Infra digging

20 Jan 12
Judy Hirst

Off-plan, off-balance sheet and largely financed by private investors. What’s not to like about the chancellor’s plan to revolutionise Britain’s creaking infrastructure, and stimulate jobs and growth ahead of his March Budget?

George Osborne certainly thinks he’s on to a winner. He has been touting the Treasury’s £170bn National Infrastructure Plan around the sovereign wealth markets of China – and talking up High Speed 2, ‘Boris Island’ airport and other eye-catching projects – to attract inward investment.

Meanwhile talks are under way with British pension funds – including those representing local government – about how they can invest in road, rail and energy improvements.

So what are the chances of any of this getting beyond the blue-sky stage? A ‘memorandum of understanding’ has apparently been signed with some pension funds. And Beijing is always on the look-out for solid returns. But dig deeper and, as Mark Hellowell points out in the upcoming February cover feature, there are snagging problems aplenty.

The ‘new delivery model’ for attracting private capital into public works looks remarkably like the old one: the past-its-sell-by-date Private Finance Initiative. As the Treasury select committee has warned, introducing new PFI-style financing methods ‘by the back door’ would not be a smart move.

Pension funds are generally very risk-averse about where they invest, and rightly so. What makes the government think it can attract these funds without seriously underwriting the risks, with all its implications for the deficit bottom-line?

With the UK already in recession according to some authorities, and unemployment at its highest rate since 1996, it makes sense to find ways to kick-start the economy. But most of these projects would take years if not decades to achieve results. ‘Shovel ready’ they are not.

Public investment – in other words, the stuff that appears on the books – is set to fall by £14bn over the next three years. Instead of using Britain’s partly state-owned banks to leverage in infrastructure funds, the Treasury is looking to private investors to step up to the plate. However, these same institutions have been reluctant to finance long-term investment, which in turn has speeded the demise of the PFI.

All of which does not augur well for Osborne’s carpet-bagging tour of the Far East. Unless the government is able to put some flesh on its National Plan it risks being exposed as a bit of a Boris Island of a policy – all talk, but shaky foundations.

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