Infrastructure spending needs a coherent plan, says Michael Stoneham
John Swinney’s budget included welcome additional commitments for infrastructure, with a big focus on support for delivering 50,000 new affordable homes over the next five years.
Public finances are known to be constrained, so the ability of the UK and Scottish governments to contribute significantly in cash terms is very limited. Projects such as the Queensferry Crossing or the Queen Elizabeth University Hospital in Glasgow, funded by direct capital spending, will not be easily repeated in coming years.
In the commercial world, due to continuing low levels of interest rates, private finance is readily available for projects. However, these funds are beginning to be deployed on developments overseas, mainly as a response to limited investment opportunities in England. As such, the importance of having a pipeline of projects to encourage private firms to invest in has never been greater.
Commercial borrowings do, of course, come at a price, and the cost to our governments of supporting the repayment of those borrowings can be significant – as is being found in the health sector across the UK.
We are at the beginning now of a new investment cycle, and the Scottish Infrastructure Investment Plan is due for a refresh. Hopefully it will move on from a long wish-list covering everything that needs to be done, to a shorter targeted statement identifying deliverable projects over a period of five or so years. The role of the Scottish Government as an enabler, bringing projects forward in a coherent way, and into a state where they are ready to be delivered, is really crucial.
One vital aspect of this relates to the planning process. Brodies has been working alongside Ryden and WSP on a nine-month study commissioned by the Scottish Government looking at the role of development planning in delivering strategic, regional, infrastructure.
Last week the government published its interim response to the report and it contains some encouraging words about the need to develop new models, pilot projects and specific local support schemes. Certainly, in the housing sector, government has already been active in devising support arrangements and partnering or risk sharing with developers.
The overall thrust is for planning considerations to be better informed about the process of delivering infrastructure, and so acting as an enabler rather than a barrier for future strategic development.
That has to be the right way forward.
At a local level, however, communities may feel regional development plans are, in effect, imposed simply to deliver national policies, with local authorities being obliged to identify sites for a specified number of houses.
The imminent Holyrood elections do not seem likely to demonstrate a massive party political divide on how to approach these difficulties. In Scotland we may already have more of a consensus than has been achieved in England. That is very important, as policy swings can undermine investor confidence. What this is really about is efficient government – including local authorities and health boards – interacting positively with the private sector, judging value on much wider criteria than the cost of a contract, and minimising the impact of political risk on long-term investment decisions.
• Michael Stoneham is head of infrastructure finance at Brodies LLP www.brodies.com