This
week George Osborne announced that Government will underwrite up to £50 billion
of investment in UK infrastructure and exports. Richard Threlfall, head of
infrastructure at KPMG, said it was as “bold a move” as the government could
make on unlocking finance. But Osborne is walking a tightrope.
To
qualify for the scheme, an infrastructure project will need to jump through a
whole host of hoops. It will need to be of national significance, ready to
start construction within 12 months and financially credible. But, as pointed
out in Stephanie Flander’s excellent blog on the
subject, there is another box they will need to tick. Projects will also need
to demonstrate that they would not be viable without this government support.
These
are tricky criteria to meet, and there is some concern that the scheme will consequently
fail to appeal to potential investors. It follows previous attempts to inject
private sector finance into public infrastructure, including a well-publicised
scheme to encourage pension funds to invest in long-term projects under a
National Infrastructure Plan. The problem is, that plan, to date, has managed
to raise only a fraction of the investment expected.
The
pension fund investment scheme resulted in some strongly worded criticism from
construction companies, who accused the Government of failing to reduce the
risk of infrastructure investment. But Osborne finds himself in a difficult
position here. Reducing the risk for infrastructure companies must increase the
risk to the public purse. PFI projects may have enjoyed mixed success, but this
hasn’t prevented criticism from the public for them being too costly and potentially
leaving the Government, and the taxpayer, carrying the can should anything go
wrong.
Osborne
needs a plan, he needs to show that the Government is investing in growth as
well as exercising financial restraint. But he doesn’t want to fall foul of
criticism that he’s supporting construction companies while cutting funding to
vulnerable groups. The question is, if this latest scheme fails to bring
forward investment, is this a policy failure or a clear indication of risk
aversion in the private sector?
John Hood
Consultant
john@linstockcommunications.com
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