Out-Law News | 16 Jan 2015 | 5:16 pm | 3 min. read
The global ratings agency said that developing economies were generally more likely to benefit from what it termed the 'multiplier effect', referring to the extent to which an increase in infrastructure spending could lead to a corresponding increase in annual gross domestic product (GDP). However, it claimed that benefits to the UK of an increase in infrastructure spending of 1% of GDP would be 2.5 times as much as the cost of that investment over a three-year period; double the effect of a similar increase in Germany or France.
The report said that inadequate investment in infrastructure had become a "significant obstacle" to doing business in the UK, and was one of the main factors that national productivity was below the average of that in the rest of the G7 group of the world's major economies. It said that road congestion in particular hurt the UK's economy and environment, as well as diminishing residents' quality of life.
"The average UK driver spends approximately 30 hours a year in traffic jams – and that figure rises to 84 hours in the London commuting area," the report said.
"To address this, prime minister David Cameron has announced that the government will earmark £15 billion in the next 10 years to improve the country's major roads. At the same time, we expect spending to increase in the next decade, which will create significant opportunities for private capital investment in the sector. In our view, this could boost the country's economic growth, both in the short term and over time," it said.
The gap between infrastructure investment needed in the UK and that which had actually been spent is currently more than £60bn, which meant that a "clear opportunity" existed for improvement, according to Standard and Poor's. However, it said that the full impact of increased spending on GDP would only be felt if other EU economies committed to the same increase "due to increased demand from its European trade partners". Increased spending in the UK alone would have a 'multiplier' of 1.9, it said.
UK infrastructure expert Chris Hallam of Pinsent Masons, the law firm behind Out-Law.com, said that the report's conclusions were "no great surprise".
"This is not exactly a badge of honour: the one thing we have been consistently good at over the last 50 or so years in the UK is our consistent and woeful under-investment in infrastructure," he said. "On the plus side, of course, investment into infrastructure will generate more 'bang for our buck'. This is something the industry has long been championing and which the government now seems to have fully taken on board."
"The big question, as ever, is where the investment is going to come from? China might well be UK infrastructure's 'white knight' – it has the funds to invest, it needs to invest those funds and it needs to find new markets and sources of work for its gargantuan construction companies. The UK is a highly attractive infrastructure investment market for China – the recent CEBR/Pinsent Masons Global Infrastructure Investment Attractiveness Index ranks the UK third in the world, after the US and Japan. But this opportunity has to be grabbed with both hands," he said.
The UK government's updated National Infrastructure Plan (NIP), published at the end of last year, contained 550 projects and programmes with a combined capital value of £413bn. The NIP contains a 'pipeline' of planned projects in the energy, transport, flood defence, waste water and communications sectors and features 40 major infrastructure projects seen by the government as its highest priority. Although the government allocated £100bn to capital spending on infrastructure as part of the 2013 Spending Round, the NIP acknowledges that 65.6% of the investment needed to deliver the projects in the pipeline will need to come from the private sector.
Research commissioned by Pinsent Masons towards the end of last year found that the UK could attract up to £105bn in Chinese investment into infrastructure projects by 2025; with energy, real estate and transport projects set to benefit most based on the UK's investment priorities, as set out in the NIP.
Hallam said that in order to attract this private investment, "proper management" of the risks associated with consistency of policy across successive governments and delays in bringing projects to market was needed. Pinsent Masons is among the firms and industry bodies that have called for the creation of a new National Infrastructure Commission with statutory independence, as proposed by former Olympic Delivery Authority chair Sir John Armitt in a review commissioned by the Labour Party last July.
"If we are to benefit fully from the potential scale of Chinese investment, politicians across all parties need to find solutions and need to hold their nerve and hold firm on the promises made with regard to infrastructure spending," Hallam said.