Osborne urged to stimulate infrastructure investment

George Osborne has been asked to redouble the government’s efforts to boost the construction industry by stimulating investment in infrastructure in next month’s Budget, amid tentative signs of green shoots emerging across the sector.

A range of industry bodies this week urged the chancellor to make good on promises to stimulate infrastructure investment in the 2012 Budget, due on 21 March.
The calls came as tentative signs of recovery in the sector emerged, with the latest monthly figures from the Construction Products Association (CPA) and Barbour ABI Index showing the value of contracts awarded in January leapt by more than a third year-on-year.

CPA senior economist Kelly Forrest said the figures were “very encouraging” and suggested the industry had grounds for “cautious optimism”.

In its Budget submission, the CPA urged the government to shift more public spending from current expenditure into capital investment and called for the Bank of England’s quantitative easing programme to be invested directly in a special purpose company to build homes.

So far the Bank of England has injected £325bn into the economy, primarily through the purchase of government gilts from bank reserves. The CPA said the construction industry would be better served by direct investment in housing projects.

The Institution of Civil Engineers (ICE) and the Confederation of British Industry (CBI) both called for the chancellor to redouble the government’s efforts to deliver on the promises made in the Autumn Statement to attract £20bn of institutional investment, such as pensions funds, into infrastructure.

The CBI said this would require pooled investment platforms and “effective baton passing between the construction phase and long-term financing”.

“The chancellor must use this Budget to score the growth and investment policy goals he put forward in his Autumn Statement,” said John Cridland, CBI director general.
The ICE called on the chancellor to “avoid complacency” and translate his plans into outcomes. It said the government should publish an assessment of the level of funding it believes it can realistically secure from different categories of investors, such as pension funds and overseas investors, and called for ministers to publish a programme of work to be carried out to unlock these funds.

Meanwhile, the UK Contractors Group urged the government to provide greater clarity on the future of the private finance initiative (PFI) and warned that with PFI now a “flourishing” international market continued uncertainty meant investment could be lost to the UK.

Norman Anderson, chief executive of global consultant CG/LA Infrastructure echoed this warning: “Without some form of public private partnership that attracts private sector investment, whatever label it is given, the government’s infrastructure ambition will not be realised. PFI is essential in this regard.”