Richard Threlfall, KPMG’s UK head of building, infrastructure and construction on the government’s infrastructure push

David Cameron’s speech for more private investment to modernize the country’s infrastructure was much more than a ‘call for cash” to boost the UK’s road network.

To secure the UK’s long-term competitiveness by modernising the nation’s ailing infrastructure has been a centrepiece of the coalition Government’s agenda since it came to power almost two years ago. Recognising that infrastructure investment is critical to driving economic growth in the age of austerity, the government launched its first Infrastructure Plan in late 2010.

A plethora of infrastructure initiatives followed: the setting up of the Green Investment Bank; the PFI Review; a cabinet committee tasked to drive delivery of 40 priority projects and programmes and the promise of a dialogue with pension funds over infrastructure investment.

Monday’s announcement was the first time the government admitted that we need more than a number of new roads, bridges or power plants in order to boost growth but a strategic vision for the UK infrastructure development over the next 50 years to ensure our economic competitiveness in a rapidly changing world.

And part of that vision will be changing the ownership and financing models of Britain’s roads in order to unlock “large-scale private investment” from sovereign wealth funds, pension funds and other investors.

It is welcome that the government has put infrastructure on the top of its agenda. But so far the impact of its initiatives on the ground are hard to find. “Where is the project pipeline?”, is the question many UK contractors and international investors are asking today as the target of £40bn of annual investment, a key plank of the first Infrastructure Plan, looks more like rhetoric than reality.

To get its infrastructure investment programme off the ground the Government should consider taking the following bold steps that would most have real effect:

1. Set up an Infrastructure Bank: Similar to the European Investment Bank and backed by the UK Government, it could lend low cost, and long-term, solving the problem of lacking long-term lending appetite by commercial banks.

2. Appoint a Minister for Infrastructure: Australia and France, amongst others, have one. At the moment Danny Alexander is effectively in this role, chairing the cabinet committee on the 40 priority programmes and schemes. But grassroots responsibility for infrastructure planning and provision remains scattered across central Government departments, their agencies and local Government.

3. Draw up a UK infrastructure asset balance sheet: No company can survive without knowledge of its assets, their condition, and an understanding as to whether the money being invested is growing that asset base, maintaining it or growing a backlog maintenance problem. Yet UK PLC tries to work without such a balance sheet.

4. Re-establish tax relief for infrastructure, buildings and structures: This would put the UK in line with other G20 countries and hence taxing profits rather than income. A consultation could establish the best approach including how to overcome state aid issues and put the UK on a footing with other European countries competing for capital investment.

5. Underwrite macro-economic interest rate risk for refinancings in public-private transactions: The government takes this risk on the entirety of its gilt programme. To offer the same for PPPs would unlock a wall of finance by allowing bank debt to fund the typically 3 year risky construction period of projects and then be refinanced with into funding from pension schemes and other low cost investors for the remaining 27 years or more. The savings would be significant.

None of these proposed solutions involves the government procuring infrastructure directly itself, nor even paying for it. 70% of the UK’s infrastructure is already privately procured. The request of government is for bold leadership and clear strategic direction. Then the UK itself will get the UK moving again and short term economic growth and long-term international competitiveness will follow.