Pay to play UK

If infrastructure can claim to have emerged from the UK’s recent spending review relatively unscathed, that does not mean it came out unaffected. As financial services firm PriceWaterhouseCoopers (PwC) pointed out in a note analysing the spending review: “Government spending on capital projects will fall by an unprecedented third over the next four years”.

Local authorities, in particular, will see their budgets slashed by some 27 percent, forcing them to be creative to fund the projects they need to develop. The good news is that the coalition government is empowering local authorities with new funding instruments, such as Tax Increment Financing. This
allows councils to borrow against expected increases in businesses’ higher property values as a way to fund their infrastructure needs.

But this is unlikely to be enough to plug the funding gap in its entirety. All the more reason to reignite the
debate on user charges as a way to fund UK infrastructure, argues PwC partner Richard Abadie: “Such a drastic fall in public revenues flowing into infrastructure will inevitably force the debate on user charging, which is common in several European countries but which the UK has traditionally not adopted. There is likely to be serious consideration of user charging, not only for roads, bridges and tunnels, but also for additional energy infrastructure. Supplementary charges may become a fact
of life for many, to guarantee supply and quality.”

Traditionally, the UK has not been a big fan of user charges to pay for its infrastructure. This is well attested by the handful of toll roads operating across the country and the fierce resistance that road pricing schemes have historically encountered in the UK. However, the tide may be turning. A
survey by the Department for Transport published at the end of August showed that more than half of UK adults “agreed that the current system of paying for road use should change so that the amount
people pay is based on how often, when and where they use the roads”.

Over four in five adults also said that congestion was a serious problem across the UK which the
government should tackle. For a government intent on maximising value for money and wary of the previous Labour government’s extensive use of the project finance initiative (PFI), user charges
could be the perfect way to attract private sector funding for infrastructure. Unlike PFI, user charges would allow the private sector to recoup its investment directly, without any need for government spending.

The political challenge is to convince people that they should start paying for infrastructure at precisely the time when they will have the least money to do so. No easy sell, that one.