It argues that a decent infrastructure – whether it’s a good road network for transporting goods or a truly nationwide accessible broadband – provides the foundation for businesses to deliver jobs, growth and prosperity.
In a letter to Philip Hammond, ICAEW chief operating officer Vernon Soare says that investment in public infrastructure has been tailing off but if government took the lead, private investment would follow.
“In the past we have seen too much talk and not enough action on infrastructure,” he adds. “The combination of a new chancellor, low interest rates and Brexit means that now is the time for decisions to be taken and investment to be made.”
The institute has come up with a policy insight paper on funding UK infrastructure in which it points out that government has overseen a decline in public investment from 3.4% of GDP in 2009/10 down to 1.9% in 2016/17. That downward trend is set to continue over the next three years to a low point of 1.5% in 2019/20.
Private finance initiative (PFI) contracts have been drying up partly because there are fewer around as a result of government cut-backs and partly because they have become far less attractive to the private sector because of tougher new rules. Just £0.7bn of projects reached financial closure during 2014/15.
And although this year the government announced that the total National Infrastructure Pipeline had gone up from £411bn in 2015 to £425.6bn in 2016, the paper says that “the near term profile of investment grew by less than the overall growth in the economy, with investment in energy infrastructure declining”.
Investment in social infrastructure, such as schools, hospitals and housing, is also flat-lining.
The paper suggests that new fiscal rules could play their part in incentivising a future public/private finance initiative programme.
Abandoning the target of a balanced budget by 2020, which has already happened, opens up the possibility for government of borrowing to fund an immediate increase in infrastructure investment.
The Treasury should also consider bringing PFI contracts back on to the balance sheet in the short term “so they can be evaluated solely on their merits”. Longer term it should use the whole of government accounts to measure financial performance and assess investment decisions.
“With cost cutting and austerity only getting the UK so far,” Soare’s letter to Hammond stresses, “it is now necessary to generate revenue growth. That will require more investment in key infrastructure projects and spades in the ground.”