Some notes about Infrastructure

Infrastructure is the in-word for public policy across the world. Its re-emergence comes as a result of three separate by related topics: the economic crisis and the need to stimulate demand; the poor state of much infrastructure; and the link between infrastructure, productivity and economic growth.

In Britain, there has been a continuing flow of initiatives, policies and announcements. The National Infrastructure Plan, and the planning law reforms, were supposed to give an overall cohesion and set sectoral priorities at the national level. As with most such plans, it has come to be dominated by a small number of very large projects, each with a strong political edge. These are: HS2, Crossrail 1 & 2, a new runway in the Southeast, Hinkley nuclear power station and the Thames Tideway.

The enthusiasm has not been matched with delivery, and there has been little harmonisation of the contracts and the financial approaches. Each project has had it’s own structure. Much of the design has been driven by the political imperative of keeping as much as possible off the government’s balance sheet, and to attract foreign investment. Much less thought has been given to the combined financial burden on future customers, and their ability to pay. Savings now are not equal to investment. No longer is the public sector pay-as-you-go translating current savings into current investment. Instead we have pay-when-delivered and usually well beyond the life of the current governments. 

The challenge is to develop smart ways to use the government’s much lower borrowing costs, and to assign risk between the state and the market on the basis of the ability to manage and control it. The next steps involve the creation and development of proper national balance sheets, with assets and liabilities clearly set out.

 

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