Sunday, January 14, 2018
Britain does infrastructure well - let's build on that
Posted by David Smith at 09:00 AM
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My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

Recently I was at a meeting in which someone was extolling the virtues of French infrastructure, its railways, its (toll) motorways and an energy sector which is the world’s largest net exporter of electricity in the world, including to Britain.

Then somebody else asked whether they had ever travelled by Eurostar from St Pancras, the magnificently restored and modernised London terminus – with its pianos, fashionable shops and statue of John Betjeman (who helped save St Pancras from demolition) - to Gare du Nord, its Paris equivalent. It is a journey from high-quality infrastructure to a dirty, run-down relic of a bygone age. And if you do not believe me look at the Trip Advisor reviews. As for motorways, the M6 toll in the Midlands has never been a commercial success but compares well with anything in France.

This month has seen the opening of the new London Bridge station, yards from this newspaper’s offices. The station, London’s oldest, has been extensively modelled and modernised, looks magnificent, and will look even better when the work is completed, with the reconstruction for the most part done while the trains were still running.

There are plenty of other examples of Britain doing infrastructure very well. Crossrail, which will begin offering fast services across London at the end of this year, looks to be an extraordinary engineering achievement in a city where underground space was severely limited. With a fair wind will be followed by Crossrail 2. And, while there has been an infrastructure bias towards London, needed for a modern capital city which at one time had a badly creaking infrastructure, there are plenty of other good examples around the country.

Look, for example, at Birmingham New Street station, now a pleasure to use and a great asset to Britain’s second city. Both Severn Bridges, linking England and Wales, were great engineering achievements at the time of their construction, and this year will go toll-free. Most people will be able to cite good examples of new infrastructure in their region. Travelling around, I certainly can.

Many of Britain’s universities have used their borrowing powers and the income from foreign students to transform and expand their campuses. The problems in the National Health Service do not, in the main, arise from a lack of physical capacity, expanded and modernised in the 2000s, but the squeeze on day-to-day spending.

Praising Britain’s infrastructure is not a normal position for anybody, including me, to take. It is very easy to see only the negatives and that for too long a period too little was invested. George Osborne’s hope, that investment by pension funds and insurance companies in infrastructure would replace direct investment by government came to much less than hoped. The institutions were concerned about taking on the risk of large public projects and, without them doing so, there was less incentive for government to involve them. Regulations also proved to be a significant constraint on institutional; involvement in financing new infrastructure.

The long-running debate on new runway capacity in the south-east has also come to be regarded as symptomatic of Britain’s inability to get infrastructure done. Having been a support of a third runway at Heathrow but having very often experienced the existing congestion around Heathrow’s corner of the M25, I am no longer sure it is the best option. But with the decision seemingly having been kicked once more into the long grass, as a result of Theresa May’s post-election weakness, we need something soon to put us out of our misery.

Expensive white elephants like Hinkley Point, the nuclear power station under construction in Somerset, do not do much for the infrastructure cause. Neither did the resignation at the end of last year of Lord Adonis as chairman of the National Infrastructure Commission, because of disagreements with the prime minister over Brexit, and in protest at the transport secretary’s bailout of Stagecoach and Virgin on the East Coast rail franchise. Adonis was a strong champion of infrastructure.

It is, as I say, easy to be negative. Carillion, one of the biggest recipients of the government contracts, in is difficulty and has seen its share price plunge as it seeks new financing arrangements. Its plight is indeed a concern.

But there are also reasons for optimism. In Britain we have broken away from the old norm, in which infrastructure projects were always delivered late and after huge cost overruns.

It would have been easy for the government to have pulled the plug on high-profile infrastructure projects like HS2, the new high-speed rail link linking London, Birmingham, the East Midlands, Leeds and Manchester, but it has not done so. Indeed, HS3, otherwise known as Northern Powerhouse Rail, will follow.

Under Philip Hammond, the Treasury has also quietly pushed infrastructure towards the top of its list of priorities. The November budget confirmed, as it put it, a commitment to delivering “high value infrastructure projects … underpinned by a major increase in public investment.” It highlighted the Mersey Gateway Bridge and the Northern Hub (rail) in Manchester, noting a planned “50% increase in transport investment, funding the biggest road investment programme in a generation, and the biggest rail transformation in modern times”.

The Treasury has put its money where its mouth is. Planned public investment will mean, according to the Institute for Fiscal Studies, a level of infrastructure spending relative to gross domestic product (GDP) on a sustained basis which will be the highest for 40 years. There was a short-term infrastructure boost at the time of the financial crisis but it did not last.

Is it enough? Notwithstanding my comparisons with France at the start of the article, the evidence is that Britain has work to do to match levels of infrastructure spending in other countries. Figures from our own Office for National Statistics show that government investment spending averaged 2.4% of GDP over the 1997-2017 period, two-thirds of the G7 average of 3.5%.

Japan spent 6% of GDP, America and France 3.9%, Canada 3.6% and Italy 2.9%. Only Germany, 2.2% of GDP, had a lower level of public investment than Britain. Longer-term comparisons with past levels of public investment are tricky; when Britain had more nationalised industries, capital spending by those industries counted as public investment. That may also explain some of the current differences in relation to other countries.

The one thing that can be said is that infrastructure spending in Britain is heading in the right direction. That should mean, not just better transport but also more and better public housing. Better still if increased levels of public investment were to be accompanied by more breakthroughs in unlocking institutional money to be invested in infrastructure. Some money is flowing, but not enough. Britain does infrastructure well. And you can never have enough of it.