UK faces ‘mammoth’ infrastructure investment challenge
The UK faces a £615bn funding challenge to meet its energy, transport and housing infrastructure needs by 2030, according to new research commissioned by the Association of British Insurers.
The research shows that the UK will need over £1.3 trillion in funding by 2030 to deliver on its infrastructure ambitions but is currently only forecast to deliver £700bn – a little over half of what is needed.
This leaves the nation £615bn short if it plans to meet its goals and, at the current rate of investment, this gap is set to widen to £1.5 trillion by 2050.
Clare Bousfield, deputy president of the ABI, said Monday’s research shows there is a “mammoth” infrastructure investment challenge facing the UK, adding that the ongoing Solvency UK reforms will be “crucial” in helping to narrow this investment gap.
Will reforms help close the gap?
Solvency UK is a regulatory regime for insurers and reinsurers in the UK. It is expected to be fully in force by the end of next year and sees the UK moving away from EU regulatory standards post-Brexit.
The reforms are expected to broaden the scope of assets in which insurers can invest, freeing up money that would have previously been tied up in less productive assets.
Charlotte Clark, director of Regulation at the ABI, said the reforms will enable the sector to play an “even bigger role” as an institutional investor.
She added that the Investment Delivery Forum – a group of major insurance and long-term saving firms – has already committed to using the reforms to pump £100bn into “green and good” infrastructure projects.
The IDF was launched in July by the ABI to track and promote infrastructure investment in the UK following the reforms to the EU’s Solvency II rules.
The forum has three sub-committees focused on infrastructure investment in energy generation, energy networks and housing. It is chaired by Baroness Nicky Morgan.
Private investment will be “crucial”
The ABI’s findings echo those made in a report penned by ex-Blackrock economist Kevin Ferriter, which suggests private investment will be “crucial” if the £600 billion shortfall is to be met.
The Labour Together report called Building a New Britain argues Britain’s poor productivity – the worst of any developed country – is down to a lack of investment in infrastructure, energy and housing. This is leading to the average worker being £4,750 out of pocket each year.
The paper acknowledged that on top of “fiscally responsible” public spending, a future Labour government would need to leverage private investment to boost productivity. It is a further indication of the party’s changed relationship with business.
Referring to the state needing to be used as a “catalytic investor”, the study called on Labour to redouble its approach to investment, saying government backing will incentivise the private sector investors to follow.
This money should be spent on reducing regional inequality, a key feature of the UK’s low productivity, the paper contends. There has been especially little spending on transport infrastructure in the North.
Ferriter, Labour Together’s Chief Economist, said that as a country “we have been locked into a low investment, low productivity, low wage equilibrium”.
He added: “Getting us out of that will require using all the tools in the armoury: catalysing public investment, unblocking planning reform and real partnership with workers and business.”
Before joining Labour Together earlier this year, Ferriter spent three years as a macroeconomist at Blackrock. There he led on research for a department that had over $1 trillion worth of assets under management.
The report also found the UK economy to be declining in both relative and absolute terms for the first time in its history and that investment in infrastructure will need to be coupled with changes to regulation that “speed-up” the benefits of energy and housing investment.