How Osborne can avoid more failure on infrastructure
Three years have been wasted as infrastructure 'plans' have failed to progress to projects. In the Spending Review, the Chancellor has a chance to reverse course.
There will be a sense of déjà vu on Wednesday when George Osborne stands up to announce "a long-term infrastructure plan" to help the economy move from "rescue to recovery". Nearly three years have passed since the Chancellor published his first National Infrastructure Plan. This document has subsequently been updated twice with small amounts of additional cash, such as an extra £5bn of capital investment last year, promised along the way.
We’ve now had a chance to assess whether these plans have actually materialised and what they have meant for the UK economy. The truth is that they haven’t amounted to much. In the first three years of this government, public sector net investment fell from £38.5bn to £24.3bn as the cuts kicked in. Although Labour had also planned a rapid reduction in capital investment, the Tories cut an extra £4.3bn.
The infrastructure 'plan' – perhaps better termed a wish list – currently includes 550 projects worth £310bn but just seven have been listed as "completed" or "operational". The latest set of construction figures show that output in the industry fell 4.7 per cent in the last year while output in the sector is down 12.1 per cent since the Chancellor first announced "new investments in the economic infrastructure" at his first Spending Review. Jobs in the sector have fallen too with 84,000 lost since the last election.
Not only have the government’s plans failed to live up to their billing, they are also poorly targeted at the regions that need most help. Transport spending is skewed dramatically to London and the south east. New analysis by IPPR shows that each Londoner will benefit 500 times as much as each person in the north east; 150 times as much as each person in the south west; 20 times as much as in the north west; and 16 times as much as in Yorkshire and the Humber. The top five most expensive regional public sector projects are all allocated to the south, London and the midlands. None of the top five projects are allocated to the north.
While there is a pipeline for transport, there is little for housing which remains one of the country’s weakest areas. Figures released at the end of last year revealed that starts for affordable home ownership were down 80 per cent from 3,197 to 629 since 2010. Starts for social rent did even worse - down 95 per cent. In other sectors, like energy, the government have given mixed signals about their ambition which has prompted CBI boss, John Cridland, to say, "This kind of uncertainty does not breed confidence - in fact, it scares markets and drives up the cost of capital".
On The Andrew Marr Show on Sunday, Ed Balls challenged the Chancellor to announce an extra £10bn of capital spending. If the Chancellor follows his opposite number’s advice, there are three tests that he must follow. First, spending must be targeted at the areas that need it most. Housing, energy and transport are the most critical areas for new investment. There’s a strong case for devolving total housing spending – benefits and new build – to local authorities to help them shift the balance towards more construction. And in those areas that don’t typically require public funds, like privately financed energy projects, the government needs to do more to sing from the same hymn sheet and set the right tone for investment.
Second, the investment must do more to rebalance the economy from south to north. It’s absurd that Transport for London has a devolved budget while other regions of England do not. The government’s new infrastructure plan, which Danny Alexander is expected to unveil on Thursday, must include an analysis of how the proposals are underpinned by a commitment to regional rebalancing. Those extra resources which are available should be dedicated by Network Rail, the Environment Agency and other agencies to bring forward infrastructure projects outside of London.
Third, the government must ensure that all the new projects contribute to the decarbonisation of the economy, which is essential if Britain is to play its part in preventing catastrophic climate change. Road repairs should take priority over new roads as the Campaign for Better Transport has argued. Projects to improve the energy efficiency of homes and businesses, which create large numbers of jobs in the construction industry, must be prioritised. And ministers must start singing from the same hymn sheet on renewables.
A recovery was under way in 2010 before the government slammed on the brakes and removed the stimulus. Three years have been wasted as infrastructure 'plans' have failed to progress to projects. If the government is serious this time, it must ensure that it addresses Britain’s weak points, rebalances the economy, and help us go green.