Then chancellor George Osborne’s 2010 plan to get pension funds to invest in greenfield projects has so far secured only £2bn of the £20bn promised © FT Montage/Getty

More than 45 metres below the ground in London, almost 10,000 construction workers are racing to complete the capital’s new £15bn Crossrail train line — Europe’s biggest infrastructure project, which is due to open next year.

The largely state-funded Crossrail line is a showcase of Britain’s ability to deliver complex engineering projects broadly to time and budget, but it is a rare bright spot.

Too often, British travellers endure overcrowded and cancelled trains, potholed and congested roads, and capacity choked airports.

Moreover, Britain’s problems with inadequate infrastructure extend well beyond transport. Britain has a housing crisis that is rooted in a chronic shortage of affordable homes, with the Grenfell Tower disaster in June also highlighting how existing provision can be poor.

Meanwhile, the country faces a looming crunch in electricity generation as ageing coal and nuclear power stations are shut down.

The World Economic Forum last year ranked the quality of Britain’s infrastructure 24th in the world, down from 19th in 2006. This puts Britain mid-table among industrialised countries, and towards the bottom of the group of G7 nations.

One problem holding back comprehensive infrastructure improvement, which would boost the economy, notably in productivity terms, is politicians’ apparent infatuation with mega projects.

Successive governments have scrapped smaller schemes while pressing ahead with huge programmes such as the £56bn HS2 railway line between London and northern England, and the £20bn nuclear power station at Hinkley Point in Somerset.

“It’s monument building,” says Bent Flyvbjerg, professor at the Saïd Business School at Oxford university. “Politicians like big projects because they are more spectacular, and they need that to get re-elected. They could spend £1bn on mending potholes, but it would be quickly forgotten.”

Other barriers to infrastructure improvements are a lack of political vision and long-term strategy, say experts, as well Britain’s bureaucratic planning system.

But the biggest single issue is lack of funds. Following the financial crisis, David Cameron’s coalition government of Conservatives and Liberal Democrats embarked on an austerity programme that involved slashing investment spending to help reduce public borrowing.

After winning the 2015 election, the Tories announced that they would increase capital spending sharply.

Theresa May’s government set out plans last December for £500bn of infrastructure projects, ranging from broadband to sewers.

But, even if delivered in full, these schemes, which imply investment averaging 2.8 per cent of national income each year, would be substantially below the OECD’s recommendation that countries should spend 3.5 per cent of gross domestic product.

The plans also rely heavily on attracting private sector funding. When ministers unveiled a national infrastructure delivery plan last year, they called on pension funds and other private investors to fund more than half of the schemes proposed by 2021.

But while investors have enthusiastically put equity into existing infrastructure because there is no risk associated with construction, they are wary of new, so-called greenfield projects.

“The big difficulty is in getting investors to take on the risk of major new standalone or bespoke projects”, says Andy Rose, chief executive of the Global Infrastructure Investor Association. “When people talk about a wall of money wanting to invest in infrastructure it is primarily for operating assets.”

Evidence of this stance can be found in how the coalition’s 2010 plan to get pension funds to invest in greenfield projects has so far secured a little over £1bn of the £20bn promised by the then chancellor George Osborne. Nearly all of this has gone on investing in assets that were already built, such as schools and hospitals.

But the current government is not the first to try to persuade the private sector to invest large sums in infrastructure.

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Britain was one of the pioneers of the Private Finance Initiative, a model that has now been adopted in many other countries.

First proposed by John Major’s Conservative government in the early 1990s, and then expanded under Tony Blair’s Labour administration, the idea was to deliver infrastructure projects more cost effectively by handing responsibility for building and maintaining assets such as schools and hospitals to the private sector.

However, PFI became discredited partly because of a lack of evidence that private financing, which was significantly more expensive than public funding, provided value for money.

