Wanted: a Secretary of State for Infrastructure

After some neglect, the UK is ramping up investment in its economic infrastructure. A Minister for Infrastructure should now lead the charge, writes Alexander Jan.

George Osborne's 2013 budget, which aims to trim department spending to support infrastructure projects, is encouraging – to a degree. We're surrounded by economic stagnation, and there's general consensus that Britain will not be able to compete internationally without major investment in its economic infrastructure.

The Government's own National Infrastructure Plan notes that:

…many power stations are ageing, road congestion is a growing concern, train punctuality in the UK is worse than in other parts of Europe and in the longer term there will be an airport capacity challenge in the South East of England.

Few readers could disagree with this. And without action it is going to get worse. Energy analysts darkly talk of power outages if the country's generating capacity is not renewed, official forecasts point to big increases in congestion on the road network. As the UK's population grows and economic confidence (and growth) finally return, airports risk once again reaching bursting point. Even Crossrail, the new east to west rail link being carved out under London, will need supplementing with a second scheme and possibly others.

The £3bn which George Osborne recently announced for housing and other infrastructure projects is only the tip of a £400bn iceberg. Power, telecommunications, transport, waste and water are queuing up for this investment. But in an age of austerity and with a long term desire to reduce the size of the state's take of national income, the Government hopes that pension funds, banks and other private investors will stump up more than two thirds of requirements. That would be a remarkable triumph of hope over experience.

The reality is that successive governments have shifted spending away from capital formation. At the same time, private investment in fixed assets has decreased. Taken together, UK investment in property, plant and equipment has lagged behind our competitors since the late 1990s. Amongst them, infrastructure investment averaged 3.5 per cent of GDP over the last decade. The Organisation for Economic Co-operation and Development (OECD) notes that British infrastructure investment was as low as 2.5 per cent of GDP in the same period. More worryingly, analysis by Arup (using data from the Institute for Fiscal Studies) shows that UK public investment has actually fallen in real terms from around £52bn in 2009/10 to an expected £24.6bn in 2012/13. Further declines are forecast to the end of this parliament. This fiscal reality sits uncomfortably with Treasury aspirations.

Few commentators or ministers question the need for increased infrastructure investment. Billions of pounds are looking for infrastructure opportunities, we are told. But somehow they are failing to fully connect. Britain is a preferred destination for international capital. It has tried and tested investment models (think water), a stable legal system, low political risk and lots of infrastructure expertise. All this raises the question as to whether the UK's machinery of government is right. The National Infrastructure Plan itself can provide only so many clues about the Government's overarching investment strategy. Some would argue it reflects the UK's department-centric approach to major project planning. Changing that requires more than a plan.

Government is moving in the direction of improving leadership around infrastructure. Infrastructure UK, a Treasury body, provides some long-term focus on the UK's infrastructure priorities. The Chancellor has announced a set of initiatives to enhance Whitehall's capacity to support private investment across the infrastructure sphere. Guarantees and co-lending and equity investment by the state, are intended to accelerate projects that developers are struggling to finance or where commercial lending appetite falls short. To orchestrate funding and development, the Chancellor has focused the work of the incoming Commercial Secretary to the Treasury on infrastructure development. The Treasury may now appear more "joined up". But are the departments of state?

A Department for Infrastructure should be created. This super ministry would provide more than leadership for spending departments. It could consolidate infrastructure resources and talent spread thinly through the rest of Whitehall. It would give the Prime Minister a mechanism for knocking heads together and ensuring delivery. It could oversee the development of effective frameworks including reforms already in train, to bring in private sector investment to boost growth and competiveness across the countries and city regions of the UK. It could be the agent for delivering a big part of Lord Heseltine's forty billion pound "challenge" fund. It could provide a strong delivery partner for the all-powerful Treasury. With firm delivery objectives that would not be lost in departments' business plans, its minister would be high profile. It would be a potent department of state that senior politicians and civil servants would fight over. There would be a real sense of urgency to get things done and join them up with local government.

This new department of state could be modelled on those found in other Commonwealth countries. Australia integrates infrastructure leadership with its transport ministry. Their Department of Infrastructure and Transport adopts a national strategic function, advising regional governments. It coordinates construction timing and investment decisions under a cabinet-level minister. In Canada which has an enviable track record on securing private sector investment, there is a Minister of Transport, Infrastructure and Communities.

As leading UK economist Dieter Helm has pointed out, Britain is in knots over infrastructure. A Department for Infrastructure might just help slice through them.

The Crossrail shaft in Farringdon. Photograph: Getty Images

Alexander Jan is a consultant at Arup.

