There are systemic issues in the UK that will hinder the impact that increased spending powers will have on infrastructure investment, an economist from Boston Consutling Group (BCG) has told NCE.
The announcement was made ahead of the government’s first major fiscal event since election, the Autumn Budget on 30 October.
Even with this planned boost to investment in infrastructure, BCG chief economist Raoul Ruparel spoke to NCE about how the increase in investment might not aid the industry in the way people think it will.
Heading up BCG’s in-house research division the Centre for Growth, Ruparel has conducted lots of research on infrastructure delivery.
A report from BCG Centre for Growth published earlier this year revealed the UK has underinvested in infrastructure over the past 40 years, averaging just 19% of GDP, the lowest among the G7, and UK road and rail construction costs are significantly higher than those of peer countries. For example, UK road projects cost £7.77M per km, compared to £4.24M in France and £5.45M in the US.
Ruparel began by discussing why the Centre for Growth believes there will be increased infrastructure investment over the next few years.
“I think we’re at an inflection point when it comes to infrastructure,” he said.
“There’s going to be a significant ramp up, or there at least is planning to be a significant ramp up in CapEx (capital expenditure) and infrastructure spend next over the next five to 10 years because we’ve under invested over the past 30 years and also because you have significant investment heavy transitions that are taking place; the energy transition but also the digital transition. We’re about to see, potentially, a big wave of demand hitting the market.”
While the increased investment is needed, there are questions as to whether it will be put to best use.
“There’s a question of ‘can we actually deliver?’ and ‘can we deliver the projects on a reasonable timeframe and at a reasonable cost in the UK?’,” Ruparel said.
“I think the answer is not clear. “We are very constrained on the labour size, on the talent size.
“The construction industry, in terms of absolute size, is roughly the same size now as it was back in the 1970s.”
With an underpowered workforce in the industry yielding questions over deliverability of major projects, the funding being pumped into the industry could be spent inefficiently.
“Pushing more money down that pipeline risks that it goes into inefficient spend,” Ruparel said.
“As we’ve seen in the past, once you start seeing these inefficient spends and potentially rising costs and delays it leads to projects being scrapped or delayed.
“It has knock on effects on the overall of what we’re trying to achieve.”
In order to get back on par with other G7 countries, Ruparel stated that it isn’t just the money that the industry in this country needs.
“I think if you want to get back to that level, you need to look at the fundamental problems and why we’re struggling to deliver infrastructure projects at the pace and volume needed,” he said.
“One is risk aversion across the entire value chain. At all stages there is risk aversion; focusing on too many objectives, too many outcomes and avoiding potential challenges or legal challenges or delays.
“These are increasing costs and time at every stage but not reducing risk.”
The answer to overcoming these challenges is not quite clear, but Ruparel pointed out that there are many people within the industry doing what they can to try and balance higher investment with current constraints.
“There’s a whole range of things that could be done, but it does require a sense of what the problem is and a clear target of what we’re trying to achieve,” he said.
“At the moment, that kind of corralling is not quite there.
“I do see it happening in individual firms that you speak to, there are definitely people within this space, in the water space, for example, that are thinking, ‘okay, we have to deliver this uplift in investment’, but they’re quite conscious of what they need to do or the constraints they’re facing, and thinking about how to overcome them.”
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