Thursday 5 March 2015 8:20 pm

How Britain can end the curse of infrastructure white elephants forever

No question, Britain has an infrastructure problem. A fast-growing population, hitting 70m by 2030, no fiscal surplus for another five years, and no recovery to the national debt levels of 2007 until 2030 will put even further strain on it over the coming years. But financing infrastructure in an era of prolonged austerity requires some rigorous analytical work, choices and trade-offs. And that means asking hard questions about the tax-funded, debt-fuelled expansion of Britain’s train network, for example – with interest rate repayments set to take up one-third of Network Rail’s budget by 2029, it’s not difficult to see we have a problem. With North Sea supplies dwindling, meanwhile, you also have to wonder why the UK has yet to properly embrace shale gas, despite many authorities – including the Environment Agency – stating that its extraction is safe. It now seems likely that, soon after the election, we will have some kind of National Infrastructure Commission in place. But if we have learnt anything in the last 20 years, it’s that setting up a public body with a great sounding name is far from a policy solution. Invariably, after a welcome start, it will mushroom in size and become part of the staid furniture of government, never really fulfilling its promise, let alone becoming truly accountable. Worst of all, there is a risk that such a body could become over-exposed to powerful blue chip lobbies, promoting huge, complex, fastest, longest-type projects when incremental, small and less glamorous improvements could generate a higher return on capital and free up resources to do other things. To solve this conundrum, we need to create a public-facing Infrastructure Best Value Index that lines up all the projects and scores and ranks them against each other. For the first time, decisions would not need to be made merely on a fashionable political whim, and we could have a strong body of evidence to endorse – and more importantly reject – a project. But what would such an index look like? There are three crucial elements. The most important aspects to measure are the headline costs – how much money will be required and where will this come from? If the private sector isn’t willing to finance a project, the government needs to ask why. Second, we must understand the complexity. Is this a first-of-its-kind project, and how difficult will it be to integrate all the component parts? Finally, we need to look at whether there will be spill-over effects in the UK, and be realistic about the “whole life” costs of a project. These can often come in at six times the initial investment, meaning expensive projects cost even more over the course of a generation. Answering these questions will help us obtain a firm idea of when a project will break even, or at least turn an operating profit – something we still don’t know about HS2. To ignore the importance of establishing a Best Value Index is to pretend that we don’t have a large and growing national debt. But if we did have such an index, it would put Britain in the driving seat of responsible twenty-first century government.

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