George Osborne

Osborne's 'challenge of our time': UK productivity and infrastructure

Earlier this year, George Osborne set his sights on addressing the long-standing challenge of productivity. Improving the UK's productivity – and closing the gap with the rest of the G7 – was seen as "the route to raising standing of living for everyone".

Productivity was, in the Chancellor's words, the "challenge of our time", and fixing it was the his number one objective. In setting out his plan to do this, Fixing the Foundations, George Osborne was very clear that public and private investment in infrastructure was a primary driver. 

Under the eight long term investment priorities he set out three related to economic infrastructure: a modern transport system, reliable and low carbon energy, and world class digital infrastructure. Last month's Autumn Statement clearly backed the Chancellor's focus and commitment to investing in economic infrastructure, with over £100bn to be invested in transport over the life of this parliament including £13bn for the north and £11bn for London, £12bn allocated to Local Growth Funds, £1.8 billion for digital technology and transformation projects, and a doubled spend on energy research.

These investments are coupled with long term commitments on industrial strategy, including catapult centres, along with increased investment in science. While some of these aren't new priorities in the context of a general pause in public spending growth, there are some encouragements that the commitment to economic infrastructure remains. Like the Chancellor, we see investment in infrastructure as key to creating sustainable long-term economic growth for the UK.

As the dust settles on the announcement and thoughts turn to implementation and action, caution is nonetheless required. Growth and productivity won't automatically result. This is not a 'build it and they will come' moment. As such it is important that this government learns the lessons from the past – both positive and negative – in terms of how to maximise the economic benefits from infrastructure investment.  Here are some which we believe are vital:

• Creating a coherent programme of activities rather than a series of projects – as far as possible the investments made over the next five years in UK infrastructure should look, feel and sound like a programme of activity as opposed to a number of separate projects all being delivered independent of each other.

This approach will be key to maximising benefits as it will ensure that investments are appropriately phased both in terms of delivery but also importantly in terms of the linkages between infrastructure and other activities, sharing skills and expertise across activities and learning lessons.

• Ensuring that the necessary linkages and networks are in place to maximise the wider benefits of this investment to UK businesses and residents. This will need to work at a number of levels, ensuring that strong supply chains are in place and that they are open and accessible to small businesses (reflecting other aspects of the Chancellor's plan to reduce the administrative burden on business).

Education, skills and training programmes will have to be in place to ensure not only first class delivery, but that UK residents are benefiting from the job opportunities arising. Here government should learn lessons from the success of the 2012 Olympic and Paralympic Games and the way in which the significant direct and indirect investment was used to create training, jobs and apprentice opportunities for those in long term unemployment.

• In the context of an increasingly globalised infrastructure market, the UK needs to make itself more attractive to secure international investment and engage with international players whose resources and expertise will be required for many of the large domestic infrastructure initiatives. Moreover, building up domestic expertise around mega-project delivery presents an export opportunity to sell British expertise abroad in due course, in a similar fashion to many German, French and Spanish contractors.

• Adopting procurement processes that work and drive effectiveness and efficiency. With one pound in every three spent on public services estimated to go to private firms, coupled with the fact that this figure is likely to be higher for investment in infrastructure, there is a real opportunity to use this process to drive effectiveness and efficiency and ensure value for money in terms of both cost and quality. Good procurement will ensure that the UK can benefit from best in class approaches to design and delivery and delivery on time and to budget. Get it wrong and the result is money-wasting delays and below expectation results. 

Next spring the government will publish a National Infrastructure Delivery plan. If this document can provide the necessary detail on how government will deliver the projects and programmes and how it will work with the private sector, it could form the cornerstone to ensuring the economic benefits are maximised. With fewer Civil Servants, this will not be without its challenges.

The views and opinions expressed in this article are those of the author(s) and do not necessarily reflect the official policy or position of The Information Daily, its parent company or any associated businesses.

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