Ahead of the budget, Shadow Chief Secretary to the Treasury Rachel Reeves calls on the government to act fast on infrastructure investment to boost the economy.
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Rachel Reeves MP (Labour, Leeds West) is the Shadow Chief Secretary to the Treasury
Yesterday the prime minister made another speech about his government’s commitment to investing in Britain’s infrastructure, livened up with lofty rhetoric about emulating the Victorians’ vision, some shadow boxing about “vested interests and bureaucratic hurdles”, and a headline-grabbing “feasibility study” into the private financing of road improvements that, as shadow transport secretary Maria Eagle points out, raises more questions than it answers.
He isn’t wrong to highlight the urgent need to step up investment in our transport, energy and communications systems to boost jobs and growth and lay the foundations for our future economic strength. The trouble is, we’ve heard much of this before – with little yet to show for it.
A full five months ago (£), faced by mounting evidence his government’s austerity measures had choked off the recovery, sent unemployment soaring, and added £158 billion to planned borrowing, David Cameron announced a new “focus on updating our infrastructure”.
He said:
“In terms of job creation today, getting construction projects off the ground is critical. So this autumn, the government is on an all-out mission to unblock the system and get projects underway.”
Nick Clegg announced soon afterwards the successful bids for the second round of the government’s £1.4 billion Regional Growth Fund – in his words, a “boost to business, which will jump start growth and create jobs in the places that really need it”.
But by the end of February this year, it turned out that just £190 million of the £1.4 billion Regional Growth Funding announced by the deputy prime minister has actually reached the projects that have been promised help, with the other 73 per cent of approved bids still awaiting final sign off and disbursement.
The Times has reported that 40 per cent of the winning bids from the first round have not been signed off – 11 months after they were first announced.
• Left and right should unite to support the creation of a National Infrastructure Bank 16 Mar 2012
• Cable: Coalition lacks “a compelling vision of where the country is heading” 6 Mar 2012
• Miliband: British Investment Bank could provide government banking for entrepreneurs when market fails 3 Feb 2012
• Mandelson weighs in behind National Investment Bank 27 Jan 2012
• The economy is crying out for more investment; we need a British Investment Bank 14 Jan 2012
And the centrepiece of George Osborne’s autumn statement was an announcement of another £5 billion cut from current spending programmes that “in the short term” would be used “to fund capital investments in infrastructure, regional growth and education as well as help for young people to find work”.
But scrutiny of the Treasury figures (pdf) reveals not a penny of this additional funding has yet been spent; only 16 per cent of it is due to come on stream in the coming financial year; and almost 45 per cent won’t be spent until 2014-15, the last year of the parliament.
Many of the projects that featured in Osborne’s speech won’t even get underway before then and some have yet to have their funding, planning permission or private partners confirmed. Meanwhile the promised platform to facilitate pension fund investment in priority infrastructure projects was only a Memorandum of Understanding, on which we await further progress.
No wonder both the Office of Budget Responsibility and the Institute for Fiscal Studies judged the impact of these announcements on growth prospects to be negligible.
Add to this picture the fact that, as shadow education secretary Stephen Twigg has highlighted, 18 months after Michael Gove tore up the Building Schools for the Future programme, we’ve seen repeated delays to its downsized replacement plan, with the first projects now unlikely to be tendered before June this year.
And, as shadow energy and climate change secretary Caroline Flint has pointed out, UK investment in green energy is still way below 2009 levels, with government figures suggesting very little pick up in 2011 – and we won’t have a proper Green Investment Bank with borrowing powers until 2016 at the earliest.
It is clear that after cutting too far and too fast resulted in stalling growth and soaring unemployment, this government’s newfound commitment to investment in infrastructure is too little, too late – but the need for action is urgent.
Office for National Statistics figures (pdf) show a 10 per cent drop in construction output in December, followed by another 12 per cent in January.
The Construction Products Association found this “extremely disconcerting”, noting:
“The government has made much play on private sector construction leading the recovery, as the public sector cuts begin to bite. Unfortunately from the ONS data out today, this recovery is just not happening.”
With growth stalled and unemployment rising, Labour is calling on the chancellor to use this budget to genuinely bring forward infrastructure investment so we can put people to work now on projects that would jump-start the economy now, help us get the deficit down over the medium term, as well as underpinning our economic development for the decades ahead.
Combined with other measures to stimulate demand and expand employment, it would also create the confidence we need to get private investment moving too.
In his speech yesterday David Cameron said his purpose was to “engineer a Horizon Shift” – but the problem is that the investment, jobs and growth he keeps promising are constantly shifting beyond the horizon.
The construction industry, the business struggling in a bleak trading environment, and the million young people looking for work don’t need another speech about the dim and distant future; they need a real plan of action that delivers jobs and growth now.
21 Responses to “Fine words Mr Cameron, now it’s time for action on infrastructure investment”
Global Falkon LLC
Fine words Mr Cameron, now it's time for action on infrastructure investment: Meanwhile the promised platform to… http://t.co/KT5luDBP
Martin McIvor
Interesting comment by @RachelReevesMP on PM's infrastructure investment speech. http://t.co/h6Ro89ZB
Martin McIvor
Case 4 #activegovt in @leftfootfwd (http://t.co/FnHFBSEu) by @RachelReevesMP -who also writes 4 @ShiftingGrounds today http://t.co/DmbwNaQz
Susan Jones
Fine words Mr Cameron, now it's time for action on infrastructure …: … about “vested interests and bureaucra… http://t.co/NbK8Ur1q
Anonymous
The problem relates to risk.
If you tax risky income at the same rate as safe income, you won’t get investment.
For example. Lets take the scenario where its 50-50 that a business succeeds.
If you invest a thousand into each business, then on average you will lose 500 each time, if the return is zero.
Now, look at the return you need to get your money back in the absence of taxation. You need the winners to return 100% returns, just to break even. 50% you lose 1000, 50% you end up with 2000, on average no profit for a risky venture.
So lets say the return is 200%, which is very large. 50% down 1000, 50%, 3000 back for your 1000 stake. On average you end up with 1500. Now if 50% of that goes it taxes, that’s a 25% return. Not particularly good over several years, You should have taken the safe low tax option.
Taxation on new investment needs to be low or people won’t take the risk, or they will take the risk in another tax country.
So the question, do you want investment or do you want to keep people unemployed?
If you tax investment, you do the latter.
The real question is how to deliver the investments to business, and how to get the vast majority of people investing.
It’s replace NI as a tax, and turn it into compulsorary saving.
For the median worker that turns their retirement from 5K a year from the state into 19K a year, linked to RPI not CPI.
Then the state and the rest of us just bail out those that didn’t make the MIG. (7K a year). That is very few people, so its cheap.