UK needs to send strong signal to private investors

Sir John Armitt, president of the Institution of Civil Engineers, argues the case for infrastructure is stronger than ever, but an atmosphere of stability is needed.

Sir John Armitt, president of the Institution of Civil Engineers and a member of the National Infrastructure Commission, argues that the case for infrastructure is stronger than ever following Brexit, but admits the government will need to reassure private investors.

“The need for infrastructure hasn’t changed,” Armitt told Infrastructure Investor. “The need to give the economy a boost over the next few years is going to be quite important and infrastructure is clearly a way to do that. At the same time, if we accept the premise that there are going to be less government funds, then it increases the need for private investment.”

He continued: “The difficulty here, of course, is that everybody in business always says that what they like is stability. The challenge for government will be to create an atmosphere of stability whilst they are going through with the exit negotiation. To do that, ideally one wants to see, firstly, as much common cause as possible across the political parties. The degree to which one can get a consensus going forward will be important, though it’s not easy at the moment, with both main political parties going through a summer of uncertainty.”

Failure to send a strong signal to private investors could be costly, though, considering the UK government had planned to develop over £400 billion ($520 million; €468 million) of infrastructure projects by 2021.

“The negotiation is clearly going to take some time so what one doesn’t want is a hiatus. Government has to be willing to make some clear decisions and be seen to be willing to make some commitments with private sector investments. The latter will always be looking for some kind of long-term commitment from the government and the government has to be able to deal with that and signal it is open for business,” Armitt argued.

A pre-Brexit survey of 51 infrastructure market participants conducted by ratings agency Standard & Poor’s showed that 71 percent of respondents thought investment in UK infrastructure would be zapped in the two years following the vote, with 47 percent believing the freeze would last even longer.

Post-Brexit surveys show overall business confidence falling off a cliff. According to a recent survey by YouGov and the Centre for Economics and Business Research, the share of businesses feeling pessimistic about the UK economy has jumped from 25 percent in the week prior to the referendum to 49 percent.