The UK's Infrastructure Woes

One of my former students insisted on including infrastructure in all of his macro (and many micro) exam essays. The reasoning was intuitive and persuasive, namely that better infrastructure can have a triple-powered impact on the economy - lifting aggregate demand, improving short run supply and boosting a country's long term productive capacity.

But despite the hype and the hope, these are troubling times for infrastructure projects in the UK. Helen Thomas writing here in the Financial Times argues that "the £100 billion high-speed railway is becoming the poster child for the curse of British infrastructure." Long delays and cost increases may well cause the current government to scrap the high-speed link from Birmingham to Manchester (Leeds has already been dropped) with the southern section ending rather inconveniently in a potting shed six miles north of Euston.

Helen Thomas writes that "Sclerotic planning and nimbyist tendencies push up costs, with rail projects, road lanes or motorway bridges far more expensive than in most other countries."

(Sclerotic - becoming rigid and unresponsive; losing the ability to adapt)

John Burns-Murdoch produced an excellent data analysis on the relative international costs of investment - you can find it here - The Nimby Tax on Britain and America

He wrote that "Local objections and protracted reviews mean new infrastructure projects cost far more in the UK and US than elsewhere. Averaged over a dozen recent major rail projects, and adjusted for inflation, British schemes cost £262mn per mile, compared with £145mn per mile for Japan’s bullet train network, £92mn in Sweden, £74mn in Italy, £42mn in France, and £34mn in Germany."

And now Sunak's anticipated back-tracking on Net Zero policies such as the ban on sales of new petrol and diesel cars from 2030 seems likely to curtail new investment in e-vehicle manufacturing and the close complement, a fast, accessible and affordable charging infrastructure.

My colleague at tutor2u, Vicki Woolven, posted on our Geography Blog yesterday this super-useful infrastructure update on plans for a road tunnel under Stonehenge to improve links to the South West.

And new research finds that the UK has only been able to replace a third of public investment – and just an eighth of infrastructure investment – since leaving the European Union. More here

More here: The UK faces a public investment gap post-Brexit

Looking to the future, there is a substantial opportunity cost of the UK not investing properly in infrastructure even if the era of ultra-low borrowing costs has now come to an end.

As my former student was so keen to point out, local, regional and national infrastructure is perhaps the main driver of long-run economic growth. Tired and degraded infrastructure holds back productivity growth, drives business costs higher and ultimately raises prices for consumers.

Outdated and older infrastructure can significantly hold back economic growth in a country like the UK for several reasons:

1. Reduced Efficiency and Productivity: Older infrastructure often lacks the technological advancements and efficiencies of newer systems. This can lead to reduced productivity in various sectors, as industries may struggle to compete with counterparts in countries with more modern infrastructure. For example, outdated transportation systems can result in longer commute times and increased transportation costs for businesses, reducing overall productivity.
2. Higher Operational Costs: Older infrastructure tends to require more maintenance and repair, leading to higher operational costs. This can divert resources that could otherwise be invested in more productive endeavors, such as research and development or expansion.
3. Inefficient Energy Use: Older energy infrastructure may be less energy-efficient, leading to higher energy consumption and costs for both households and businesses. This can make it more expensive to operate and less competitive in the global marketplace.
4. Limited Innovation: A lack of modern infrastructure can discourage innovation and the adoption of new technologies. Businesses in such an environment may be less inclined to invest in research and development, limiting their ability to stay competitive in rapidly evolving markets.
5. Congestion and Delays: Aging transportation systems, including roads, railways, and ports, can lead to congestion and delays in the movement of goods and people. This can increase transportation costs and disrupt supply chains, negatively impacting industries that rely on timely deliveries.
6. Environmental Impact: Older infrastructure may be less environmentally friendly, leading to increased pollution and higher greenhouse gas emissions. This can result in regulatory challenges and penalties, affecting industries' profitability.
7. Attraction of Investment: Countries with outdated infrastructure may struggle to attract foreign direct investment (FDI) and may see domestic firms relocating to more infrastructure-rich regions. Newer infrastructure often signals a more business-friendly environment.
8. Urban Development: Older urban infrastructure can limit urban development and expansion, potentially leading to overcrowding and unaffordable housing in major cities. This can deter people and businesses from settling in these areas.
9. Impact on Education and Healthcare: Outdated infrastructure can negatively affect education and healthcare services. Schools may lack modern technology and resources for effective learning, and healthcare facilities may struggle to provide high-quality care, affecting the overall well-being of the population.
10. Connectivity and Digital Divide: In an increasingly digital world, outdated broadband and internet infrastructure can result in a digital divide, limiting access to online education, e-commerce, and remote work opportunities.