Graham Ruddick 

Business leaders call for ‘tarmac and telecoms’ from productivity fund

Investment fund of £23bn announced in autumn statement must be quickly translated into action, CBI head says
  
  

The main A683 road between Sedbergh and Kirkby Stephen
Some of the fund has already been allocated including £2.6bn on modernising roads. Photograph: Alamy

Business leaders have told the government it must convert a new £23bn productivity investment fund into “tarmac, tracks and telecoms” rapidly if it wants to boost Britain’s lagging productivity and economic growth.

The private sector has become increasingly frustrated at a string of unfulfilled pledges by the government – primarily by the former chancellor George Osborne – to step up investment in British infrastructure.

Philip Hammond, Osborne’s successor, announced in the autumn statement a national productivity investment fund that will be launched in an attempt to boost productivity by investing in innovation and infrastructure.

The fund, to be financed by extra borrowing, will oversee £23bn of spending over the next five years. Some of the expenditure has already been allocated to specific areas: £7.2bn on building new homes; £4.7bn on science and innovation; £2.6bn on modernising roads, building infrastructure for electric vehicles and supporting railways; and £700m on high-speed fibre broadband and 5G services.

The announcement was broadly welcomed as a way to kickstart much-needed improvements in infrastructure across the country. However, there are major concerns about how the fund will be run, which projects will be backed, and how other proposals in the autumn statement – such as the restrictions on salary sacrifice schemes – could damage productivity.

Carolyn Fairbairn, director general of business lobby group the CBI, said Hammond had “prioritised a pragmatic downpayment on future productivity growth”, but added: “These measures must now be translated into action. That means tarmac, tracks and telecoms being laid, and clear, deliverable timetables for major projects. Only then will they act as a catalyst for investment, jobs and growth.”

The autumn statement document says the specific projects to be funded will be decided in “due course, using value for money assessments, following HM Treasury standards”.

It adds: “Where relevant, expert sector bodies such as Highways England, the Homes and Communities Agency and UK Research and Innovation will make this assessment.” The national infrastructure commission has also been set up to advise the government on long-term investments and make recommendations.

However, £7bn of the £23bn fund remains unallocated to any sector and is not scheduled to be spent until 2021-2022.

The government said the fund would take total spending on housing, economic infrastructure and research and development to £170bn over the next five years. But the size of the fund is dwarfed by the government’s commitment to the HS2 rail line, which will cost an estimated £56bn.

Christopher Mahon, investment manager at asset management firm Barings, said the chancellor’s infrastructure plan is “upside-down” with “eye-watering sums” committed to HS2, a third runway at Heathrow airport and Hinkley Point C. The final two projects will be built using private sector funds, although they are supported by government subsidies.

“Meanwhile only token amounts of money are being spent on practical projects that are needed today, such as easing rail and road bottlenecks,” Mahon said. “For example, the £2bn announced today [for transport] is 50 times smaller than the amounts committed to the three mega projects alone. This is despite the Treasury’s own analysis showing these smaller, less glamorous projects give the bigger payback to the taxpayer. So it is a great shame that the chancellor continues to be seduced by the glamour of the mega and ignores the utility and timeliness of the micro.

“Britain seems to be locked into a type of topsy turvy spending dogma which results in the UK’s well-known productivity stagnation.”

Critics also claimed the government’s ambition of boosting productivity could be undermined by other measures in the autumn statement. For example, JLT, the insurer, said restrictions on salary sacrifice schemes and an increase in the insurance premium tax would hit employees and hurt companies that try to reward strong performances.

Mark Pemberthy, director of JLT employee benefits, said: “It is ironic that in an autumn statement which is targeting productivity, some of the incentives that employers use to raise productivity and engage their workforce have been made less affordable.”

Simon Walker, director general of the Institute of Directors, said the government could have done more to encourage businesses to invest, which would also boost productivity.

He said: “The chancellor’s attempts to increase productivity by investing in transport infrastructure, broadband and housing are welcome, but businesses would also have liked to have seen measures to encourage them to invest now.

“The OBR predicts that next year will be the low point for growth, so we are surprised that amidst all of the political and economic uncertainty there weren’t many measures to help ‘just managing’ businesses now.”

Paul Dossett, partner at accountancy firm Grant Thornton, added: “Infrastructure is important but building roads and bridges will not solve the productivity problem alone.

“Instead, we need to start at school, build aspirations and community involvement, and focus on measures that will improve not only economic prosperity but increase the health, happiness and wellbeing of the population.”

 

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