Politics of prosperity

Earlier this week, the politicians on the Public Accounts Committee joined the long list of people concerned about the UK’s infrastructure deficit. Their report portrayed the Treasury’s Infrastructure Plan as “a list of projects, not a real plan with a strategic vision and clear priorities”. It urged government to “ensure that the legislative and regulatory framework provides sufficient certainty to secure the necessary private sector investment…[as] uncertainty over government policy can deter or delay investment…and lead to additional costs”. It also noted that, in this regard, the statutory framework provided by the Energy Bill is “coming rather late in the day, when the energy crunch is fast approaching”. These and other remarks echo the results of the London School of Economics Growth Commission, which found that lack of clarity about strategy, frequent reversals of policy and prevarication over key decisions undermine investment in infrastructure. One example illustrates the wider problem. It has been clear for years that the UK’s power-generating capacity would come under pressure in the second half of this decade as there were plans in place to close down dirty coal and ageing gas plants.

Yet, seven Secretaries of State and five white papers in the past ten years alone have failed to deliver the conditions required for £100bn or more of new private investment needed to rebuild the UK’s generating capacity over the next decade. What was originally a problem of the distant future has now become a more immediate threat as the risk of power shortages in four or five years can no longer be discounted. The PAC is right to identify uncertainty over government policy as one of the main culprits of this state of affairs. It misses three other important factors that form an intricate web of obstacles to investment:

• Lack of an unbiased authoritative basis for appraisal of options
• Limitations of a planning system which has no mechanism for compensating those who suffer from development to enable the wider benefits to be realised
• Public sector accounting distortions that have made it difficult to weigh up benefits and costs in a coherent way. In particular, targets for fiscal policy often draw on measures of public debt while failing to account for the value (and depreciation) of public assets.

The last is an area within the purview of the PAC itself. As Parliament’s guardian of value for money it could and should make the case for better government accounting practices. But other solutions require rethinking the role of politics and politicians in the decision making around infrastructure. The PAC was silent on this, but it was a central theme of both the Growth Commission report and a follow-up roundtable held at Institute for Government this week. The Growth Commission proposed a new institutional architecture to govern strategy, delivery and finance of infrastructure, designed to allow politicians to set direction while also offering a more stable environment for investors and an objective evidence base for decisions.

The usual objection to this reform is that it constrains politics in a web of technocratic malarkey. But that is the opposite of the Growth Commission’s proposals. These are about freeing the political process from the constraints imposed by:

• Planning rules that fail to share the benefits of development with those who have legitimate claims on them
• Disproportionate representation of individual interests in judicial reviews to the point of making the system impracticable
• Accounting conventions that are at odds with fundamental economic principles
• And a lack of rigorous, expert advice about the effects of policy alternatives.

Most importantly, the Growth Commission’s proposals are about strengthening the effectiveness of the political process by making it sufficiently credible in the eyes of the market so as to unblock investment. It will only happen if the politicians get on board and realise that the way we do politics is part of the problem as well as where the potential for solution resides. Creating an enduring political consensus around new institutional arrangements is crucial. So, perhaps next time the PAC examine the UK’s poor infrastructure record, they could start by looking in the mirror and considering the role of politics in creating the uncertainty they bemoan.