Why the cost of living agenda spells danger for infrastructure

With the cost of living agenda clearly set to dominate the political narrative for the next 16 months as we head towards the General Election, the infrastructure sector could be heading for a tricky ride.

Antony Oliver
27 January 2014

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Certainly there is clearly still a huge amount of cross party support behind the notion that it is in the nation’s economic and social interest to update our ageing transport, water and energy infrastructure. 

And for all the hand wringing over the lack of real action by successive government to streamline the UK’s planning process, there are now very welcome signs of agreement that the current short term single parliament thinking around infrastructure planning must change.

The fact remains: Without investment in new power stations the UK will soon start to suffer blackouts; without investment in decent modern railways and maintenance on the roads, trains will be overcrowded and roads congested; without continued investment in modern water supply and sewerage systems our cities will cease to function.

Yet against this backdrop of enthusiasm, drive and resource being put by Treasury, ministers and shadow spokesmen behind projects such as Hinkley Point, High Speed 2 and Thames Tideway, we still see growing voices behind the voter friendly notion that the public is being asked to pay too high a price for the vital utility services that they receive. 

Whether it is plans to freeze energy price increases, demands that the regulators set tougher regimes or calls for return to the Labour inspired utility windfall taxes, the message is very clear – the voter must be protected from the escalating cost of privatised utility services.

I’d say that is a dangerous path down which to head.

Quite right we must make absolutely sure that our fuel, transport and water bills are kept as low as is possible. And yes we must ensure that the vulnerable in our society are protected from the effect of fuel or transport poverty.

But the inescapable fact is that unless you opt to live in a house that is isolated from centralised services and opt to travel only by bicycle and by foot, you will be relying on substantial investment ploughed in up front to ensure that your supply is both reliable and efficient.

And you will be relying therefore on either government or more likely private investors to stump up the money to make it happen.

Yet the stark and often overlooked reality is that when it comes to any sort of infrastructure – be it publicly or privately funded - there is only ever going to be one group picking up the bill. And that of course is the consumer.

Whether this cost is passed on in the shape of consumer bills, taxation or charges levied on your pension pot, the fact is that you will be paying. 

Thus the logic of simply bashing and penalising the suppliers doesn’t really stack up. All it will really do is boost the risk to investors and lessen their appetite to commit finance to the UK. It must stop. 

Certainly regulation and markets must be reformed to ensure that the right incentives are in place to drive investment and efficient delivery of services. And we must be encouraged to do all we can to use and waste less.

But in truth only economic growth will truly solve the nation’s escalating cost of living problem. And as we are all agreed, investment in infrastructure is the surest way to accelerate that. Moving politicians back toward that critical way of thinking has to be a priority.

Antony Oliver is the editor of Infrastructure Intelligence