The importance of foreign direct investment in UK infrastructure
26 March 2019
The clear message from the UK’s National Infrastructure Commission is that we need substantial, increased investment into our transport networks, waste and water systems, energy grids and telecommunications networks if we are to provide people with the quality, consistency and reliability of service they expect. This matters to us all as consumers – a seat on the train – and also from the perspective of our economic productivity. Well-functioning, modern infrastructure is one of the critical foundations of our national competitiveness.
The latest assessment by Government of the future investment pipeline is that we need to raise over £413bn to deliver nearly 700 projects – roads, railway, power stations, airports etc. Depending on the sector, investment comes largely from the state (roads, rail) or the private sector (power stations and airports).
The UK has historically been very successful at attracting private sector infrastructure investment, in large part, because of its framework for regulating these industries. Water, waste, energy, telecommunications and transport all have network monopoly characteristics, to varying degrees, and so a balance needs to be struck between investors earning a fair return and consumers, whether individuals or businesses, being charged fair prices for the services they receive.
Examples of how private investment has transformed the services that we receive are many. Heathrow Airport – a London First member – is a good example. The £12bn of investment by Heathrow’s foreign owners since 2006 has transformed passengers’ experience and taken the airport from being one of the poorest performing, by passenger scores, to being one of passengers’ top ten in the world. Of course, Heathrow still faces challenges – too many flights from too few runways – which is why we desperately need swift progress on the third runway which, again, will be built with billions of pounds of private, largely foreign, investment.
Keeping the UK attractive to such private, foreign direct investment (FDI) will be vital in ensuring that the UK is able to build and maintain world-class infrastructure. As well as money, such investors bring best practice governance and delivery experience from across the globe. However regulatory and political uncertainty, coupled with a growing narrative criticising the role of private money, means that we run the risk of not attracting the investment we need.
We should be celebrating the role of private investors, often pension funds from the UK and overseas, who have invested so much to transform our quality of life for carefully regulated returns. Of course it is right that regulators and politicians are concerned about the price that we pay; but they also need to have clear regard for the quality, and sustainability, of what we receive.
We need a broader public debate about the benefits that private investment in general, and FDI in particular, brings to our standard of living and economic competitiveness. And, above all, with the uncertainties around Brexit looking likely to remain over the coming years, and our investment needs so substantial, we need to ensure that the UK remains an attractive environment for investors, protecting current and encouraging future FDI.
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