Reboot for UK investment
AMID the furore over the collapsing finances of Thames Water and sewagestained waterways, there is a shard of light. With the right financing model, political will and sensible engineering, it is possible for imaginative public investment projects to be completed.
after eight years of tunnelling, relief is at hand for the Bazalgette sewer system built by our Victorian ancestors to avert london’s ‘big stink’.
The 15-mile Thames Tideway Tunnel, or super-sewer, designed to slash toxic discharges into the Thames, was completed on March 27 when the final concrete lid was secured at abbey Mills Pumping Station in east london.
The £5bn project is a monument to the Regulated asset Base (RAB) model of financing which the Government also hopes will unleash investment in new nuclear.
under this model, private sector infrastructure investors are guaranteed returns during a project’s construction and operational stages. It is controversial because dividends are paid to investors, before completion. The cost is met by what some might regard as ‘stealth’ surcharges on household and business water bills. It can be an effective way of getting the job done by ring-fencing from politics.
Our public investment process is flawed. Imaginative projects such as the Elizabeth line, HS2 and Heathrow’s third runway are too tied to the political cycle and public finances.
at times, such as the present, when borrowing and debt are unusually high, Treasury fiscal orthodoxy comes into play.
Transformative projects such as HS2 are curtailed. We are in the unusual position of seeing labour, a government in waiting, curtailing a £28bn a year flagship new green deal amid fears of bond market turmoil.
a message to emerge from the Mais lecture by ‘cut and paste’ shadow chancellor Rachel Reeves was restoration of a trusted fiscal rule.
SHE proposes that the Government must live within its means for spending on services such as the NHS and welfare, but can borrow to support investment. That could be new hospitals, greening Britain or even a revival – if there were political courage – of the Birmingham-to-Manchester leg of HS2.
It was ridiculous that HS2 costs were allowed to rocket to four times those of high-speed rail in France.
cancellation of Birmingham-Manchester, and creating confusion about a london artery connecting Old Oak common in west london to a visionary Euston terminal, were politically expedient but economically illiterate.
The productivity gain to be gleaned from HS2 is evident from Birmingham. Some £10bn of additional new capital projects, from housing to retail parks and logistics, have been released. Imagine the productive capacity which would have been created and the levelling-up were the north of Birmingham connections to be restored.
cancellation is having a devastating impact on Britain’s train making. Manufacturer alstom warns that 3,000 jobs and its Derby plant may have to be mothballed because of Rishi Sunak’s decision. another HS2 investor, Hitachi Rail, is drawing up plans to axe jobs at Newton aycliffe in county Durham. It is not just immediate jobs at risk but confidence in the UK by overseas investors from France and Japan.
Instead of giving up, in the manner of Sunak and HS2, there are ways of making things work. RAB financing and using proven engineering skills (such as those on the Elizabeth line) are cases in point.
We shouldn’t be a nation of quitters.