IMF urges Government to accelerate infrastructure spending plans to 'rebalance' economy

Although there have been some "indicators of economic growth" in the UK, the Government could boost recovery by bringing forward "planned capital investment", the IMF said in its annual report on the UK economy. The move would "help catalyze private investment", it said.

The IMF said that the UK economy would face risks if growth rates did not improve. 

"Persistent slow growth could permanently damage medium-term growth prospects – this could arise if private sector deleveraging is larger than expected, credit conditions fail to improve, external demand does not pick up, and the drag from fiscal consolidation is greater than anticipated," it said.

The IMF said that whilst it is "essential" that the UK's "large structural fiscal deficit" is reduced, it said that its plans to do so "pose headwinds to growth". To address the issue, the Government should bring forward plans it has already outlined to invest in infrastructure projects, it said.

"Bringing forward planned capital investment where possible ... would help catalyze private investment and spur much-needed growth," the IMF said. "Alongside this, well-designed public guarantees could be used to facilitate private investment."

"Investment in infrastructure, notably in transport and energy, could be supported by streamlining the planning application process and removing regulatory uncertainty. To accelerate the implementation of infrastructure projects, more authority over planning decisions should be devolved to local authorities, with financial incentives provided through greater revenue sharing," the IMF added.

The IMF also said the Government reduce the rate of corporation tax, offer tax allowances for those who raise equity, and consider applying "fiscal disincentives" to discourage housebuilders from buying land but not acting to develop on it.

Chancellor George Osborne previously said that he would allocate "extra savings from government departments" to capital spending, which would amount to an additional £15bn in investment over the next decade.

The Government has already outlined plans to build a new high-speed railway network linking London with northern cities. It has also said it will support the regeneration of UK power stations and has published a range of measures to help homebuyers, including both first-time buyers and those looking to purchase a newly-built home, by committing to the construction of 15,000 new affordable homes.

Infrastructure expert Graham Robinson of Pinsent Masons, the law firm behind Out-Law.com, said that the Government faces a dilemma in how to approach the issue of infrastructure financing.

"It is difficult for the Government to commit more public spending to infrastructure whilst we continue to reduce the structural fiscal deficit," Robinson said. "Clear reform is needed in the way infrastructure is funded in the UK, but the reality is that policies such as privatisation of public assets, like the selling of roads to private sector investors, are deeply unpopular with the electorate."

"The Government’s priority is to fix the economy by reducing the overall deficit. Only by doing so is real growth likely to happen," Robinson said.

"Infrastructure is a hugely beneficial driver for economic growth, as the multiplier is extremely effective, but the lead-in periods to getting larger infrastructure projects off the ground mean that it is not necessarily a short-term measure to improving the economy. The government’s housing stimulus, Help to Buy, is helping the housing sector, but underlying demand, without government funding and guarantees, is still relatively weak."