determined, fluorescent jacketed men, forming a Roman column, as they wait for the signal to strike with their pick axes. In reality Whitehall struggles to find these projects because the most valuable infrastructure such as broadband upgrades or new energy schemes take years to prepare for investment, don’t require direct taxpayer money, and are largely driven by the confidence of the private sector.
The only infrastructure where government still has a direct lever to pull are those projects which receive direct taxpayer investment, such as road and rail schemes, which is why the Treasury is desperately nudging the transport department for schemes they can fund, even as the wallet is more firmly shut to other departments. Road proposals that the DfT have long since relegated to the recycling bin as bad investments have been fished out by Treasury ministers desperate to be seen to do something. According to some in DfT, these zombie roads could risk undermining the strategic role of the £37.5bn already announced to upgrade our rail network. We should remember that not all infrastructure compliments each other. Also, while road schemes are good at generating a short burst of employment as they are built, there is little longer last impact and they have a longer downside by making the economy more dependent on imported and volatile oil prices.
In contrast the majority of infrastructure projects set to be built without government money will increase the resilience of the UK economy to fuel price increases, and should increase the UK’s productivity. Work we have done at Green Alliance on the Treasury’s infrastructure pipeline shows that over two thirds of projects planned up to 2020 are low carbon, and 94 per cent of them require no direct government investment. A "dash for gas" won’t be much help – it makes up 3 per cent of possible investment before the next election. Offshore wind makes up two thirds. This is the difference between good infrastructure that strengthens the UK economy, and bad which does not rebalance our economy and is too small to have a macro-economic impact.
The problem for all infrastructure advocates, amongst which I’m one, is that none of these major projects will have a significant impact by the time of the next election. Their real value must be measured over decades.
The best things to encourage in the short-term are measures that encourage individuals and businesses to invest and benefit in smaller chunks, like energy efficiency. The last government had some success in 2008 with its boiler scrappage scheme, which stimulated millions of pounds of home owner investment at very low public cost, but there are still several million more of the least efficient G rated boilers in UK homes, and a similar number without sufficient insulation. Measures to make better buildings and upgrade appliances may not fit the conventional description of infrastructure but they can have a much bigger economic benefit than pouring tarmac.
This is where Heseltine’s review had some interesting thoughts, at least on how infrastructure is decided. His focus on local powers and responsibilities seem likely to be agreed by the Chancellor. Granting currently quite weak Local Enterprise Partnerships the “authority or resource” they need could prove interesting for ensuring we deliver a more effective approach to deciding our infrastructure.
Agreeing to infrastructure investment is the beginning, not the end, of the discussion. Because not all infrastructure is created equal, you can expect the economic consensus about its value to end as soon as the picks hit the ground. But if we are serious about its role in economic renewal we should be having that debate now. And we should be choosing the low carbon energy and communications infrastructure that makes our economy ready for today’s challenges, not those of the last century.