Ministers never miss an opportunity to tell us how committed to economic growth they are — and our industry is delighted to hear such enthusiasm. Turning these words into practical measures, however, is proving a bit more of a challenge, particularly given the threadbare state of the government’s coffers, and the question of how we maintain our occasionally creaking infrastructure is fast becoming a case in point.
Investment in infrastructure is vital to any country. Evidence shows countries that prioritise infrastructure investment have higher growth rates, and that every £1 spent on capital projects returns up to 10 times that amount.
Yet the UK still invests too little. The Local Government Association has put the scale of what is required at £500bn by 2020 — clearly beyond what can be afforded by the public sector.
So where will the money come from? Governments’ natural and sensible response when there is a lack of public funds is to try to utilise private sector investment. Over the past 20 years, this has hinged on the Private Finance Initiative, and PFI will continue to provide a solution, provided we are happy to carry on paying contractors £333 to change a hospital lightbulb. To the government’s credit, it is not.
The development industry is also, and we believe quite rightly, being asked to play its part through the Community Infrastructure Levy, a per square foot charge designed to meet the infrastructure needs of new development. Our concern is that planning authorities do not kill the goose that lays the golden egg by setting the levy too high, or by diverting CIL monies to plug the hole in the funding of other public services for which it was never intended.
George Osborne’s hope, then, remains that pension funds, which hold £800bn in assets, will provide a solution. UK funds apparently plan to launch an infrastructure fund next year that will invest up to £4bn in government projects. The government has also launched an investment scheme to expand our transport network, for which it hopes to attract £20bn in pension fund money.
We hope that these plans some day come to fruition, but it remains frustrating that other policies that would have done much to boost infrastructure delivery have been left on the shelf.
For example, real estate investment trusts (REITs) could provide a better and simpler vehicle for infrastructure investment. At present, REITs are able to invest only in property and rental income, but further reform of the sector could open up the prospect of infrastructure REITs. If the government had started this work in 2010, we could now be seeing the first of these emerge, but they are still several years away.
Tax Increment Financing is another growth policy for which we had high hopes. Indeed, we were delighted when Nick Clegg announced in 2010 that TIF would soon be available to every local authority in the country. The reality, as set out in the Local Government Finance Bill, is £150m worth of schemes restricted to eight core cities and further TIF powers in 21 designated enterprise zones. And because TIF has been swallowed up by the government’s broader plans for local government finance reform, it will not be available until April 2013.
However, it is not all grim news at a local level. Interest in Local Asset Backed Vehicles (LABVs) is again picking up. These enable councils, in a joint venture with the private sector, to borrow against the value of their assets to fund regeneration. A re-examination of LABVs so that they can be employed more effectively in future would be helpful. And the emerging City Deals between central and local government also provide grounds for optimism – particularly a deal recently brokered in Manchester.
Ultimately, though, strong action at a national level is needed. If we are to get moving on the road to growth then the government needs to step on the gas, and stop watching as opportunities to boost infrastructure delivery fly past the window. It is too important to be parked in a lay-by for the next two years.
