George Freeman MP: We need new models of funding for infrastructure to unlock new sources of finance and for growth
George Freeman was elected MP for Mid Norfolk in 2010 after a fifteen year career in start-up venture capital in the technology sector. He worked closely with George Osborne's office in Opposition on the Richards and Dyson Reports reviewing innovation and business support policies, and has contributed to the Growth Review.
History shows that leaders often turn to national infrastructure projects at times of historic economic crisis. It normally pays off. Roosevelt’s dams, Churchill’s radar and Kennedy’s space programme all laid the foundations for long term economic advantage. (Kennedy’s space program is still paying dividends as the platform for the US’s global leadership in IT.)
The Chancellor’s announcements on infrastructure in today’s Autumn Statement are important and timely. We need to get the real economy moving again. The collapse of the New Labour credit boom has made it all too obvious that we need a new model of growth. The crash has called time on New Labour’s economic model of relying on debt-fuelled booms in the City, housing market and public sector. The Government is right to insist on a more sustainable model of long term recovery. We need a more regionally balanced, sustainable and globally competitive enterprise economy to generate the long term savings and investment we need. New investment in infrastructure is a key part of turning these phrases into reality.
Why? Some commentators talk of ‘shovel ready’ Rooseveltian infrastructure ‘schemes’ as if this is about buying growth by putting the unemployed to work in donkey jackets on road building. They completely miss the point. The significance of this investment isn’t in the speed of the payback (in fact modern road and rail infrastructure has quite long lead in times) but in the importance of poor infrastructure on holding back our real economy, the potential of new models of infrastructure funding to unlock new sources of finance and new engines of growth, and the opportunity to energise parts of the sclerotic public sector.
The truth is that long term infrastructure investment has been one of the great failures of the post war years. For too long major infrastructure funding in the UK has been the preserve of Government. The privatisations of the 1980’s did much to open up the monopolies and unlocked massive investment in some areas, but road, rail and energy infrastructure has remained woefully underinvested in as the last bastion of ‘the man from Whitehall knowing best’. We shouldn’t be surprised that our infrastructure is woefully under-invested in. That’s what happens to nationalised industries. For too long large parts of the country have relied on Central Government to fund their infrastructure in a form of ‘infrastructure dependency’ every bit as corrosive as in welfare.
We should be inspired by our Victorian forebears. They blazed a trail in the second half of the 19th and early twentieth century with a massive wave of infrastructure investment which still shapes much of the modern landscape - the towns and cities, roads and railways, utilities, Universities - we know today. So lets unleash a revolution in the way we finance infrastructure and apply some of the core principles of the Victorian builders and look at how we might unlock a modern infrastructure investment wave based on the enlightened self interest of local business and communities.
Nowhere is the potential of this more obvious than in my own region of East Anglia. At either end of the A11 we have world class centres of innovation with the potential to unlock huge new global markets for UK innovation: the Cambridge cluster and in Norwich the world renowned John Innes Centre and Institute of Food Research at the heart of a Norwich Research Park increasingly recognised as a global hub in the new ‘cleantech’, biomedical and plant sciences.
But one major obstacle is holding us back: underinvestment in infrastructure. We will never unlock the potential of our region unless we invest in the necessary rail, road, broadband and sustainable housing development to get our region moving and show how 'sustainable growth' can work. That means not just dualling the A11 but upgrading the Cambridge:Norwich railway, laying down super-fast broadband to every community, building the attractive new towns, schools and business parks which we will need to develop and attract world class talent.
How do we achieve the necessary investment and leadership to unlock this model of sustainable growth ? Lets be bold and think of new models. The irony of this crisis is that there is no shortage of money looking for safe investments. The banks are not functioning properly as investment intermediaries. So we need to be bold in creating new debt-free, asset- backed, real economic engines of growth to invest in.
How? Why don’t we create a ‘new Victorian’ "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. Lets apply the lesson of the Victorians and use the development gains unlocked by road and rail investment to finance it. Here’s how it could work:
- Sort out Labour’s botched nationalisation of the Railways: reintegrate the railtrack and train operating businesses, grant the Building Society a 20 year franchise to run an integrated Anglian rail network, conditional upon commitment to a long term housing and infrastructure investment programme along the rail network;
- Grant the new vehicle special development rights along the rail corridor, withgenerous compulsory purchase and compensation as they have in France;
- Empower the vehicle to issue a (Government backed?) 5% coupon to investors;
- Encourage a wide range of individual, corporate and pension fund investors;
- Allow local authorities in the region to be shareholders with a stake in the wider regional infrastructure vision. (Better than investing in Iceland).
- Structure the vehicle so that it is led by a regional figurehead, is accountable to its regional shareholders and local councils. (This could act as an additional catalyst for local democracy and leadership).
At a stroke we could create a major sustainable business of FTSE 100 standing capable of raising finance in the capital markets to invest in UK infrastructure and growth.
We have no reason to be timid. Lets be bold, recapture the Kennedy spirit and lay the foundations of a sustainable recovery that fires this great nation again.