Recently I sat next to the head of corporate lending at one of the big banks. The usual question of “how’s business” was inevitably asked, with the answer “just had six quarters of lending growth but the last two weeks… awful! Especially with infrastructure, we had so much in the pipeline but confidence is low”.
One of the many achievements of the Osborne chancellorship has been the recognition that infrastructure is a key factor of economic growth potential. The public sector has supported infrastructure development of all types – transport, energy, housing and broadband and communications.
Of course, more could have been done, but in a post Brexit world of challenging economics and low confidence – how will infrastructure fare now?
Three immediate challenges to the new government are apparent.
The Skills Challenge
If movement of labour is to be restricted then an already acute skills shortage will be exacerbated. There is a huge need for more specialist academies, such as the Tunnelling Academy. Many of the major infrastructure projects have followed Crossrail’s lead on this and established such institutions.
The national infrastructure pipeline has provided industry with a longer term view of skills requirements. ICE’s recent State of the Nation Devolution report recommends the creation of these pipelines on a regional scale to identify where opportunities exist and facilitate government, industry and academic institutions to invest in the training required to meet them.
In the longer term the approach could be to implement a skills stream in schools to fit alongside the academic. A new qualification for 14-18 year olds or a revamped NVQ is one option. More of our brightest and best must be attracted into engineering. Finally I was and remain a huge supporter of the “Women in Engineering” scheme. It is ludicrous to cut ourselves off from 50 per cent of our talent base – Infrastructure must become female friendly. This approach links into a new Theresa May government’s aim of social mobility and greater opportunity.
The Finance and Funding Challenge
Although almost inevitable, in the UK the public sector has been the first point of call only partially because sovereign debt is cheaper. Now alternatives will be necessary, and not just bank financing. However in many other countries it is the private sector through P.Fs, VCs, sovereign wealth and dedicated funds. The UK culture is still suspicious of these funds and yet in a post Brexit world, our secure legal and regulatory framework is still likely to be attractive. We must therefore accept one of the advantages of new post Brexit world – discard all EU restrictions of financing.
Of course we can only attract finance with a clear revenue stream. Affordability for users of infrastructure services is a growing concern. The tax base will continue to be stretched, so we now need a mature debate about the use of road pricing and user pays tools across all of our infrastructure services.
Equally we must encourage the UK Pension Fund and other institutions to set up direct investment funds. If US, Australian or Canadian Teachers and Civil Servants can invest in UK infrastructure, why can’t those in London, Manchester or Merseyside? We must have the ability to develop and construct these types of finance solutions and deals from the UK.
The Governmental Challenge
Government has created functions to address infrastructure governance; but, we need a step change to break our silo mentality and make the government an “intelligent client”. The reforming of the government after Brexit allows the UK for a chance to cure the source of these issues.
Last year I wrote a pamphlet together with the Association of Consulting Engineers which supported the need for a Ministry for Infrastructure. However the advent of the NIC and IPA has superseded that paper. The NIC strategic role should mean that both the prioritisation of projects and their inter relationships can now be better understood. The merger of IUK and the MPA into the Infrastructure Projects Authority provides an opportunity to make this step change in delivery. Industry has done some good work in this area, bringing together clients to address procurement issues.
An ability to specify and design will allow a lower base cost and project management skills will give the ability to counter cost creep. Moreover, the Treasury “optimism bias” or “risk quotient” would also be reduced, making projects both more attractive and more fundable. The government challenge can only effectively deliver if given political will or influence. Hence the need for a Minister for Infrastructure, or maybe two, based either in a separate office in the Cabinet Office or Treasury with departmental reach.
Whilst Brexit may pose a capacity challenge for government, we need to maintain business as usual alongside complex EU negotiations. government will need to call on expertise from the infrastructure and construction sectors to help with both.