WIREDGOV

In a report published today, the Institute of Directors (IoD) estimates that at least £500bn will need to be spent on the UK’s energy, transport, water and ICT infrastructure between now and 2020 so that the UK can maintain its economic competitiveness.

• However, the gap between what is needed in terms of finance from the public sector and what it can afford has probably never been wider because of the huge fiscal deficit.

• But instead of cutting infrastructure spending by half over the next four years, as the Government proposes, we argue that public spending on infrastructure should be ring-fenced because of the positive effects this type of expenditure has on economic growth. So how can this be done while paying down public debt?

• Radical financing solutions are needed, the report says. One option is that the next Government takes all future proceeds from bank privatisation and uses them to pay for new infrastructure.

Why do we need to fund infrastructure spending now?

• Poor infrastructure has been a long running sore for the UK economy, but competitive failings in this area have been offset in the past to some extent by the UK’s tax competitiveness and high value added financial services.

• But with the recent erosion of competitive strength in these two areas our weak infrastructure becomes even more problematic.

• Given the time it takes to build new infrastructure and that spending in this area is usually very positive for long-term economic growth – unlike many other forms of public spending which tend to have the opposite effect – the Government is making a mistake by cutting spending now.

Where will the money come from?

• Ring-fence the future proceeds from bank privatisation and earmark for infrastructure investment. Potential revenue here could be £50bn plus.

• Drive up private investment by removing public policy barriers that discourage that investment. The creation of an Infrastructure Planning Commission that accelerates the planning approval process, and which cannot be overridden on a whim by politicians, will be crucial in building investor confidence.

• Change existing public spending plans so that infrastructure investment is the only ring-fenced area. This is justifiable because of the positive impact on economic growth and the supply-side economy.

Commenting Miles Templeman, Director-General of the IoD, said:

“Cutting infrastructure spending may be politically easier than reducing other areas of public expenditure, but the consequences for the UK’s already creaking infrastructure will be with us for years to come.

“For the sake of the UK’s long-term growth prospects, I urge the Government to reconsider its decision to halve infrastructure spending over the next four years, and to use the proceeds from bank privatisation to invest in our roads, railways and energy networks.”

Commenting Graeme Leach, Chief Economist and Director of Policy at the IoD said:

“The challenge for the next Government is to find the necessary finance to deliver public infrastructure. Given the scale of the public deficit, new and radical ways of incentivising private sector investment need to be found. Ensuring that we have a strategic planning system that is removed from day to day political interference will be critical in building investor confidence.”

To read the full report, click here: www.iod.com/infrastructure