Theresa May should take advantage of low interest rates to make substantial investments in new roads, rail, broadband and power projects, industry lobby groups have said.
The prime minister has already put infrastructure at the heart of her plans for rebuilding the economy in the wake of Britain’s exit from the EU, pledging Treasury backing for new projects and the launch of infrastructure bonds.
But industry bodies including the ICAEW, which represents chartered accountants, the CBI employers’ organisation and the Construction Products Association, want to see early action after the previous administration failed to deliver a significant shift in infrastructure investment.
According to the Office for Budget Responsibility, net public sector investment, which includes spending in addition to infrastructure investment, fell from £51.5bn in 2009 — or 3.4 per cent of gross domestic product — to £33.2bn, or 1.8 per cent of GDP in 2015-16. It is projected to fall further in the years until 2020, according to the government’s own forecasts.
“There has been lots of rhetoric around infrastructure and how important it is to economic growth but the reality is that actual investment is static or declining,” said the ICAEW in a letter to Philip Hammond, the new chancellor.
“We believe the government should borrow and invest for growth. It should also sort out the fiscal rules to prioritise infrastructure investments that pay for themselves, by generating income and/or higher tax revenues.”
There are worries that Brexit has stalled infrastructure projects already in the pipeline, with question marks hanging over the new Hinkley Point nuclear power station, the HS2 rail link and a third runway at Heathrow.
Paul Drechsler, president of the CBI, Britain’s biggest lobby group, called for “leadership” and “tough decisions”. “We do not need pronouncements about investments; we need decisions and investment,” he said.
“The best way to deal with uncertainty is to take decisive action. In every part of the country there will be investment opportunities and now is the time,” he added.
There are also concerns over the threat to European Investment Bank funding in the wake of Brexit. Britain is a 16 per cent shareholder in the EIB, which in the past decade has lent more than £34bn at cheap rates to a string of infrastructure projects in the UK.
These include £700m to the Thames Tideway tunnel, £1bn to Crossrail, £480m to the Northern Line extension and £200m to the expansion of teaching facilities at Oxford.
EIB officials say existing loans will not be affected by Brexit, and there will be no change until Article 50 is implemented in three to five years. But future EIB loans after Brexit are not guaranteed. “We cannot say what the situation will be in three or five years’ time,” said an EIB spokesman.
Utilities, universities and transport have all relied on significant EIB financing in the past. The ICAEW also criticised the former chancellor George Osborne’s reliance on private sector funding.
Despite attempts to raise private sector finance, the ICAEW said the government has found it much “harder than initially hoped” to raise funding “particularly at a time when public investment has been cut”.
A plan to raise £2bn a year from UK pension funds has disappointed, with most of the £1bn raised so far used on secondary private finance initiative projects. Another scheme to pool local authority pension funds into a sovereign wealth fund is still being worked on.
Private finance initiative investments have also “ceased to be attractive”, the ICAEW said.
Annual spending on private finance initiative contracts is now £10bn a year, made up of £4bn of capital payments and £6bn of service charges. But despite the launch of the a revamped version of PFI, known as PFI2, less than £1bn of new PFI projects, mostly schools, are in the pipeline.
Noble Francis, economics director at the CPA, welcomed Mrs May’s idea of financing infrastructure though government bonds.
“Given that interest rates are at historic lows and general investment risk is quite high, now would be an ideal time for government to take advantage of the private sector, which has considerable funds for investment but is currently cautious about where they will be investing due to concerns regarding UK and global economic growth prospects,” he said.
The World Economic Forum ranks Britain 24th in the world for the quality of its infrastructure, down from 19th in 2006.
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