Rebuilding UK infrastructure as an engine for growth is a task for private companies
IN TUESDAY’S Autumn Statement, the chancellor committed an additional £25bn in public spending on infrastructure over the next three years. The importance of this promise isn’t in the Keynesian speed of the payback in employment (in fact modern road and rail infrastructure has long lead-in times), but in the significant benefits of great infrastructure in unlocking our innovation economy. The truth is that long-term infrastructure investment has been one of the great failures of the UK post-war years. Now we need to be bold in using this opportunity to unlock new sources of finance and new engines of growth.
The chancellor called the investment “a huge commitment to overhauling the physical transportation infrastructure of our nation”, and he’s right. The new railway link in the South East between Oxford, Milton Keynes and Bedford is set to create an estimated 12,000 new jobs, providing massive growth potential for the region. The key detail perhaps overlooked, however, was that the additional £20bn of that £25bn investment will be private and from two groups of British pension funds.
We need to be bold in designing infrastructure models that are companies, not public-private partnership quangos or PFIs. For too long large parts of the country have relied on central government to fund or co-fund their infrastructure in a form of dependency every bit as corrosive as welfare. Why don’t we use this new focus on infrastructure as a springboard to create new models of investment? Across the board we need to be looking at how we can make the public sector more entrepreneurial and sweating UK PLC assets. Nowhere is this more relevant than in rail. The present fragmentation of network and operating companies is preventing investment and innovation.
I believe we should be looking at new models such as creating major regional rail companies with long-term franchises and the ownership of the land corridor and duty and powers to develop them, to raise the revenue to fund them. We need truly radical ideas to get us out of our funding rut.
An option could be to create a building society and give it the power to raise an Infrastructure Investment Bond to raise and invest the private sector billions we need for new high quality housing spread around a network of fast rail, road and broadband links. Here’s how it could work:
l Reintegrate the rail track and train operating businesses, grant the building society a 20-year franchise to run an integrated rail network, conditional upon commitment to a long-term housing and infrastructure investment programme along the rail network.
l Grant the new vehicle special development rights along the rail corridor, with generous compulsory purchase and compensation as they have in France.
l Empower the vehicle to issue a 5 per cent coupon to investors, perhaps government-backed.
l Encourage a wide range of individual, corporate and pension fund investors.
l Allow local authorities in the region to be shareholders with a stake in the wider regional infrastructure vision.
l Structure the vehicle so that it is led by a regional figurehead, is accountable to its regional shareholders and local councils.
We need to rebalance the economy, unlock the potential of our regions, and stop them from being let down by woeful transport and communications infrastructure. Look at Japan, where investment in high-speed railways, highways, subways, airports, ports and dams, when combined with a collaborative government and business role in trade and industry, resulted in a golden age where nominal GDP soared from just over $91bn in 1965 to $1.065 trillion in 1980.
The UK has the talent and technology to lead the way in exciting new export markets, and as the chancellor confirmed by his funding commitment, we need an infrastructure engine to get us moving.
The key for private investors will be to create vehicles capable of putting their investment to work.
We need to free the public sector and local government and allow them, through frameworks such as rail bonds, to create major sustainable businesses of FTSE 100 standing that are capable of raising finance in the capital markets to invest in UK infrastructure and growth.
George Freeman was elected Tory member of parliament for Mid-Norfolk after a 15 year career in technology venture capital. He is the PPS to the minister of state for climate change and was appointed as life sciences adviser to the government in the summer of 2011.