Monday, 28 November 2011

Infrastructure Options

The government hopes to invest money (from the Chinese and others) in 'shovel-ready' infrastructure projects. The FT tells us that tomorrow's announcement will be 'long on good intentions, but short on signed contracts'. Translating intentions in to money will thus depend on the portfolio of projects that are shovel-ready. The quality of this portfolio will depend, in turn, on how effective DfT and others have been in generating project options.

Unfortunately, when Eddington looked at this issue, it was clear that the system in the UK was better at generating options for some types of schemes than for others. Indeed, if I remember correctly, for some types of intra-urban schemes, there were so few schemes on the books that it was hard to assess the spread of possible returns (these are the numbers that I have used in the past to make comparisons to HS2).

One concern here is the political difficulties about the location and nature of projects. Following Nick Clegg's LSE speech earlier this year, I discussed the new focus on infrastructure: "This will start with the regional growth fund, where round 2 will, we are told, prioritise infrastructure projects. I don't think this is necessarily a great place to start because much of the economic literature is generally sceptical about the role of infrastructure in boosting local economic activity in struggling areas. After all, as population in these places is historically declining, they likely have plenty of infrastructure relative to people. How is adding more going to help? [...] Delivering transport infrastructure investment on time and on budget (another commitment) is generally a good thing, although unrelated, as far as I can tell, to fiscal stimulus. After all, overspends and overruns still involve government expenditure. I would welcome a genuine move to prioritise transport projects in terms of bang-for-buck (how about dropping HS2 in favour of the kind of smaller high benefit schemes that Clegg highlighted in his speech today)? I might even welcome more infrastructure spending. But with net capital expenditure set to fall dramatically (even if plans are in line with Labour's projections) this prioritisation will take place within a significantly smaller pot.

These worries remain. At least, post-Eddington, DfT put a considerable amount of effort in to improving option generation. Let's just hope that work had some impact in generating the current portfolio so that we don't end up funding lots of schemes like the one discussed in detail here.

1 comment:

chriseaglen said...

Dear Professor Overman,
Would it be possible to have clarity on what is meant by growth please and particularly how growth relates to different infrastructure. The time I studied similar issues the GDP was circa £650B and now I read about £1500B. I then hear about the boom within the use of increased indebtedness on credit and now the largest bust. Today we were told about the difference between liquidity and solvency needs of banks.

This word growth can be increase i demand for cement but the same cement works simply using spare output capacity. The bridge can want 5k tonnes of steel from Italy and not from the UK. The project site can want 20 Portakbins from York. Do we need to categorise growth the ensure we can measure what impacts on jobs and on imports or capacity for new exports arise please. Clarity about the meaning and consequences may help with the furthering of the debates. chris.eaglen@btinternet.com