Getty
Show Hide image

Debunking Boris Johnson's claim that energy bills will be lower if we leave the EU

Why the Brexiteers' energy policy is less power to the people and more electric shock.

Boris Johnson and Michael Gove have promised that they will end VAT on domestic energy bills if the country votes to leave in the EU referendum. This would save Britain £2bn, or "over £60" per household, they claimed in The Sun this morning.

They are right that this is not something that could be done without leaving the Union. But is such a promise responsible? Might Brexit in fact cost us much more in increased energy bills than an end to VAT could ever hope to save? Quite probably.

Let’s do the maths...

In 2014, the latest year for which figures are available, the UK imported 46 per cent of our total energy supply. Over 20 other countries helped us keep our lights on, from Russian coal to Norwegian gas. And according to Energy Secretary Amber Rudd, this trend is only set to continue (regardless of the potential for domestic fracking), thanks to our declining reserves of North Sea gas and oil.


Click to enlarge.

The reliance on imports makes the UK highly vulnerable to fluctuations in the value of the pound: the lower its value, the more we have to pay for anything we import. This is a situation that could spell disaster in the case of a Brexit, with the Treasury estimating that a vote to leave could cause the pound to fall by 12 per cent.

So what does this mean for our energy bills? According to December’s figures from the Office of National Statistics, the average UK household spends £25.80 a week on gas, electricity and other fuels, which adds up to £35.7bn a year across the UK. And if roughly 45 per cent (£16.4bn) of that amount is based on imports, then a devaluation of the pound could cause their cost to rise 12 per cent – to £18.4bn.

This would represent a 5.6 per cent increase in our total spending on domestic energy, bringing the annual cost up to £37.7bn, and resulting in a £75 a year rise per average household. That’s £11 more than the Brexiteers have promised removing VAT would reduce bills by. 

This is a rough estimate – and adjustments would have to be made to account for the varying exchange rates of the countries we trade with, as well as the proportion of the energy imports that are allocated to domestic use – but it makes a start at holding Johnson and Gove’s latest figures to account.

Here are five other ways in which leaving the EU could risk soaring energy prices:

We would have less control over EU energy policy

A new report from Chatham House argues that the deeply integrated nature of the UK’s energy system means that we couldn’t simply switch-off the  relationship with the EU. “It would be neither possible nor desirable to ‘unplug’ the UK from Europe’s energy networks,” they argue. “A degree of continued adherence to EU market, environmental and governance rules would be inevitable.”

Exclusion from Europe’s Internal Energy Market could have a long-term negative impact

Secretary of State for Energy and Climate Change Amber Rudd said that a Brexit was likely to produce an “electric shock” for UK energy customers – with costs spiralling upwards “by at least half a billion pounds a year”. This claim was based on Vivid Economic’s report for the National Grid, which warned that if Britain was excluded from the IEM, the potential impact “could be up to £500m per year by the early 2020s”.

Brexit could make our energy supply less secure

Rudd has also stressed  the risks to energy security that a vote to Leave could entail. In a speech made last Thursday, she pointed her finger particularly in the direction of Vladamir Putin and his ability to bloc gas supplies to the UK: “As a bloc of 500 million people we have the power to force Putin’s hand. We can coordinate our response to a crisis.”

It could also choke investment into British energy infrastructure

£45bn was invested in Britain’s energy system from elsewhere in the EU in 2014. But the German industrial conglomerate Siemens, who makes hundreds of the turbines used the UK’s offshore windfarms, has warned that Brexit “could make the UK a less attractive place to do business”.

Petrol costs would also rise

The AA has warned that leaving the EU could cause petrol prices to rise by as much 19p a litre. That’s an extra £10 every time you fill up the family car. More cautious estimates, such as that from the RAC, still see pump prices rising by £2 per tank.

The EU is an invaluable ally in the fight against Climate Change

At a speech at a solar farm in Lincolnshire last Friday, Jeremy Corbyn argued that the need for co-orinated energy policy is now greater than ever “Climate change is one of the greatest fights of our generation and, at a time when the Government has scrapped funding for green projects, it is vital that we remain in the EU so we can keep accessing valuable funding streams to protect our environment.”

Corbyn’s statement builds upon those made by Green Party MEP, Keith Taylor, whose consultations with research groups have stressed the importance of maintaining the EU’s energy efficiency directive: “Outside the EU, the government’s zeal for deregulation will put a kibosh on the progress made on energy efficiency in Britain.”

India Bourke is the New Statesman's editorial assistant.