Businesses urge a new approach if the UK is to address long-term infrastructure challenges
Despite promising improvements to infrastructure policy during this Parliament, political uncertainty means the UK is still some way off delivering the transformational upgrades the country needs, according to the latest CBI/URS Infrastructure Survey.
The survey of 443 senior business leaders shows that in key areas of competitiveness, like energy and transport, 67% and 57% of businesses respectively expect infrastructure to worsen in the next five years. Worryingly, respondents see the UK’s infrastructure as internationally weak too – lagging behind Australasia, North America and the EU, and with little improvement since the first survey in 2011.
These concerns come despite more than two-thirds of infrastructure providers viewing government policies such as the UK Guarantee Scheme and pro-growth planning reforms as positive developments. Such policies are seen as having increased the attractiveness of the UK as a place to invest in infrastructure over the course of this Parliament.
Asked what stands in the way of progress, almost all businesses believe political intervention is part of the problem, rather than part of the solution. 96% of firms said political uncertainty is discouraging investment and 93% identified political rhetoric as a problem, damaging confidence in markets.
To tackle this, businesses show overwhelming support for the creation of an independent infrastructure commission (89%), as recommended by Sir John Armitt, to help determine what the UK needs, and when it needs it. The survey also shows high levels of support for bold pledges in election manifestos from all parties to address key barriers to progress on issues like aviation and roads.
Katja Hall, CBI Deputy-Director-General, said:
“Progress on infrastructure has been a case of two steps forward and three steps back for far too long. While the policy environment has improved, businesses still don’t see upgrades to mission-critical parts of our infrastructure on the ground in practice – and don’t expect to anytime soon.
“Politicians are too often seen as ducking the big, politically difficult questions looming large on businesses’ risk register, like runway capacity and long-term road funding, rather than grasping the nettle.
“Where hard decisions have been taken on issues like energy, populist political rhetoric threatens to send us backwards. Just recently National Grid warned that spare capacity margins are at the lowest level in seven years, so building up investor confidence couldn’t be more important.
“We’re at a crossroads. The next government must build on the successful policies of this Parliament, but we also need to see bold thinking and a renewal of the politics of infrastructure, finding a new way to agree upon and then consistently deliver the improvements we’ll need over the next fifty years – not just the next five.
“The vast majority of businesses back the creation of an independent body to assess the UK’s long-term infrastructure needs. That 99% of firms think this would have helped the government make a more compelling case for HS2 demonstrates the powerful role a more independent voice could play.”
John Horgan, URS Managing Director, Europe, Middle East, Africa and India, said:
“There is a strong desire for a new approach to infrastructure that extends beyond the five-year electoral cycle. Business is overwhelmingly calling for the establishment of a neutral body to assess the UK’s long-term infrastructure needs. This would transform how infrastructure is planned and delivered across the UK, enabling capacity to be a step ahead of demand.
“Separating short-term politics from infrastructure decision-making would help end the stop-start investment that has so often stalled progress in the past. A long-term strategy with longevity of funding would give industry the confidence to recruit and maintain the skills required to deliver the projects the UK so urgently needs.”
Progress during this Parliament
• Coalition policies have been positively received by infrastructure providers:
– 88% of providers see the National Infrastructure Plan as positive
– 87% view the UK Guarantee Scheme as a welcome development
– 64% view the creation of the National Planning Policy Framework positively.
• Confidence that policies have translated into action is low – two-thirds (67%) of firms report energy infrastructure has worsened in the last five years, and over half see the same in transport.
• Businesses see UK infrastructure as worse than that of our main rivals: the EU, Australasia and North America, and we’ve not closed the gap. In 2011, 59% saw infrastructure in other EU countries as better than in the UK; in 2014 this is 61%.
Top barriers to progress are political
• Among infrastructure providers, 71% see political uncertainty due to the electoral cycle as significantly discouraging investment, with 97% seeing it as at least somewhat discouraging.
• Political rhetoric is in close second place as a barrier that undermines confidence in markets, with 54% of providers seeing this as a significant barrier to investment – rising to 97% who see it as at least somewhat discouraging.
A new approach is needed to infrastructure decision-making
• Business wants to see a new approach to the politics of infrastructure, with 89% backing an independent body to assess the UK’s long-term future needs.
• 100% of infrastructure providers and 99% of businesses feel the case for HS2 would have been easier if it was part of a long-term infrastructure plan.
Business backs bold action in party manifestos
• Business wants to see bold action in party manifestos:
– 99% want to see backing for rail franchising and Network Rail’s investment plans.
– 92% want to see commitment to implement the Airports Commission’s findings.
– 86% want to see road funding reform and greater private investment.
• Confidence energy supply will improve has steadily declined, with a balance* of -34% firms expecting improvement in 2012, -54% in 2013 and now in 2014, -67%. (*A balance is the difference between respondents expecting improvement and those expecting deterioration)
• 80% of firms say fears about future energy security are being factored into their investment decisions now, while 74% say the same about fears of higher costs.
• More than half of businesses (52%) report a worsening of motorways in the last five years, and 65% see the same in local roads.
• The future is seen as equally bleak, with 77% and 86% of respondents expecting motorways and local roads to either stay the same, or get worse, over the coming five years.
• Links to established markets are good, with +69% and +68% of firms positive on balance about links to the EU and North America. Yet for China (+22%), India (+15%) and Brazil (+14%), satisfaction is much lower.
• 46% of firms in London say that indecision on new capacity is already impacting investment decisions.
• With 91% of firms ranking digital networks as a key factor in investment location, UK digital is a bright spot, with 89% seeing improvement since 2009.
• Despite being a UK strength, dissatisfaction with current networks is still too high. 48% of all firms are dissatisfied with current provisions.
The CBI’s infrastructure policy priorities include:
1. Establish an independent body to determine future infrastructure needs and how they should be met, without delaying projects already underway
2. Boost infrastructure investment by introducing capital allowances for structures and buildings
3. Implement all elements of Electricity Market Reform to secure the necessary levels of investment in our power sector, and ensure energy efficiency is an infrastructure priority
4. Commit to implementing the recommendations of the Airports Commission to bring an end to the hiatus over UK aviation capacity, with spades in the ground for a new runway by 2020
5. Spark a national debate on the future funding of the UK’s road network by conducting an audit of the UK’s road network, providing a clearer picture of the current funding deficit
6. Provide long-term investment certainty for digital infrastructure by committing to carry through the digital strategy currently being formulated.