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Lauren Thorpe: Infrastructure spending doesn't mean instant growth - and it's rife with risk.

Thorpe LaurenLauren Thorpe is Research and Corporate Partnership Director at the think-tank Reform.

Danny Alexander said earlier this week that government backing for £40 billion of infrastructure investments would “provide lasting benefits for thousands of people and a significant boost to the economy”. But the Chief Secretary to the Treasury ought to be honest.  By all means build new infrastructure to upgrade the UKs ageing national grid and water network, improve the roads and rail infrastructure, and ensure that the country can deliver sustainable energy into the future. But don’t pretend this will do much for growth in the short term or mean that tough decisions can be put off.

We know that infrastructure is important, but it will probably do little for short-term growth. These are big projects with long lead times, and will have almost no impact on areas of real concern, like unemployment. The vast majority of the unemployed are not up to building new infrastructure. Only 20 per cent of the currently unemployed have backgrounds in technical or skilled trades, and even those with skills may not have them in the right areas. Building a new power station is not the same as fitting a kitchen.

Shifting forward projects is also rife with risk. Just look at the Spanish airports without planes or passengers, and Japanese bridges to nowhere. These projects have not delivered the growth that was anticipated. Let’s take Spain. In the past twenty years it has constructed the largest high-speed rail network in Europe, added over 5,000 kilometres of new roads, and built 48 new airports. Yet only 11 of the 48 airports built in Spain in the last 20 years make a profit.  Rather than improved growth and economic prosperity, the legacy of this spending is white elephants and credit that is not so cheap.

The Coalition is wrong in thinking that more Government spending or support is the solution. It is not even clear that a lack of funding is the problem. As Andrew Meaney from Oxera remarked at a recent Reform infrastructure conference “there is private finance available for the right schemes”. Ian Tyler, Chief Executive of Balfour Beatty also noted that rather than funding being the issue, “projects are being needlessly delayed by lack of clarity around policy [.…] Many of the schemes are designed, financed, and they’re ready to roll, but they’re just waiting for government to clarify its position on policy.”

What is needed is recognition that there are no quick fixes. The slow rate of growth experienced in the UK today is a result of a debt fuelled period of boom followed by bust. The Government should now forget about short termism and do the right things for the long term. To have the infrastructure it wants, the UK needs to save, not borrow, more in order to pay for it. We need to live within our means, and put money aside for tomorrow. This requires a new way of thinking and political courage, as the implication is that living standards will need to fall. As the economist Professor Dieter Helm noted at the conference, the standard of living in Britain would have to fall by around 25 per cent to fund all the investment that is currently on the table. The Government need to be honest about this and dispel the myth that we can have it all.

Earlier this week Reform published the transcript to a major conference on Building confidence in infrastructure held on 14 June.


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