Britain needs serious investment and vision in its infrastructure strategy

The UK economy is the world's sixth largest, but the World Economic Forum ranks the country's infrastructure as 27th. Britain has gone through the worst recession in living memory, but with an economy that is growing more quickly than any in the eurozone it would be a calamity if the poor state of the UK's infrastructure prevented the nation from taking full advantage of the more favorable economic conditions.

It is easy and convenient to blame the current government for the condition of the country's infrastructure, but it is not all its fault. The reality is that we are suffering the consequences of several decades of under-investment by successive governments. The problem with infrastructure projects is that by their very nature they are for the long term, given that planning, procurement and construction can take years, and in some cases decades. Politics, on the other hand, is all about the present. If a week is a long time in politics, for most politicians the duration of many infrastructure projects must seem like a round trip to another universe. That is why you will find few politicians campaigning on the promise of delivering benefits in 10 or 20 years. Of course, they are only playing to the voters. The long and short of it is that we all need to take a long-term view.

Against this background, the present government ought to be congratulated on its advancing some of the major long-term energy, water and transport projects the country desperately needs, as set out in the recent Roads Investment Strategy and the updated National Infrastructure Plan.

However, the reality is a number of projects were born long ago and are already way overdue. Furthermore, apart from a handful, many of them focus on maintenance and/or replacement of existing infrastructure assets, as opposed to new work. This is the equivalent of spending money on painting your house or redoing your brickwork rather than building a new house. The projects are also largely the result of previously announced funding. There are few new projects and a total absence of new money.

What this means is that while the projects identified in the National Infrastructure Plan 2014 are to be welcomed, it is wrong to say the plan is forward-looking in the sense that it sets out a strategic vision of Britain's future infrastructure needs. Yet this is precisely what is needed if we are to plan for our future, prioritize projects and crucially minimize the risk of disruption caused by policy changes, such as we face with the forthcoming general election.

It is worth remembering that while Crossrail is a fantastic development that will benefit not just Londoners but the whole country, the scheme was originally proposed over 40 years ago.

There is also the thorny question of how we will fund the projects given the backdrop of a continuing austerity program. In the last couple of years the government has made various attempts to lure money from pension funds and insurance companies, with very limited success. Their reluctance is essentially due to their unfamiliarity with large infrastructure projects combined with a clear reluctance to take on the construction risk often associated with major new infrastructure projects. In essence, institutional investors would rather spend their money on existing assets that are operational, as opposed to funding the construction of new assets that exist only in the minds of architects and engineers - but it is the latter that we need. So should the government be looking elsewhere for cash, given the constraints on its own funding?

Whatever the state of infrastructure in Britain, we have a stable currency, a strong rule of (and respect for the) law and a long established democracy. This is something those in the UK take for granted, so we often underestimate the importance of these considerations to foreign investors who may not have been similarly fortunate. The reality is that the UK presents a very attractive investment option for many foreign investors.

This is perhaps no more so than in respect of China, which has huge cash reserves and is attracted to both the security of investment in the UK and the yields that infrastructure assets can offer. Furthermore, Chinese investors are often much more willing to take on the risks of construction, something that has proved to be a logjam for other sources of investment.

But some tricky issues need to be addressed if the investment potential is to turn into reality. Overseas investors want to see shovel-ready projects, but the time it can take to work through British planning laws - often several years in the case of a large infrastructure project - can be a huge disincentive.

There is also the even trickier question of how to pay for the capital investment. Investors want a return on their money, and if the government cannot provide a return because its own resources are constrained by the austerity program, then that means higher taxes or higher prices for the consumer. There seems to be a marked reluctance on the part of any party to consider imposing higher taxes on Britain's already squeezed households, so will we be moving toward a user-pays model?

All of this is why the UK is crying out for a national infrastructure strategy that examines our infrastructure needs on a holistic basis, prioritizes projects, considers how they are to be funded and financed and, above all, transcends party politics. For all the good work in the National Infrastructure Plan - and there is good work there - it does not address these fundamental issues. On the other hand, Sir John Armitt's proposed national infrastructure commission is a solution to helping the public sector create a forward-looking strategy for UK infrastructure and is to be commended as a means for moving us up from 27th in the global infrastructure league table.

The author is infrastructure partner at Pinsent Masons, a law firm.

(China Daily European Weekly 01/23/2015 page9)