This year public sector net investment – which the government defines as capital expenditure less depreciation – was at its highest since 1976 at 3.1% of GDP, or £42.4 billion. But this figure is set to fall by £8 billion next year and will reach just 1.2% of GDP by 2014-15.
The construction industry believes that investment should not fall below 2.25% of GDP, or the quality of the country’s built assets begin to deteriorate.
But following the Spending Review, departments are now looking at a total capital expenditure retrenchment of 29% over 4 years, with education, local government and health each hit hard in cash terms.
The National Infrastructure Plan that followed the Spending Review, although lacking clarity and detail in some respects, is highly informative and sets a clear direction of travel for the country. If you take a step back it does seem like a defining moment as there is a considerable focus on energy, transport, technology and carbon reduction and a noticeable absence of investment in social infrastructure such as schools and hospitals. This is a clear signal that this government’s focus for the future is on infrastructure that is clearly linked to economic growth.
There is clearly an aspiration for an ongoing role for private finance in infrastructure. The government will need to put some more flesh on that bone very soon and provide real evidence of future opportunities. Private sector providers of capital - both lenders and investors - need to know whether to sustain their capability. If banks aren’t doing deals, private firms will close their teams down and redirect that capacity, and it may be difficult to reinstate it when required.
Private finance investment in social infrastructure has been the bedrock of the PFI/PPP industry, but that has now been substantially taken away. This clearly points not only to the new coalition government’s agenda for economic growth but also a whole new agenda for the infrastructure industry.
Nick Prior is head of government and infrastructure at business advisory firm Deloitte.
