Lucy Parsons: Freeing up Britain's infrastructure markets in areas such as road, rail and renewable energy will make them more successful
Lucy Parsons is Senior Economics Researcher at Reform and co-author of Road To Recovery, which is published today.
At a Reform fringe event last week in Manchester, Jeremy Hunt advocated a more open approach in the UK’s telecommunications industry. He proposed an alternative to the Government’s £175 million tax on consumers to fund high speed broadband roll out – BT’s competitors could lay fibre in existing ducts, as is happening in France.
Reform’s new Road To Recovery report on infrastructure published today suggests that this is the kind of approach needed across the whole of the UK’s infrastructure. A recent competitiveness study ranked the UK 34th on the quality of its infrastructure, behind countries including Namibia and Spain. Strong infrastructure is a powerful driver of growth and critical for the next period of prosperity. But the UK is in the infrastructure slow lane.
Politicians have been blinded by the “green heat of technology”, moving towards a more interventionist approach in infrastructure markets. This comes at a high cost. In energy, £2.6 billion is being spent on Renewable Obligation Certificates and climate change levies which reflect a political desire to advance certain technologies and to create thousands of “green jobs”. Much like Harold Wilson’s “white heat of technology revolution” in the sixties, this green corporatist approach will fail to address the real problems: over-zealous bureaucracy and planning sclerosis.
Departments have been clawing back their powers in infrastructure markets. Civil servants in the transport department are now ordering trains and specifying timetables. The new energy department is using public money to finance four demonstrations of carbon capture and storage. Reform’s research finds that the UK’s most successful infrastructure markets have been the most free – energy, telecoms and water. While the most heavily regulated – road, rail and renewable energy – have got stuck in bureaucratic treacle.
With a £175 billion budget deficit, more private sector investment in infrastructure is urgently needed. Levies and taxes should be phased out to make way for a new culture of entrepreneurship in infrastructure. Companies should be allowed to build and use infrastructure more freely - for example, bidding for long term franchises (40 or 50 years, rather than 7 or 10) on existing rail services and roads needing upgrade.
Regulated charging and metering on all infrastructure should be allowed. Water metering would better manage demand of a scarce resource. Road user charges can reduce congestion and provide a return to private franchisers. Market mechanisms should be used more - for example, local people can be given an economic stake in major developments, such as a third runway at Heathrow, through cheaper flights, or an equity share in a scheme.
Jeremy Hunt showed leadership with his proposals in Manchester. Theresa Villiers and Greg Clark gave more interventionist speeches, committing to high speed rail, ruling out national road user charges and urging greater government action for creating “green jobs”.
Reform’s findings suggest that the Conservatives should think again on these policies. A radical approach of opening up the UK’s infrastructure networks and allowing the market to deliver is one an incoming Conservative government should support. This is what is needed to improve the UK’s creaking infrastructure and put Britain on the road to recovery.