So what is George Osborne planning? Well he wants to create thousands of jobs while simultaneously improving the services in the UK, increasing its ability to grow and presumably improve our economy in the long term. A rather promising proposal; plans such as this inspire confidence in our current ability to repay loans, which is almost definitely responsible in part for the excellent credit rates the UK is currently receiving, comparable to the ever financially responsible Germans.
The only thing threatening such a plan is the slight possibility that the labour government gets control of the treasury before the plans can be fully realised, as most governments tend to throw out the plans of the old when they gain power. This being such a long term plan there is a large margin for backing out before its completion.
£20bn of what’s to be invested in this scheme will hopefully come from the National Association of Pension Funds and the Pension Protection Fund who hold around £80bn to play with. The main critique of the plan is that this is an uncommon thing for pension funds to invest in, as it gives no obvious return. To tackle that problem they will have to use the initial £5bn coming directly from the government to show the return possibilities, possibly from money earned from tolls or other such incomes that would usually go directly back to the government. if there is no way to generate a return from the infrastructure put in place then they may simply have to repay the money with interest, sadly that is exactly like a loan and doesn’t really constitute an investment. Paul Johnson, the Director of the IFS (Institute of Fiscal Studies) had this to say:
“Infrastructure does not tend to provide an income stream, so why would a pension fund invest in this? Isn’t the government just borrowing from them, just like issuing gilts?”
The 5bn coming from the government funds will be found in underspends, such as the carbon capture scheme which fell through recently. This should mean that the burden will not fall on the tax payer directly although naturally it is still public funds. They also have the financial backing of their new initiative of cracking down on tax avoidance, which could account for some if not all of the funds, however, whatever they do recover is not necessarily ear marked for infrastructure. George Osborne said:
“We are finding the resources in difficult times to build the railways, to build the roads. Britain’s got to get away from the quick-fix debt solutions that got us into this mess”
There is an unaccounted £5bn that the government hopes will come from private investors and china is already in the running. Hopefully this could strengthen ties that are becoming increasingly important as Europe loses more and more stability.
The key areas that will see this infrastructure are the roads the M25, M3, and M56, electrifying the Trans Pennine express between Manchester and leads, reducing the travel time by 45 minutes and even a new airport situated in London to help keep its reputation as an international hub.
The wide array of plans and its necessary longevity gives it a whole new set of problems especially if they do not get the funding for the £20bn from pensions. It is sadly very likely that we could get £5bn worth of infrastructure upgrades and little more.
If the infrastructure improvements are to go ahead as planned the government will have to show a great deal of follow through. There is currently nothing with long term ramifications on this scale currently in place so there is no real scale to judge it on. The most relevant quote is “the best laid plans of mice and men often go awry” as there is no way to predict the future there will most likely be a large amount of make contingency plans. This plan will provide benefits whether they are short term or long term.