Writing in today’s Telegraph, GIIA’s Senior Policy and Research Advisor asks ‘Has the UK become complacent about the benefits of private investment in infrastructure …
Britain’s attractiveness for private investment was robust in the aftermath of the Brexit referendum. In 2017, inward investment projects into the UK reached a record level and the country had a staggering 58,000 tech firms. The message was clear – Britain was open for business.
But has this positive backdrop led to complacency in government? While the UK remains an attractive destination for foreign direct investment (FDI), analysis conducted by EY suggests Britain is losing ground to European counterparts.
Its market share of FDI projects in Europe has begun to fall. It is now critical for the Government to make sure that this does not become a precipitous decline in years to come.
An attractive environment for private investment is crucial if the UK is to maintain, upgrade and develop its infrastructure in the coming decades.
According to the Infrastructure and Projects Authority, the UK’s pipeline requires £60bn of annual investment over the next decade, much of which is scheduled to come from private sources. Of the pipeline identified until 2020-21, 45pc of infrastructure financing will come from private sector investment. The Chancellor announced in 2016 that gross public investment on economic infrastructure should increase from 0.8pc of GDP to between 1pc and 1.2pc of GDP in the long term.
At a time of strained budgets across Whitehall, particularly in the context of the increased resources that are likely to be directed towards the NHS, this could be a difficult ask. But even if it is achievable, it would fail to fill the infrastructure investment gap that consultants from McKinsey believe the UK will face in years to come. Britain would still be left with a multi-billion pound shortfall in infrastructure investment every year.
It is vital we continue incentivising private capital, both from domestic and foreign sources, to ensure we are in a position to deliver sustainable infrastructure for the next generation.
However, investors are becoming increasingly concerned about some signals coming from the UK at the moment.
Of course, Labour’s threat of renationalisation is having a negative impact on investor sentiment and would make the country much less attractive for future foreign investment. But mixed messages from the Government are adding to uncertainty – albeit to a lesser degree.
Yes, at some level the Government seems keen to ensure that Britain remains open to investment post-Brexit, recently announcing a flagship proposal of £30bn of FDI projects which should rightly be applauded. Yet there is an impression that this enthusiasm for FDI may not be shared across Whitehall.
The UK has historically had a reputation for effective regulatory regimes, helping to produce an attractive environment for investors while also yielding tangible benefits for consumers. However, GIIA members – many of whom are major investors in UK infrastructure – are beginning to see some red flags in, for example, the water sector, with analysis from Moody’s suggesting that regulatory risk in Britain is increasing. There is a concern that this could spread to other sectors.
It is critical to ensure that the delicate balance between the interests of customers and investors in infrastructure is maintained. We must not forget the huge benefits for consumers that have been delivered by private capital in infrastructure.
For example, increased investment since privatisation has meant that water customers are now five times less likely to experience unplanned supply interruptions. And in terms of electricity networks, the UK’s distribution network operators reduced customer interruptions by nearly 30pc in the decade to 2014, according to analysis from PwC.
The impending release of the National Infrastructure Commission’s first ever National Infrastructure Assessment will cover a number of sectors including transport, energy, waste, water and broadband, looking 30 years into the future. This will be a welcome contribution to the infrastructure discussion in the UK, while serving as an important reminder of the importance of providing the right economic and regulatory conditions to attract private capital in the delivery of the country’s current and future requirements.
There is always room for improvement – and there are areas where investors, regulators and government need to have an open dialogue about how customers can receive the best deal while also allowing for the necessary investment to future-proof UK infrastructure.
That said, the UK cannot afford to give the impression of hostility to private capital in infrastructure.
For the country to succeed in the global race of the 21st century, our infrastructure requires a massive amount of investment – much of which will need to come from private investment.
It is now more important than ever that the Government is vocal about the positive role of private capital in infrastructure.