By Henry Teitelbaum
It would be unfair to place all of the blame for the collapsed state of investment in the UK’s economic infrastructure with the Tory-Lib-Dem coalition.
But then, we are now five years into the worst financial crisis in 80 years, three years into George Osborne’s public sector austerity program, and the UK is now mired in an entirely predictable second recession. So one could be forgiven for posing a few awkward questions of a Chancellor who appears far too hesitant to put a growth and investment plan in place and is instead pursuing an agenda that will surely make matters worse.
Here are a few of mine: Why has it taken so long to establish the government guarantees that were going to trigger private sector investment to the tune of £170 billion by 2015? How soon will it be before these guarantees actually unlock the additional investment of £20 billion from pension funds that is sought to support the National Infrastructure Plan? And where are the promised funding models that will reduce the country’s reliance on banks for long-term infrastructure investment while delivering better value for money?
The crisis on the ground demands a response after the government reported a 20%-plus year-on-year decline in infrastructure spending in the first half. This came alongside a revised 0.5% contraction in second quarter GDP. We’ve now seen nine consecutive months of economic contraction.
Admittedly, the future for infrastructure investment was bleak even before the government decided to make deficit cutting its priority. The pipeline of large new projects had been running dry well before the current coalition came into power. Now the Olympics are over, and the banks most associated with funding PFI and other infrastructure projects are themselves on taxpayer funded life-support. Meanwhile, the mono-line insurance industry that previously provided the credit enhancement needed to make large infrastructure projects investable is also out of the game.
But it has also been clear for some time that the current City-driven idea of relying on private sector enterprise to substitute for public investment without the government playing an major enabling role was not going to work.