Blueprint for building our economic recovery

In his book “Climate Change and the Nation State: The Realist Case”, Anatol Lieven argues that the legitimacy to act, and hence the ability to act decisively, lies with the nation state. However as much as individuals like I might wish for strong multilateral organisations, ultimately they can only support or encourage.

Developing the theme in an article in the latest RSA Journal, he goes on to warn of the threat to societies if governments do not act quickly and boldly to protect the poorest and most vulnerable from the economic impact of the impending recession. And he looks back to the New Deal launched by President Roosevelt in the US in the 1930s as a shining example of the use of state-driven investment in infrastructure which helped put the economy back on its feet, but moreover strengthened its liberal democracy.

So today, as the threat from covid gradually recedes in the UK and across most of Europe, the urgent task is to find ways of rebooting our economy. But we must do so in a way which is sustainable and resilient. Now more than ever we need the government to show real leadership and pace in taking us on a green path to economic recovery.

It requires businesses to act with social conscience, not laying off staff unless there is absolutely no alternative, and to support suppliers

There are four things that the government needs to do, with the input and support of both local government and businesses:

1. Set out a vision for the UK’s desired “new reality”, that can then be translated into criteria for prioritising construction and infrastructure projects that will help drive economic stimulus. Those criteria are likely to include contribution to achieving net zero, digital connectivity, and the rebalancing of our economy as part of the government’s “levelling-up” agenda. It would mean prioritisation of projects such as renewable energy, electric vehicle charging, green housing and energy efficiency retrofit to existing house stock, cycleways, even faster full-fibre and 5G roll-out, and regeneration and housing schemes across the north of England.

2. Invite submissions from both public and private sector organisations of ideas for “shovel-ready” projects which would also meet the “new reality” criteria. New Zealand launched a process like this on 1 April, with a questionnaire sent out to every government agency, local authority and major private developer. The evaluation could also take into account the ability to leverage private capital, as government funding is going to be severely constrained, the need for government guarantees, or other support mechanisms, and how quickly the money would be spent and the benefits realised.

3. Launch a UK economic stimulus and recovery bond programme, underpinned by a government guarantee, in order to attract low-cost capital from pension funds, sovereign wealth funds and other long-term institutional investors from around the world. The bonds would have a 50+ year maturity, in order to better match the financing to the life of the assets, and to spread the cost of the rebuilding to future generations. Funds would be invested in the projects prioritised on the basis of immediate economic impact and contribution to “new reality”, and could also be used to provide development funding for selected private sector led projects. We need to do this quickly as other countries are considering similar ideas.

4. Require project owners, as a condition of funding, to embed the principles of Project 13 into their procurements, so that we take the opportunity to build a more financially robust construction supply chain. Owners should be expected to enter into long-term partnerships with suppliers with joint commitments to job security, training and development of workers, jointly-funded investment in technology, appropriate allocation of risk and prompt payment throughout the supply chain.

While government must lead, a collective effort is required. The sense of community that has been fostered through the response to the pandemic now needs to be harnessed to a united determination that we will defy the doomsayers who say we will suffer the worst recession in 300 years, and put this country back on its feet before the year is out.

That requires bravery and agility from all of us. It requires bold visions from local government, our cities and combined authorities. It requires businesses to act with social conscience, not laying off staff unless there is absolutely no alternative, and to support suppliers. It requires each of us to overcome our fears about covid-19 and be guided by a sensible assessment of risk to allow us to return as quickly as possible to full participation in society. It requires all of us to support a vision of recovery that rapidly decarbonises our transport and heating and accelerates our attainment of net zero.

If we do this right, we will emerge stronger than ever before. We will be able to look back and see 2020 as a turning point, where the world was confronted with its vulnerability, and put in place the foundations of a better society – greener, fairer and more resilient.

Richard Threlfall, partner, global head of infrastructure, KPMG International