We need big projects, but the government is too scared of upsetting its nimby backbenchers to take risk expensive investment in infrastructure
Infrastructure is beautiful. A great airport, a breathtaking bridge, a high-speed train network, with celebratory stations to match, or a well-organised port are not just economically purposeful. If designed and built well, they lift the spirit. Good infrastructure indicates a national community that knows the value of collective action, believes in its future and is prepared to invest in itself. It signifies national self-belief.
But Britain does not do great infrastructure, or certainly has not since the great Victorian investments of the 19th century. There are indications of what could be – St Pancras station, the Tyne bridge, the Jubilee line, Heathrow’s Terminal 5 and even the Olympic Park – but in the main the story is of penny-pinching and lack of ambition.
The usual culprit is the Treasury – prioritising a reduction in the immediate public sector deficit over anything more long term, made worse by the meanest possible way of assessing the pay-back from new projects. One senior Treasury official recently boasted to me that his proudest achievement was to delay Crossrail by 20 years, but hoped to trump that by killing HS2. His comments were symptomatic of the general attitude.
Yet the Treasury can only get away with such nonsense because there is no shared vision of our future and certainly little desire to make common cause to deliver it. The “not in my backyard” syndrome and planning procedures that are fastidiously exhaustive make matters worse. But they in turn reflect a culture unwilling to make public investments for a shared common good. The result is that Britain is continually butting up against capacity constraints.
Whether it is a matter of getting anywhere fast and efficiently, or the gathering housing crisis, or even the lack of resilience in our national networks that distribute energy and water, the consequence of everything being run on a shoestring is evident.
It could be different. Britain’s rail network is nearly full, as are our airports in the south-east. Heathrow’s two runways are inadequate for today’s traffic, let alone for what is predicted. Furthermore, we are enduring the longest depression since the 19th century, along with the lowest interest rates since the early 18th century. We could use this unique opportunity to launch an infrastructure revolution, to revive the economy and make a statement of confidence in our future.
Fat chance. The coalition says the right words, but it is so ideologically transfixed by the need to accept no risk, no funding and no financing obligations for what necessarily are high-risk public projects that it might as well save its breath. What’s more, the rapid erosion of its political capital, particularly in the Conservative party, means that increasingly David Cameron and George Osborne are wary of taking on their restless backwoodsmen. These think the principal purpose of their party is never to damage house prices and to ensure that the disruption of construction and planning blight happens to others. Thus the emergent stasis.
For example, the country needs to build more railway capacity, in particular between our major conurbations (but also within congested commuter networks). The choice is brutal. To botch up the existing system or to build a new one to supplement the old. Yes, there is the opportunity to cut an hour off the journey time from London to Manchester, but this is less the point than the crucial need to have the capacity to meet the surge in demand.
Thus the case for HS2, which at the last election had the support of all three political parties. Except Tory support is visibly ebbing. An article in the Spectator alights on the surprising omission of any bill in the Queen’s speech to bring forward the start of HS2 and argues boldly that the project is dead. Mr Osborne is not sure whether the tens of billions consecrated to HS2 are worth the political hassle, the article argues. Better kick the whole thing into the long grass and spend much less on inexpensive and uncontroversial upgrades to the creaking road and rail systems, which will delight the Treasury and Tory constituency parties in the Chilterns.
It also looks as though the brutal logic of projected air-traffic forecasts is going to force a reversal of the opposition to a third runway at Heathrow. All the much-touted options are impractical or prohibitively expensive. Cameron and Osborne, preparing to mount a U-turn, cannot take on another Conservative revolt.
Bad economics has led to bad politics. The chancellor, influenced by the indefatigably economically dry governor of the Bank of England, has adopted what Mervyn King, in his Mansion House speech, called “a textbook response” to the current crisis – tight fiscal and loose monetary policy. It would be a textbook response if the current crisis was conventional. But the combination of a vastly overextended banking system, debt legacy, profoundly unbalanced economy and huge uncertainty has always required something more purposeful.
Two years ago, it was obvious that what I described at the time as scorched earth economic policies would lead to the current state of affairs. So it has proved, giving Cameron and Osborne even less political room to do what is necessary: build both a third runway at Heathrow and a high-speed rail network.
The latest wheeze – to “max out on plan A” with a new “funding for lending” scheme in which the Bank of England offers low-cost funds for new lending – may be helpful, but ultimately is destined to have little more impact than all the failed schemes before. What is deterring new bank lending is the banks’ correct assessment that it is high risk and will remain so unless the state does two key things: assumes some of the risk itself directly and acts to lift demand. The same palsied approach that is freezing vital infrastructure investment is infecting wider economic policy.
What is needed is obvious and even the CBI is moving in this direction. It’s the opposite of King’s: to integrate fiscal, financial and monetary policy to mitigate private sector risk. The government, pending the creation of an infrastructure bank, must guarantee the high-risk component of privately funded infrastructure projects and it must indemnify a limited tranche of every new loan made to the non-financial business sector.
It must also target growth – and a higher rate of inflation – so that there is some prospect of the real value of the debt being reduced. Britain could have the infrastructure and investment revolution it needs, but it has to come alongside a revolution in economic thinking and leadership.