Fixing a hole

FEW politicians are photographed visiting construction sites or helping apprentices tinker with machines as often as George Osborne. The chancellor of the exchequer, who supports a controversial new high-speed railway between London and the North, has long boasted that his party is a champion of industry. On October 5th, at the Conservative Party conference, he attempted to burnish this reputation, outlining a four-point plan which he hopes will lead to increased infrastructure spending. Will it?

With GDP growth at about 3% the economy is chugging along nicely. However, Britain is not planning for the future. Government investment is the seventh-lowest in the European Union. Politicians have long been wary of getting shovels in the ground: in the decade to 2012 (the latest available data), Britain added only 168km (104 miles) of motorway; France built 1,200km. Government investment fell from 3.2% of GDP in 2009-10 to 1.7% in 2014-15 (though it is still slightly higher than under the previous Labour government). Without better transport, broadband and energy infrastructure, growth in productivity will stall—and with it, pay.

In order to boost housebuilding, a chronic lack of which holds back economic growth, Mr Osborne reiterated a promise to loosen planning rules on brownfield sites. He also wants to sell off government land and buildings and use the proceeds to boost infrastructure spending, although the details for this are vague. More intriguingly, Mr Osborne proposed a restructuring of the 89 local-authority pension funds in England and Wales. They will be merged into six “British wealth funds”, each with assets of over £25 billion ($38 billion). At present less than 1% of local-authority pension funds are invested in infrastructure. The government hopes that following the consolidation, which will allow expertise to be pooled, the pension funds will start to behave like those in other countries and increase this share to as much as one-fifth of their portfolio, or about £30 billion.

Were Britain’s investment spending to rise by this amount, the country would shoot up the EU league table. In reality, though, the effect will be nowhere near that big. Extra demand from the pension funds for infrastructure debt will simply compete with that of other investors. That could slightly reduce building companies’ borrowing costs, which might incentivise a bit more building. But even this may be optimistic. Pension funds typically do not invest in new-build infrastructure, seeing the construction phase of a project as too risky. Instead they prefer investing in existing assets, which offer a steady income stream, says Jonathan Hart of Pinsent Masons, a law firm. The reform is unlikely to boost overall infrastructure spending by much.

The most striking part of Mr Osborne’s plan is the creation of a National Infrastructure Commission, chaired initially by Lord Adonis, a former Labour transport secretary. The commission will be independent of government. It will look at what is needed over the next 30 years and review urgent projects, such as Crossrail 2, a new train line in London, and how to deal with energy storage. Wonks welcome the commission; such a body was suggested in a 2013 report by academics at the London School of Economics (LSE) and in the same year by John Armitt, a civil engineer.

The commission is unlikely to make the current situation any worse. If it spends enough time talking to NIMBYs—and working out the level of compensation needed in order to placate them—it could reduce opposition to big projects. But it could prove to be surplus to requirements. For a start, London already has its own transport body and a mayor to lobby for infrastructure decisions. With other cities getting similar powers, it is not clear where Lord Adonis will fit in. And a big national commission is difficult to square with Mr Osborne’s commitment to boosting local control over policy (see article).

Mr Osborne has also fallen one step short of the LSE academics’ recommendations—the creation of a national investment bank, which would be capitalised by the government but would have fiscal autonomy. (Labour’s new leader, Jeremy Corbyn, has said he favours the creation of such a bank, though his plan to fund it by printing money worries most economists.) As it stands, the Treasury will retain ultimate control over which projects go ahead. Some investors will be loth to commit to projects that they worry can be cancelled at the whim of a politician. This will hold back some infrastructure spending, says John Van Reenen of the Centre for Economic Performance at the LSE.

In any case, Lord Adonis is likely to run up against the government’s deficit-reduction plan pretty quickly. According to the Office for Budget Responsibility, a government watchdog, public-sector net investment will fall yet again this financial year; as a percentage of GDP, it will be more than one-third lower by 2020 than it was in 2010-11. Meanwhile big decisions over another airport runway and how to meet Britain’s future energy needs are still taking far too long. Mr Osborne will need to do a lot more to get the diggers going.