A revamped PFI called PF2 and introduced by the coalition government has delivered fewer projects than industry hoped. Ministers have shown little appetite to make use of the new programme, partly because of the reputational damage to PFI.

Another barrier to private sector investment is the lack of stable, long-term vision from central or local government.

“Cities like Copenhagen, Amsterdam, Berlin and Dublin punch above their weight in attracting institutional investment in infrastructure and real estate because they have a clear vision and strategic plan,” says Lisette van Doorn, chief executive of the Urban Land Institute Europe, a research body.

Construction of Crossrail deep underground at Stepney Green in London © Bloomberg

The UK’s National Infrastructure Commission, established in 2015, is busy devising a 30-year infrastructure assessment, which could form the basis of a long-term strategy for the country.

But the decision by the government not to grant statutory independence to the agency raises questions about ministers’ commitment to establishing politically impartial co-ordination of key projects.

“Government must get much better at prioritising its activities and projects,” said Amyas Morse, head of the National Audit Office, parliament’s spending watchdog, last year. “The government’s portfolio of major projects is enormous . . . I frequently see a ‘muddling through’ . . . A ‘go for it’ heroic effort is prized at the expense of clearly thought-out strategic prioritisation.”

There is no magic pill to remedy Britain’s infrastructure ills, but there are several things the government could do to raise the game of both the public and private sectors.

For example, private investors say that ministers could entice more money from them by identifying proposed infrastructure that will serve as long-term sources of revenue.

“To attract private financing for infrastructure projects, the government or sponsor needs to demonstrate to investors where the future long-term income stream will come from,” says Jonathan Stevens, head of European infrastructure debt at BlackRock.

Meanwhile, experts also say the government needs to engage more effectively with the public to overcome local opposition to projects that could provide wider benefits. This is most apparent at Heathrow airport, London, where politicians have repeatedly changed their stances on expansion.

Analysts also say that ministers must do a better job at assessing whether public or private financing is the most cost effective for infrastructure.

Successive governments have favoured private financing of projects at least in part because it has kept the upfront costs off the public balance sheet.

But some experts argue that the government should take advantage of record-low interest rates to fund greenfield projects through public borrowing.

Chancellor Philip Hammond’s strict fiscal rules, which require the government to cut borrowing to zero by the middle of the next decade, provide a strong incentive to prefer private over public financing.

“The Treasury has a clear preference for privately financing infrastructure projects,” says Nick Davies of the Institute for Government. “But their reasons for that are not well-evidenced and they could and should do more to gather evidence on the costs and benefits of different forms of financing.”

This is the first part of a series on UK infrastructure.

New initiative to raise broadband speeds

Britain’s network of fibre optic cables provides some of the fastest broadband speeds in the world — but in many cases only as far as a green cabinet located in the street.

The download speeds that most households and companies experience are far slower and less reliable because, for the final few metres between these cabinets and homes and offices, the signal is carried along copper wires that are decades old.

BT, the dominant fixed-line telecoms company that owns the copper cables, has been slow to extend full fibre connections and new market players show signs of reticence to step in while there is uncertainty about how much demand there will be for superfast broadband services.

Last month, the government announced a new £400m digital infrastructure investment fund to try to address this problem.

The idea is to use a combination of government and private sector money to develop exemplar projects run by smaller companies that can demonstrate the financial viability of extending fibre optic cables to homes and businesses. The plan is for government money to be matched at least one-for-one by private investment.

“[The money that has been allocated] is a drop in the ocean compared to what is required [to run full fibre connections to all homes],” said Giles Frost, chief executive of Amber Infrastructure, which is one of two fund managers chosen by the Infrastructure and Projects Authority, the government’s infrastructure delivery body, to allocate the state money and attract additional private investment.

“But if the government can demonstrate it is a viable project, that will encourage more private money to come in.”

Amber and its infrastructure investment fund made an initial commitment of £50m to the project. The other fund manager chosen is M&G Investments, the fund management arm of Prudential, the insurance company.

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