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Infrastructure blog

State of the Nation: what’s the best way to pay for our infrastructure?

10 October 2018
In the final blog before State of the Nation 2018 launches, Andrew Rose, chief executive of the Global Infrastructure Investor Association, gives his views on the challenges ahead for investment in the UK’s economic infrastructure.
State of the Nation: what’s the best way to pay for our infrastructure?
You can read the chair of the report’s steering group, Paul Sheffield’s, blog setting out the challenge for the future of infrastructure investment here. ICE President’s Future Leaders, Ayo Solake’s and Asif Huq’s blog also gives a behind-the-scenes look at the report’s production here.

Infrastructure matters. It matters for jobs, for the economy and frankly for the planet. We need to deliver high quality, sustainable, resilient infrastructure in a world where change isn’t merely a constant, but an increasing challenge to be considered and addressed.

We’re faced with unprecedented challenges, such as climate change and disruptive technology, which makes planning for infrastructure, which is by its nature long-term, a difficult proposition.

Most people understand the importance of high-quality infrastructure as it has an impact on their daily lives. Infrastructure delivers electricity, water and the internet to our homes, and enables us to get to our places of work and visit our families and loved ones.

It’s tangible and real, but effective delivery is incredibly challenging. In my day-to-day work, which encompasses a global remit, I see this around the world.

‘The problem is how you pay for it’

I was in Washington DC recently, and the challenge was effectively and simply articulated by the US Transport Secretary, Elaine Chao, who outlined that challenge as “everybody gets the importance of infrastructure; the problem is how you pay for it”.

And we do pay for it, whether through our taxes for public sector-delivered infrastructure, or through user charges such as utility bills.

ICE’s State of the Nation report looks to address some of these challenges and how government, working with the private sector, can deliver world-class infrastructure.

We have a real mixed economy in the UK, with broadly half of capital coming from each of the public and private sectors. The report makes strong recommendations around enhancing delivery in road, energy, water and rail, as well as making some important cross-cutting recommendations.

As part of the broader Brexit debate, it’s likely that the UK will lose significant access to the very attractive low-cost finance provided by the European Investment Bank. The EIB lent the UK €31.3bn between 2012 and 2016, which fell to €1.8bn in 2017 – a 72% drop on 2016.  

The EIB has made a major contribution to the UK economy and infrastructure delivery. While the outcome of the negotiations with the EU are uncertain, it’s likely that we’ll lose this access as a “non-member state”.

ICE encourages the government to consider how it might replace this loss of access to low-cost finance. It has a number of choices, and ICE believes it should explore the feasibility of creating a UK Investment Bank, something many other countries benefit from.

As I’ve previously mentioned, world-class infrastructure costs money, and this money ultimately only comes from one source, individuals, whether it be through taxes, user charges or bills.

Innovative funding ideas

After many years of austerity, people are understandably very sensitive about increasing bills. So, ICE is asking the government to think innovatively about how it can provide funding for new infrastructure.

Ideas the report promotes include pay-as-you-go road use, land value capture, and asset recycling.
Land value capture means the taxpayer benefitting from the value uplifts created by new infrastructure. Crossrail is a recent successful example of this.

Asset recycling is an idea where government looks at the assets it owns and sells assets where appropriate, with the very specific directive that proceeds are reinvested in new infrastructure, creating a positive recycling effect on money invested.

Government needs to be braver

Finally, we need to address the timing mismatch of short-term political cycles and long-term investment decisions.

The highly damaging stop-start decisions and delays in planning due to changes in governing bodies are not unique to the UK, and up to a point are inherent in a democracy.

The government, however, should be applauded for creating the National Infrastructure Commission (NIC), an advisory body that’s created a long-term vision for our infrastructure needs, and has been created to hold the government of the day accountable for its delivery against its own plans.

This was a brave decision, but ICE, along with many industry experts and the financial community, would call on this government, or future governments, to be braver and put the NIC on a statutory footing to ensure it can continue to provide independent expert advice and hold government accountable through the political cycles.

There are no shortages of challenges in delivering world-class infrastructure, however the report identifies a number of practical, achievable ways that the UK can make progress in delivering sustainable, resilient and affordable infrastructure for future generations.

State of the Nation 2018: Investment will launch on 18 October 2018.