Need For A Strong Infrastructure Sector To Boost Economic Growth In The UK

Need For A Strong Infrastructure Sector To Boost Economic Growth In The UK

Summary

  • Economic crisis during the coronavirus pandemic has re-emphasised the need for having continued attention on infrastructure projects for boosting economic growth.
  • According to the 2019 data for overall quality of infrastructure presented by the WEF, the UK was ranked at the 11th spot among 141 countries across the globe.
  • There are 684 projects in the government’s Infrastructure and Construction Pipeline. These would require a total investment of £472 billion.

The role of infrastructure in helping a country’s economic growth has long been established. The economic crisis brought by the coronavirus pandemic has further stressed on this fact, and the UK government focused on infrastructure (schools, hospitals, roads, and local growth, among others) in its £5 billion capital investment package announced during end June 2020. Besides working with the devolved administrations to accelerate infrastructure projects, the government will come up with a National Infrastructure Strategy in the autumn as planned earlier. This strategy will focus on long-term objectives for energy, road and rail, flood, and waste management.

Besides improving the productivity of the businesses, infrastructure development contributes towards increasing the living standards of its citizens. The underlying objective lies in developing the right kind of infrastructure at a time when it is needed the most and at a place that would potentially make its best use. In addition, making it cost-effective to be used by a broad section of the community is also quite important. We present a brief discussion on the present state of infrastructure in the UK, investment aspects, and recent policies of the government.

The present state of infrastructure in the UK

As per the data regarding the overall quality of infrastructure by World Economic Forum (WEF) for 2019, the UK was ranked at the 11th spot among 141 countries across the globe. Though it lagged other European nations with France at 7th, Germany at 8th, and the Netherlands at the 2nd place, it was ranked higher than the United States (US) which was 13th in the list.

 

How much the government spent on infrastructure?

As per the estimates presented by the Office of National Statistics (ONS) in 2016, the total public sector infrastructure spending was £18.9 billion, significantly higher than the amount of £11.4 billion that the private sector put in for developing various infrastructure-related projects, for the same year. While the public sector money generally goes into building transport infrastructure consisting of road and rail networks, energy projects form a large component of private funding.

On a broader account for 2016, the government’s investment in infrastructure accounted for 1.0 per cent of current price gross domestic product (GDP).

Also read: UK GDP To Contract More Than Any Other G7 Nation In The Second Quarter

 

Private sector funding and public-private partnership investment

Private funding companies work on the principles of earning a return on their investment.  Heathrow Terminal 5 was funded completely by private investors.  On the other hand, as the name suggests public-private partnership or mixed public/private funding refers to a system where the money comes from both public authorities and private players. It is to be known that the Network Rail maintains and develops the railway infrastructure received through the government grants, government-backed borrowing and private sector investment drawn from charges levied on train operators.

The UK Treasury has presented Infrastructure and Construction Pipeline that outlines the type of finding to be used for various upcoming infrastructure projects. While the public sector has funded 46 per cent of the proposed projects in the Pipeline, 49 per cent was funded by the private sector. The remaining 5 per cent came from the mix of sources that included local government, central government or public, and the private sector. The energy and utility projects were completely funded by the private players entirely, reflecting the ownership and management of the assets in these industries.

The £11.4 billion investment made by the private sector in 2016 excluded investment made for mining and quarrying. Out of this amount, £7.0 billion or approximately 61 per cent was invested in the energy segment. The water infrastructure bagged £1.4 billion.

Major components of the Infrastructure and Construction Pipeline

There are 684 projects mentioned in the December 2018 pipeline requiring a total of £472 billion in investment. Approximately £224 billion of this is expected to be delivered after FY 2021 and includes the Thames Tideway Tunnel and the Hinkley Point C nuclear power plant.

The energy sector outshines in this pipeline with a planned investment of £201 billion and 43 per cent of the total investment. The transport sector with 30 per cent of the total investment would require £141 billion of funding. 

Government policies

Though the private sector is mostly responsible for developing and operating the infrastructure in the country (transport being an exception), the regulators are accountable for safety issues. This does not mean that the government does not play a role in the policy matters. Providing public funding and support for long-term projects having strategic importance to the nation forms the key aspects of the government’s role. For the government to support a particular project, it needs to be of national significance - enhance quality, sustainability, and capacity. In addition, the other two factors are ability to drive economic growth or attract private sector investment and help the government to meet its strategic objectives.

A quick trail on the scenario of the past years

Lower investment since 1980s for developing infrastructure projects in the UK lagged the country behind other nations. This revelation was made by the Organisation for Economic Cooperation and Development’s (OECD) 2015 UK Economic Survey that focused on infrastructure. The OECD viewed that insufficient long-term planning by successive governments was partly responsible for it. Lack of proper planning in the past resulted in regional inequality of infrastructure developments. The National Infrastructure Commission (NIC), an independent body that advises the UK government on long-term infrastructure decisions, stressed that apart from receiving lesser investments the government’s policies too were not favourable regarding various infrastructure projects. It added that the country’s strained infrastructure is not adequate for its population’s growing needs. The NIC highlighted the inadequacies of the digital infrastructure to provide a dependable phone and internet services.

A joint 2017 survey by the Confederation of British Industry (CBI) and Aecom, an infrastructure company that provides professional services throughout the project lifecycle from the US, found that 20 per cent of businesses and 26 per cent of the public were satisfied with the speed at which infrastructure projects got completed. It showed that almost 62 per cent of the UK businesses were not confident that the nation’s competitiveness will improve by 2030. A little less than half of the businesses who participated in the survey emphasised on the importance of road and rail access to airports and ports in improving the country’s capacity and capability for global trade.

Conclusion

The UK Government plans to come up with a National Infrastructure Strategy during the autumn of 2020. At a time when the country’s economy is trying to recover from the coronavirus pandemic led economic crisis, focus on infrastructure becomes even more important. Among other things of importance, the pandemic has necessitated an increased need for public health facilities, environment-related projects, better transport connectivity, and technological interventions for overall economic welfare.

 


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