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.

Photo: Getty Images
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How can Britain become a nation of homeowners?

David Cameron must unlock the spirit of his postwar predecessors to get the housing market back on track. 

In the 1955 election, Anthony Eden described turning Britain into a “property-owning democracy” as his – and by extension, the Conservative Party’s – overarching mission.

60 years later, what’s changed? Then, as now, an Old Etonian sits in Downing Street. Then, as now, Labour are badly riven between left and right, with their last stay in government widely believed – by their activists at least – to have been a disappointment. Then as now, few commentators seriously believe the Tories will be out of power any time soon.

But as for a property-owning democracy? That’s going less well.

When Eden won in 1955, around a third of people owned their own homes. By the time the Conservative government gave way to Harold Wilson in 1964, 42 per cent of households were owner-occupiers.

That kicked off a long period – from the mid-50s right until the fall of the Berlin Wall – in which home ownership increased, before staying roughly flat at 70 per cent of the population from 1991 to 2001.

But over the course of the next decade, for the first time in over a hundred years, the proportion of owner-occupiers went to into reverse. Just 64 percent of households were owner-occupier in 2011. No-one seriously believes that number will have gone anywhere other than down by the time of the next census in 2021. Most troublingly, in London – which, for the most part, gives us a fairly accurate idea of what the demographics of Britain as a whole will be in 30 years’ time – more than half of households are now renters.

What’s gone wrong?

In short, property prices have shot out of reach of increasing numbers of people. The British housing market increasingly gets a failing grade at “Social Contract 101”: could someone, without a backstop of parental or family capital, entering the workforce today, working full-time, seriously hope to retire in 50 years in their own home with their mortgage paid off?

It’s useful to compare and contrast the policy levers of those two Old Etonians, Eden and Cameron. Cameron, so far, has favoured demand-side solutions: Help to Buy and the new Help to Buy ISA.

To take the second, newer of those two policy innovations first: the Help to Buy ISA. Does it work?

Well, if you are a pre-existing saver – you can’t use the Help to Buy ISA for another tax year. And you have to stop putting money into any existing ISAs. So anyone putting a little aside at the moment – not going to feel the benefit of a Help to Buy ISA.

And anyone solely reliant on a Help to Buy ISA – the most you can benefit from, if you are single, it is an extra three grand from the government. This is not going to shift any houses any time soon.

What it is is a bung for the only working-age demographic to have done well out of the Coalition: dual-earner couples with no children earning above average income.

What about Help to Buy itself? At the margins, Help to Buy is helping some people achieve completions – while driving up the big disincentive to home ownership in the shape of prices – and creating sub-prime style risks for the taxpayer in future.

Eden, in contrast, preferred supply-side policies: his government, like every peacetime government from Baldwin until Thatcher’s it was a housebuilding government.

Why are house prices so high? Because there aren’t enough of them. The sector is over-regulated, underprovided, there isn’t enough housing either for social lets or for buyers. And until today’s Conservatives rediscover the spirit of Eden, that is unlikely to change.

I was at a Conservative party fringe (I was on the far left, both in terms of seating and politics).This is what I said, minus the ums, the ahs, and the moment my screensaver kicked in.

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.