Fishburn Hedges

28.11.2011

As widely trailed, the Government is announcing today that it is gambling on investing in infrastructure to the tune of another £30bn. 

They reckon this will do two things – 1. kick start economic growth and 2. distract from tomorrow’s bad news that the Chancellor won’t eliminate the structural deficit as quickly as he had planned (see my colleague Dermot’s blog).  

This is part of a wider trend as the Government tries to shift the narrative from cuts to growth.

The risk the Government is taking is that people and investors won’t think that the infrastructure improvements can come quickly enough.

Build it and they will travel

The National Infrastructure Plan announcement looks to get £30bn more into infrastructure – some through encouraging pension funds to invest (as noted in my previous blog) and some through further Government cuts.

A lot of the headline investments will be in transport, including:

1) Investing in major roads like the A14 to Cambridge and the M25 (though I don’t think too many people who drive on the M25 will be looking forward to yet more roadworks).

2) Improving and reopening rail lines – including electrifying the line between Leeds and Manchester, part of the Northern Hub scheme, which will help slash journey times between Newcastle and Liverpool, and all the places in between.

3) Extending the Northern Line in London to help facilitate the redevelopment of the beautiful but difficult and derelict Battersea Power Station.

What does this buy?

All these such investments basically rest on one premise – being able to get to or from a place more quickly and easily makes it a more attractive place to do business. 

The risk is that these improvements won’t happen fast enough.  If you’re deciding whether or not to expand your business in Newcastle and take on employees today, knowing that you can get to transatlantic flights from Manchester Airport in 2018 might not be that helpful.

But the Government is gambling that the promise is enough – people and investors will trust the commitment and make their decisions accordingly. 

And, of course, this is all part of a bigger gamble the Government is taking – that its economic strategy will start bearing fruit in 2013, 2014 and 2015, in time for the next election.

Posted by Tom Wadsworth