Out-Law News 3 min. read

Government's failure to "take risks for growth" leading to mixed messages for investors


Too little is being done by the Government to encourage large-scale infrastructure projects, despite commitments by the Treasury to "take risks for growth", an infrastructure law expert has said.

Jonathan Hart of Pinsent Masons, the law firm behind Out-Law.com, said that the Government was "sending out mixed signals to investors here and abroad who are looking for clear Government policy towards infrastructure development". Giving a pre-Budget speech in Keighley, West Yorkshire yesterday, Prime Minister David Cameron said that the eagerly-anticipated document would be about "sticking to the course".

Hart said that without a strategic central policy on infrastructure growth and a clear 'pipeline' of projects, businesses were faced with "confusion and contradictory messages".

"The third objective for the Treasury is classified as 'taking risks for growth' by the rolling out of guarantees with the aim of unlocking infrastructure projects and a package of housing measures," he said. "However, over the last two years and since the Autumn Statement, little is being done to 'unlock' key large scale infrastructure projects. Government Guarantees are all good and well but the crucial link is missing."

"Only this week, the Government decided to delay the proposed plans for the privatisation of the UK's trunk roads and motorways. This comes after delays on critical aviation and nuclear infrastructure policy for the nation – it looks like the Government is facing both ways," he said.

Earlier this week, the Financial Times reported that a 'green paper' on new ownership models for the UK's trunk road and motorway network would not contain concrete proposals for a "workable privatisation scheme". The paper will still be published in the summer, the FT said, but will only "sketch out various proposals". The Prime Minister asked the Treasury and Department for Transport (DfT) to consider the feasibility of "new ownership and financing models" for the national road system last March, including potential concession agreements or the introduction of a regulated asset base (RAB) ownership model like that in use in the water sector.

In his Keighley speech, Cameron said that despite its deficit reduction programme the Government had "invested more in major road schemes in each of the last two years than in any year of the last Parliament". However, Hart pointed out that these investments had come through the use of "private sector partnerships".

"Any opportunities for future partnerships are currently absent," he said. "Without the private sector major infrastructure projects vital to the economy will be delayed."

"The Government has spent significant effort – through Treasury and consultation with the private sector – in developing the new 'PF2' model for encouraging additional institutional investment, only for those investors to indicate their reservations about the model and for government departments looking to implement it - notably, the MoD - to indicate that they have no interest in using it," he said.

Announced just before the publication of the Chancellor's Autumn Statement last year, PF2 is the Government's proposed replacement to the controversial private finance initiative (PFI) scheme. Among other changes, PF2 will see the Government take on the role of a project shareholder holding a maximum stake of 49%. This will allow the public sector to recover a share of the profits made by projects in the same way as private sector investors.

In his Autumn Statement, George Osborne announced that the Government would spend an extra £1 billion on roads, including four major new schemes. It would also provide £270 million to fund improvements in further education colleges, £1bn for schools, investment in ultrafast broadband in 12 additional cities and an additional £600m for scientific research infrastructure. However, at the time of the announcements, infrastructure expert Fraser McMillan of Pinsent Masons questioned whether the pledges would have a quick enough impact to provide much-needed economic stimulus and pointed out that many of the projects had been announced previously.

In his speech, Cameron rejected calls for increased Government borrowing to fund capital investment, such as that made by Business Secretary Vince Cable in a recent essay in the New Statesman.

"There are some people who think we don't have to take all these tough difficult decisions to deal with our debts; they say that our focus on deficit reduction is damaging growth and that what we need to do is to spend more and to borrow more," he said. "It's as if they think there is some magic money tree, and let me tell you a plain truth: there isn't."

He added that the loss of the UK's 'AAA' credit rating following last month's downgrade by ratings agency Moody's was "the starkest possible reminder of the debt problem that we face".

We are processing your request. \n Thank you for your patience. An error occurred. This could be due to inactivity on the page - please try again.