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How can infrastructure be used as a stimulus to recover from the economic impact of Covid-19?

28 May 2020

Covid-19 will undoubtedly leave socio-economic scars. ICE is today publishing an insights paper outlining the role infrastructure can play post-crisis to help facilitate an effective economic recovery.

How can infrastructure be used as a stimulus to recover from the economic impact of Covid-19?
Covid-19 represents a severe challenge to the UK economy. Image credit: Shutterstock

The Covid-19 outbreak represents an extraordinary challenge for the wider economy. While the fiscal stimulus thus far has been to support the NHS and the millions of businesses and workers affected by the pandemic, it is imperative that policymakers begin to think more strategically about how to facilitate a swift economic recovery.

How this response is shaped will be vital to defining what the ‘new normal’ is – it can offer significant opportunities to build the foundations for a more resilient and sustainable future that meets the long-term ambitions of the country.

Pre-crisis priorities

Even though the demand profile for various infrastructure sectors is likely to be affected by Covid-19, the pre-crisis challenges facing the UK have not disappeared. A 2050 net zero greenhouse gas emissions target, regional inequalities, and low levels of productivity all still require addressing, with infrastructure central to developing sustainable solutions.

Existing policies and spending plans are very likely to be reassessed in light of Covid-19. How and where that money is spent will impact on the pace and strength of economic recovery and can address longstanding challenges.

Multiplier effects

Infrastructure already plays a major role in meeting economic, social and environment goals. Framed in the context of an economic recovery from an unprecedented crisis, investment in infrastructure can act as a powerful stimulus both as a short-term economic boost and to contribute towards longer term goals.

The stimulus effect creates a range of demand multiplier effects throughout the economy. Notably, there is a multiplier connected to planning, procurement and design, another for the actual construction process itself, and a third for operation, maintenance and use.

Analysis conducted by Oxera on behalf of ICE found that estimates of multipliers by infrastructure sector range between 1.5 and 2.7. Therefore, for each £1 spent on infrastructure, there would be an additional £1.50–£2.70 of demand due to multiplier effects.

Learning from history

While ‘unprecedented’ is the key word when it comes to Covid-19, it is possible to learn from responses to previous crises in order to shape an effective recovery.

An analysis of fiscal policy responses to the 2008 global financial crisis, for example, found that investment in renewable energy had numerous advantages over more traditional stimulus, generating more employment in the short term and delivering carbon and fuel savings, and less maintenance, in the long term.

It is quite likely that Government will demand efficiencies from industry as part of any stimulus package, so it is important to also learn lessons when it comes to delivery. The 2011 earthquake in Christchurch, New Zealand, necessitated a swift and collaborative response, leading to the formation of an alliance of construction firms, local and central government, and the transport agency.

This alliancing model provided a clear vision with shared outcomes and risks, which can serve as a useful tool to local authorities and central government as they deliver infrastructure priorities as part of a stimulus package.

Laying the foundations for a more prosperous future

Government actions will be critical to ensure a quick return to a healthy economy, but finding a compromise between spending and what is acceptable and affordable to a nation burdened with enormous public debt is unlikely to be simple.

While investment in other areas of the economy is similarly able to generate a stimulus effect, infrastructure investment can also address existing challenges and lead to economic growth in the long term. How government frames its response will be crucial; the urgent focus on short-term needs should not overlook opportunities to achieve other longer-term goals.

Call for evidence

The insights paper published today is supporting a wider call for evidence that ICE launched last week on behalf of the Infrastructure Client Group. This too is focused on understanding what the UK’s future infrastructure requirements will be.

The questions contained within the call for evidence are as follows:

  1. What other factors, or combination of factors, will determine attitudes to public life as we transition to a new normal?
  2. What other systemic changes, driven by lessons learned during the lockdown period, can we expect to be important as part of the new normal?
  3. Are our assumptions of the new priorities for infrastructure correct?
  4. What other changes to infrastructure provision will be needed and what assumptions sit behind that need?
  5. Have we made the correct assumptions on the changes in delivery that will be required, to deliver infrastructure as part of the new normal?
  6. What are the intermediate steps required to move us towards these new approaches to delivery?
  7. What other fundamental shifts are required to deliver concrete and long-lasting change in how we operationalise to deliver infrastructure to achieve societal requirements?

Read the Insights Paper

  • David Hawkes, head of policy at ICE