- US & UK politicians are calling for more government spending on infrastructure. Philip Hammond should be cautious of this approach at the Autumn Statement.
- UK Government should focus on improving the quality of infrastructure development (particularly by harnessing private investment), not simply allocating more public funds.
- Over-investment in infrastructure can be damaging. 55% of Chinese infrastructure projects are estimated to destroy economic value.
- Nine out of ten large infrastructure projects are over budget. On average, rail projects are 45% over budget.
- Trialling of new Project Bonds could boost private investment. Warrants awarded to the Treasury mean taxpayers benefit from excess profits, avoiding problems with the discredited PFI.
- UK Government should encourage private investment in the areas of broadband, airports, ports, energy industry, roads and social housing.
SUMMARY
Keynes is back, or so it seems. Often justified in terms of being “affordable” in a world where the current cost of government borrowing is extraordinarily low, advocating high levels of infrastructure spending is firmly in fashion. In the US, Donald Trump is proposing to “invest” $550 billion on building the “roads, highways, bridges, tunnels, airports, and railways of tomorrow”, exactly doubling Hillary Clinton’s pitch in the presidential election to spend $275 billion in direct spending on infrastructure (plus another $225 billion in loans). In the UK, the Shadow Chancellor John McDonnell MP has proposed an even more lavish £500 billion infrastructure programme (equivalent to 27% of annual UK GDP, compared to Trump’s planned 3% equivalent of US GDP). Although more modest in scale, the Chancellor, Philip Hammond MP, has also announced his intention for more spending on infrastructure.
But is this race to spend more and more on infrastructure sensible? And would it not be better to focus on the quality of infrastructure spending, as opposed to the quantity?
To ask these questions is not to suggest that today’s UK infrastructure is ideal. Much needs to be done in areas such as, for example, broadband, energy, (some) rail improvements, airport expansion and seaport development. The right questions to ask are how these projects should be prioritised; how they should be funded; and what should be the role of the private sector in bringing sensible projects to fruition.
Infrastructure Quality Not Quantity
Media Coverage
- The Times: Stop giving blank cheque for infrastructure, ministers told
- The Scotsman: Bill Jamieson: Dearth of businesses hinders any chance to grow economy
- Daniel Mahoney for CapX: Hammond should be cautious about further borrowing for infrastructure
- City A.M.: Chancellor Philip Hammond has been urged to show caution in an Autumn Statement infrastructure splurge
- Fund Strategy: Centre for Policy Studies: Government must harness private investment in infrastructure
- FTSE Global Markets: CPS says investment in infrastructure not a panacea
