To get the UK economy moving again, we need a new approach to infrastructure. As the economy slowly reopens, the challenge is not only to protect jobs and businesses from the continuing fallout of the pandemic, but also to get the engines of growth firing again. In a highly uncertain environment, in which both national and global demand may remain weak for some time, infrastructure investment will play a crucial role both in generating jobs in the short term and in laying the longer-term foundations for renewed, resilient and sustainable growth.
At the last Budget, the government promised an expansion in infrastructure investment after years of neglect. But almost three months on, there appears to be little to show for their new-found enthusiasm. Only £1 billion of investment was explicitly earmarked back in March for “shovel-ready” local projects which could be started immediately to boost the economy. Recent announcements on transport have done little to add to this.
Moreover, the government has yet to publish the much-delayed National Infrastructure Strategy, almost two years after the original assessment of our national infrastructure needs was released.
The government must accelerate potential projects; but it also needs to target investment in the right places and ensure it has a positive impact. This requires, first, new investment rules which can help tackle the worst impacts of the current crisis.
According to recent analysis of Universal Credit claims by the think-tank Autonomy, parts of the Midlands and North of England have been hit particularly hard. Blackpool’s claimant rate rose to 11 per cent of the workforce by mid-April, while Middlesbrough, South Tyneside, Wolverhampton and Birmingham have all seen UC claims climb to 9 per cent, with further increases undoubtedly to come. The evidence suggests that the areas hit hardest by previous recessions will bear the brunt of this one.
These regions have all too often failed to benefit from infrastructure investment. Treasury investment rules – the so-called “Green Book” – prioritise short-term cost/benefit returns over productivity, employment, environmental and long-term growth effects when assessing investments. Just as the government’s “one-size-fits-all”, sector-blind approach to the Coronavirus Job Retention Scheme appears set to damage the most vulnerable parts of the economy, so current infrastructure investment rules often penalise regions that need new investment most.
The government trailed reform of the Green Book back in December and the Chancellor reannounced it at the March Budget. But so far, it has failed to materialise. New investment must be undertaken under new rules to allow effective targeting of areas where infrastructure can not only generate new opportunities in the short term but also most transform long-term potential.
The Treasury should also actively consider investments that can unlock new engines of green growth. To deliver on this vision, the government should revisit the discount rates it applies in evaluating projects, factoring in the long-term productivity, growth and employment impacts of investments, and their contribution towards building a high-growth, low-carbon economy. New rules for investment will need to be accompanied by a new approach to embedding employment and training programmes within infrastructure projects to ensure they yield the maximum benefit for local people, communities and businesses.
All shovel-ready projects should be underpinned by sectoral agreements committing employers across the supply chain to job targets, employment standards and to hiring through official training programmes, including enabling reskilling for a new career with access to a range of employers. Agreements should also ensure each project offers a range of apprenticeships and other opportunities for school leavers, to help minimise the scarring effects of the recession on those just entering the workforce.
Projects should also enshrine commitments and mechanisms to allow SMEs and local employers to compete effectively for supply-chain contracts that will help them grow and generate new jobs. As the Trades Union Congress have pointed out, there is significant precedent for this. For instance, the government’s deal with the offshore wind sector sets a minimum requirement for 60 per cent of construction and maintenance work to be carried out by UK firms.
This new approach should also be complemented by new standards on corporate citizenship and value-for-money. For instance, only companies that pay tax in the UK should be eligible to bid for infrastructure projects.
A pipeline of ready-to-go infrastructure projects, grounded in this new approach, would form an important part of the strategy to get our economy moving again and sustain it over the coming months. But if it is to succeed, the government will need to work with the widest range of economic actors. Labour has called for a national consensus on the way forward. I repeat my call for the Chancellor to work with me, businesses, trade unions and local government so that we can get the path to recovery right.
Annelise Dodds is shadow chancellor and MP for Oxford East
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