Encouraging growth through private sector investment in infrastructure
The World Economic Forum’s Global Competitiveness Report3 asks participants what are the most problematic factors for doing business in each of the markets. Taxation, access to finance and government bureaucracy are the issues considered most problematic by the surveys respondents. Another key area when considering private investment is that of policy decisions, and the speed at which they occur.
- That a smarter approach to managing risk in construction projects is introduced. Rather than blanket de-risking, a partnership approach to risk management will help to deliver projects on time and on budget.
- Infrastructure needs to be examined and developed as a cohesive system involving transport, energy, water and sewerage. There should also be clear links with other public policy areas, particularly housing, health, employment and education.
- The establishment of the Green Investment Bank (GIB) should help to deliver infrastructure projects. However, the scale of the investment challenge greatly exceeds the current resource commitment of the government. The remit of the institution may also limit its potential. The following should be considered:
- The government should put in place a clear roadmap expanding the GIB remit, as deficit reduction commitments ease. This would provide investors and industries with confidence to invest in these areas.
- There should be clear future funding commitments outlined by government. For example if government committed a further £2bn in 2016 this would not damage the UK’s financial reputation as market expectation have time to adjust and account for this commitment.
- The GIB should be charged with exploring innovative funding methods to encourage the private sector to invest in infrastructure.
- Priority should be given to funding those projects in the National Infrastructure Plan.
- ACE has proposed establishing a central government department for Infrastructure to ensure a coherent, coordinated, pan-government approach to addressing the challenges to the UK’s infrastructure networks.
Planning for growth and efficient infrastructure
Spatial planning is an important part of providing efficient infrastructure. Projects such as Crossrail and High Speed 2 show the extent to which cooperation needs to occur with multiple central government bodies, local authorities and suppliers involved in the process.
- Such initiatives should have a strong focus on business and job creation, to facilitate economic growth
- Local plans should support the achievement of strategic national objectives, including the National Infrastructure Plan
- Guidance and support in planning is essential. To help authorities navigate through the new decision-making approach, it would be helpful to provide specific guidance on a number of aspects.
- Sharing of effective practice on engagement will be important. Currently, all parties in the planning system operate at different levels of sophistication regarding widespread engagement. There is a role for local authorities to model good ways of conducting meaningful engagement, and so a mechanism for sharing good practice will be required. Without this sharing of experiences, it is likely that engagement will be patchy or sub-optimal, thus slowing the system and generating tensions.
- There needs to be capacity-building in local government. It would be worthwhile examining how extra expertise could be brought into local authorities to help embed the new principles. This could include: seconding people from central government to local authorities; facilitating two-way secondments between local authorities and businesses; and giving a more prominent role to Local Enterprise Partnerships in interpreting the new framework.
- Utilise the LEPs to ensure that planning decisions are made in a reasonable period having taken into account the concerns and views of the local businesses, residents and investors.
Helping SMEs to deliver growth
Taxation is of great importance to SMEs. As the incidence of tax on a company increases, the incentive to partake in entrepreneurial activity, capital investment, innovation and employment begins to fall. The level of taxation needs to be set at a rate whereby the rate of return is still considered significant enough for firms to invest in capital goods, expand production, and create jobs.
- The government should combine PAYE and NIC. This will reduce the size and cost of administering these taxes to all businesses.
- The government should raise the VAT threshold, because the level of administrative burden increases significantly once companies pass this point. Raising the threshold would help to ensure that a company has enough resource to deal with the burden imposed by VAT.
- The government should look to simplify the definitional aspects of the tax system. This would make the calculation and understanding of the system much simpler for companies. As is shown by ACE’s Benchmarking Lite results a small reduction in administration can have a significant effect on profitability. This in turn increases the prospect of investment employment and growth.
- Considerations need to be made for SMEs. Currently, tax rules are targeted more towards the larger and multinational companies.
- The tax system should recognise that the level of tax burden changes significantly across small to medium enterprises.
- Initiatives such as the Business Payment Support Service should be continued as they help SMEs by allowing businesses facing financial difficulties to spread tax payments over a manageable timetable. Small businesses that employ fewer than ten people would often prefer a range of payment options that remove the need for paying lump sums.
- Providing certainty within the tax system is key to businesses with regards to assessing their liabilities and future investment potential. Tax reforms should be published as part of a larger roadmap outlining key steps and actions that will take place over the next 15 year period.
- The government should further explore the possibility of underwriting SME overdraft facilities. This would help to address some of the cash flow issues experienced by SMEs without the need for radical tax reform. Criteria could be put in place in relation to the percentage available based upon a business’s current credit conditions, turnover, staffing, and spending patterns.
Infrastructure investment as a primary driver of economic growth
Construction activity enables growth in many other areas of the economy. It is key to the delivery of new electricity generation, transport enhancements, flood risk management and carbon reduction, among other activities.
- he government should continue to progress and support infrastructure investment and construction as a platform to position the UK ahead of its competitors on the low carbon economy agenda.
- Such a strategy should aim to promote long term private sector growth, thereby reducing dependence on public sector spending and increasing the flexibility of the UK’s economy to respond to the challenges of the future.
- Infrastructure investment projects need to be economically efficient, targeting bottlenecks and inefficiencies within the existing networks as well as providing newer projects that increase overall capacity providing long term opportunities.
- There needs to be certainty as to the methodology of measures that account for the wider economic benefits of infrastructure projects. Such criteria will be key to driving low carbon as an investment priority.
Procuring efficiently to maximises growth potential
The Efficiency and Reform Group should focus on reforming the use of frameworks in public procurement. Reducing the variety of quality of practice in procurement – at both the national and local level - is essential to achieve best value. ACE’s 2011 State of Business report found that public sector procurement processes continue to be inefficient, with 65% of respondents stating that central government procurement processes were poor or very poor; for local government this figure rose to 70%.
- The government continues with its reforms to SME procurement, with the aim of reducing the cost to businesses of tendering for public contracts significantly.
- The government’s approach to reforming public procurement should encourage best practice, encouraging both industry and government to adopt efficient methods of specification, negotiation and project delivery.