Investing in infrastructure is key for UK growth
IT’S the lament of every politician, and a brake on the economy: Britain doesn’t have the world-leading infrastructure we need to thrive. Our trains are too slow, our roads too clogged, our broadband highway isn’t very super, our airports bursting, our renewable invisible. We have rested on our Victorian laurels, while other nations have built their way into the lead.
We must promote infrastructure over consumption. It leads to jobs in the short term building the schemes, but more importantly it leads to higher levels of long term growth as the economy becomes more productive. The CBI is right to complain that the UK’s poor infrastructure is holding UK plc back.
The chancellor clearly understands the case for infrastructure, and it is likely to feature highly in his second growth review later this year. But there is the little matter of paying for it. Estimates of the bill to get the UK up to speed range from £200bn to £500bn; either way, it’s woefully unaffordable.
Or at least it is to the government. We actually have plenty of money in the UK looking for investment – the £1.6 trillion saved up in our pensions and insurance industry. International financiers are often aghast at the UK’s structural mismatch – that we have both a great need for long term investment, and a great supply of long term investors, but we haven’t managed to pair them off. As a country, we focused on PFI, which is expensive for the taxpayer, and too complex for pension funds. But the financial crisis has created an opportunity – sovereign wealth funds and pension funds that got burnt by casino capitalism are keen for more, er, concrete investments. As one investor who lost billions told me: “I’d like to put my money somewhere in the real world – preferably something I can see that can’t evaporate overnight.” Infrastructure such as an airport or railway is perfect – it provides a secure, long term investment that such funds need.
However, pension funds need security, and are in no position to take on the construction risk of major infrastructure projects – it is almost inevitable that will have to stay with the government. But once a project is built, it could be sold to pension funds, so the government recoups the investment to spend on the next project. To do that, the government needs to expand the work it has started with the Green Investment Bank and create a class of “infrastructure bonds”, compatible with the requirements of longer term investors. Such infrastructure bonds could help the supply of long term funds in Britain meet our need for infrastructure – and help put UK plc back in the fast lane.
Anthony Browne is a board member of theCityUK