Will the industrial strategy sort out infrastructure?

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Infrastructure is a fundamental building block of the business environment for manufacturers and has rightly been included as a pillar in the Government's Industrial Strategy Green Paper.

The Green Paper sets out the need: "we must upgrade our standards of performance on digital, energy, transport, water and flood defence infrastructure, and better align central government infrastructure investment with local growth priorities."

You can see what EEF thinks of all the pillars in the industrial strategy at our hub: www.eef.org.uk/industrialstrategy

A lot has been done to improve infrastructure in the UK

As the chapter sets out, a lot has been done on infrastructure, particularly during the last Parliament. Indeed, a glance at the recommendations in EEF's Transport for Growth report highlights the major progress made in just four years:

  • The UK now has a National Infrastructure Commission and National Policy Statements have been completed on Transport and shortly on Aviation.
  • The Road Investment Strategy has significantly increased the funding for repair and renewal of the strategic road network.
  • Heathrow will get a new third runway
  • With Phase 2A - the timetable for HS2 has been accelerated and
  • A VED-linked Roads Fund dedicated to funding the strategic road network will be created.

Alongside this Devolution Deals (we touched on these in our review of 'place' and industrial strategy) have focussed on transport and infrastructure funding, the May Government has declared fibre digital infrastructure to be the future and has backed this up with new funding and new Sub National Transport Bodies (Transport for the North and Midlands Connect) have been created.

But there are some gaps where progress has stalled

While good progress has been made there are some outstanding elements, notably from our point of view is still a low level of funding for local road repair and no long-term certainty on local road budgets.

There are also some parts of the country without substantial Devolution Deals - we'd like to see more of these as the best way to incorporate local infrastructure needs within a national framework. There is no need to reinvent the wheel or create yet another framework.

The known known that needs sorting out ASAP

The Green Paper also seeks answers on how to improve the performance of UK infrastructure delivery - particularly on skills and supply chain availability.

This should be a genuine concern, and is well documented. As an Infrastructure UK report noted:

  • 'Sustained uncertainty and the cyclical nature of infrastructure investment in the UK has contributed, over several decades, to a significant shift from fixed to variable resources, i.e. there is a greater use of subcontracting and less direct investment in construction. Lower capitalisation and the higher levels of subcontracting increase the internal transaction costs in the UK, in particular through the premium cost of risk transfer down the supply chain to second and third tier supply chain providers.'

A recent look at the workforce in construction should also be cause for concern [this set of tweets highlights the challenge], in short a potential exodus of EU workers in construction coupled with a high number of workers heading for retirement.

Think HS2 is too expensive? You've seen nothing yet. Unless something is done, the cost projections for most infrastructure projects are set to go through the roof.

Here another pillar of the industrial strategy may help

Sector Deals. An Infrastructure Supply Chain Sector Deal that focusses on boosting investment in capital equipment, modelled on the Aerospace Growth Partnership Sharing in Growth initiative with its link between increasing productivity investment across the aerospace supply chain incentivised through greater certainty on long-term contracts could help solve the problem.

So let’s get cracking.

What do you think? You tell us - how else can local infrastructure priorities be incorporated into a national framework? What else should be done to fix skills and supply chain issues across the infrastructure supply chain?

 

You can tell us what you think by email: research@eef.org.uk or on Twitter: @EEF_Economists

 

Author

Head of Business Environment Policy

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