The great infrastructure question

It turns out we’re not actually that great at building things.

Actually, that’s a bit misleading. We’re not bad at building things – we’ve a history replete with architectural and engineering feats from the likes of Sir Christopher Wren and Isambard Kingdom Brunel. But, according to new research from Arcadis and the Centre for Economics and Business Research, we’re slipping compared to other developed countries in investing in our infrastructure.

The research shows that the value of the UK’s built environment is £3.1 trillion. But we’re falling behind having slipped two places to thirteenth amongst other developed economies and ranking behind every G7 country except Canada.

The figures underline the scale of the challenge facing George Osborne and the newly formed National Infrastructure Commission led by Lord Adonis. The question for them is how to get Britain building more. Or, more particularly, where is the money going to come from in order to fund the necessary infrastructure investment?

According to some, the answer has jetted into the UK for a state visit. Mr Osborne has made no secret of his desire to secure investment in Britain from the massive but (of late) faltering Chinese economy, and the state visit of the Chinese Premier is as much as business mission as one designed to extend foreign policy.

Successive governments have tried, with varying degrees of success, to tap into the wealth available amongst institutional investors as a means of funding infrastructure projects. And getting the funding for projects including roads and railways, power stations and power storage – to name but a few – has been immensely challenging. Much of this has to do with investors being risk-averse, a fact compounded by the credit crunch in 2008. Reaching out to economies such as China is the logical step. But it’s a move that’s fraught with as much danger for the Government – and the Chancellor – as it is with opportunity.

By hitching the British wagon to the Chinese economy, the Government risks fall-out diplomatically from other potential foreign investors and from longstanding allies (notably the US). It also ties the UK much more to the fate of a Chinese economy that has slowed of late. But it also presents domestic issues for the Government – amongst them questions over security based on the level of overseas involvement in the development of critical infrastructure such as nuclear power stations. The question asked for many years has been what would Britain do if oil and gas supplies from the likes of Russia and the Middle East were disrupted. Now the question being asked is whether British energy consumption could be disrupted if the relationship with China goes south. Add to that now the questions over the future of the British steel industry, which is facing further job losses as a result of cheap Chinese steel on the market.

So the Chancellor doesn’t just have an investment problem to solve. He has a communications one as well. In addition to securing investment that he can then trumpet, he also needs to be very transparent about what if any strings are attached to funding – and how the likes of security concerns will be addressed.

The infrastructure investment issue isn’t a new one, but an influx of foreign capital will doubtless be scrutinised from all angles. Expect the Select Committees to be busy with this one.