UK faces £258bn infrastructure spending gap, warns report
Government must increase investment by two-thirds to deliver planned reservoirs, prisons and schools
Every adult in Britain would have to pay an extra £590 a year in tax to fund the £258bn of public investment needed to build planned reservoirs, prisons and schools, according to a new report on the state of Britain’s infrastructure.
Delivering crucial projects such as Thames Water’s long-delayed White Horse Reservoir would require the government to increase infrastructure investment by two-thirds — or roughly £25bn a year by 2030 — if funded publicly, said Sir John Armitt, chair of the private-sector-led Public Private Partnership Commission.
The crisis surrounding the early release scheme has highlighted the UK’s need for more prison capacity, while Ofwat has warned that population growth and climate change could leave England facing a water deficit of billions of litres a day within the next 25 years.
Armitt, the last chair of the National Infrastructure Commission before it was replaced by a new body, said strained government finances meant that the UK’s fiscal rules would be “in danger” if it attempted to fund infrastructure spending through additional borrowing.
This would add around £7bn to debt interest costs by 2030, £14bn by 2035 and £23bn by 2040, the report found.
Former chancellor Rachel Reeves tweaked fiscal rules to treat infrastructure investment differently from day-to-day spending, but the extra borrowing required would still increase overall public debt.
“Anyone who believes the taxpayer and public sector can close that gap alone has not looked at our public finances,” said Armitt, who has proposed an OBR-style body for infrastructure.
“Debt interest, were it a government department, would be the fourth largest in Whitehall,” he continued. “The UK faces a fundamental choice: do we want to deliver the infrastructure that the public expects and the country needs, or don’t we?”
A rise in gilt yields over the past fortnight has squeezed the government’s fiscal buffer and increased pressure on Reeves’ successor, John Healey, to balance the public books while Prime Minister Andy Burnham is targeting “growth in every postcode”.
The report by the commission, which is run by consultancy Bradshaw Advisory, also found that the UK had the lowest levels of investment in the G7.
It argues that the UK’s planning regime needs to be overhauled and political risk aversion and other regulatory barriers addressed to reduce the cost and delivery time of infrastructure projects.
UK rail projects also take 50 per cent longer than the international average, while delivery times for nationally significant projects doubled between 2009 and 2019, the report found.
It recommends introducing a “parliamentary confirmatory vote” for critical national infrastructure projects to speed up construction and reduce the threat of bureaucracy, or what Armitt called the “horrible merry-go-round” of legal challenges.
The commission said that uncertainty increased costs on infrastructure projects by producing “over-engineered designs to withstand every potential objection and repeated consultation”.
Armitt called for more pragmatism in Whitehall over the role of private investors and developers, who are more efficient at building infrastructure than the public sector because they need to make a return on their investment.
He also argued that the pool of capital was much larger. UK pension funds hold trillions of pounds in assets, but only a small proportion is allocated to infrastructure projects.
Armitt said infrastructure investors had recently raised concerns that the government’s push for increased public control had dampened their enthusiasm for investing in the UK.
The shift “will have investors running a mile”, he said, pointing to windfall taxes on North Sea oil. Investors, particularly pension funds, “want long-term certainty and confidence”, Armitt added.
A separate Oxford Economics report commissioned by transport groups and infrastructure investors last week found that the UK had lagged every major economy except Greece for investment for the past 25 years.
Jon Phillips, chief executive of the Global Infrastructure Investor Association, said: “Private capital is mobile by its very nature . . . At a time when German, French and Canadian governments are actively courting international investors the UK is in danger of losing ground.”
A government spokesperson said that it welcomed “ideas to build the infrastructure that is needed across the UK”.
“We have made progress this parliament by providing the stability businesses and local leaders need to make long-term decisions, including publishing the 10-year infrastructure strategy, increasing public investment by £120 billion to unlock private capital, and delivering reforms to planning, major infrastructure and regulation.”