Continued investment in the UK's transport infrastructure is an essential part of the country’s post-pandemic economic recovery. The scale of spending will require private as well as public capital, says Paul Hammond.
COVID-19 is triggering recession. Investing in transport infrastructure has been an essential ingredient in past economic recovery programmes and is essential for building confidence, creating employment and shaping a stronger UK this time around too.
However, the government alone is likely to struggle to achieve the level of investment required and needs to leverage capital from the private sector. For the last 50 years the UK has borrowed from the European Investment Bank (EIB), with loans peaking at over £7Bn in 2018 (about one-third of total government financing of UK infrastructure). By providing cheap and long-term financing, EIB loans encouraged additional investment from the private sector. But EIB lending has dried up with Britain’s exit from the European Union. A replacement is required.
A UK infrastructure investment bank (IIB) can provide a long-term source of capital at low cost to fill the gap left by loss of membership to the EIB. Several initiatives across the world, such as the Canada Infrastructure Bank and Development Bank of Japan, have proved the efficacy of a national scheme, and can help provide a model for the UK. Transport currently has a disproportionately high level of public rather than private investment when compared to other sectors, despite transport having one of the greatest multipliers in terms of capital expenditure, overall GDP gain and jobs created. An IIB could redress this.
If organised with regional subdivisions an IIB could understand the strategic importance of local projects and progress them by providing targeted capital support. This would open the possibility of creating locally specific remedies to the impacts of the coronavirus pandemic and its economic legacy.
The government must balance developing a more joined-up country, through stronger links between the north and south, England, Scotland, Wales and Northern Ireland, with stronger local connectivity, helping communities to become more mobile. Among those transport projects needed to unlock economic and social opportunity in the north, to enable a levelling-up wealth and wellbeing, is High Speed North (previously Northern Powerhouse Rail, aimed at increasing capacity and cutting journey times between Manchester, Liverpool, Leeds, Sheffield, Hull and Newcastle-upon-Tyne). It is essential for better regional as well as national connectivity.
Private sector investment must also be encouraged to achieve the widespread electrification of transport, which is essential to the UK to achieve its commitment to cut greenhouse gas emissions to net-zero by 2050. Rail electrification has gained a reputation for substantial cost and schedule overruns through high profile projects such as the Great Western route electrification programme, which was cancelled before completion in 2018. But across Europe and in Scotland electrification is being achieved predictably and even with cost savings. Procurement, scheduling, technical and risk management lessons can be applied to deliver future UK electrification efficiently, on target.
To achieve a switch from petrol and diesel vehicles to electric, charging infrastructure must be comprehensively installed. This should be accompanied by subsidy or incentivisation for the purchase of electric vehicles which, at present, have a higher capital cost. For the government and investors, the payback is from the creation of new markets and domestic supply chains, with export potential.
It is important that the coming economic squeeze does not divert government from the more difficult and expensive challenge of greening freight transport, shipping and aviation. Technologies for replacing fossil fuels in these transport sectors is far behind electric and hydrogen fuel cell propulsion systems for cars and light vehicles, requiring support for research and development.
For more information on the proposal for an infrastructure investment bank, read the ‘Funding our future’ report