Analysis: No quick fix for Britain's overloaded infrastructure

Reuters News
Posted: Mar 18, 2013 11:49 AM
Analysis: No quick fix for Britain's overloaded infrastructure

By Lorraine Turner and William Schomberg

LONDON (Reuters) - After heavy rainfall, raw sewage gushes into the River Thames from a network of dank sewers beneath the streets of London.

A Victorian-era problem that has never been fixed, the cobweb-laced tunnels just meters from a new underground railway station at Blackfriars underscore Britain's infrastructure backlog.

The need for a new "super sewer" for Europe's financial capital was identified as far back as 1989 but privatized utility Thames Water lacked government funding and had more pressing priorities, such as cleaner drinking water.

If the new sewer project gets the go-ahead from planning authorities, preliminary work is due to start in 2015 with the main tunneling a year after that.

The kind of project that Britain's economy desperately needs as it tries to find ways to grow, the proposed 4.1 billion-pound ($6.2 billion) pipe is planned to run 25 km (16 miles) to redirect sewage overflow away from the river when it is finished in 2023.

For now, workers known as "flushers" struggle to keep the flow of waste clear from used wet-wipes and congealed cooking fat.

Unblocking Britain's infrastructure backlog is one of the major challenges in an economy threatened again with recession, more than five years since the financial crisis began.

The government's austerity push represents just the latest hurdle to getting major projects going. Investors have long had to contend with a lack of clarity on rules for private investors and the complexities of the country's planning laws.

Finance minister George Osborne is expected to announce only small tweaks to public spending his annual budget on Wednesday.

Resisting calls to borrow more to invest in projects that could boost growth, he is likely to say extra capital expenditure will have to be offset by cuts to day-to-day spending.

Business groups are resigned to slow progress on big projects. They are pushing instead for shorter-term measures in this week's budget to boost housing and road repairs as quicker ways to inject growth into the economy.


Government officials, who say they are trying to catch up after decades of underinvestment, point to a national infrastructure plan, listing more than 500 projects worth 310 billion pounds between now and 2050. They also stress the launch of government guarantees to help get projects going.

On Monday, the government accepted proposals by a former deputy prime minister, Michael Heseltine, to devolve some investment funding to local authorities, a move which he says could boost growth. Details on how much money will be diverted away from central government will be decided in the summer.

In London, there are signs of activity. Giant equipment is digging deep under the city - turning up mediaeval skeletons in the process - to build a new train line through the capital.

Describing itself as Europe's largest construction project, Crossrail has taken decades to come to fruition and is scheduled to open in 2018.

The government says annual spending on infrastructure has been higher since it took office than under the previous Labour one, taking into account private as well as public investment.

But in terms of public spending alone, net investment has plunged from 48.6 billion pounds in the 2009 fiscal year to 28.7 billion pounds two years later.

"There's a can-do ethos about investment in those countries and a let's-try-and-prevent-it-or-make-it-as-difficult-as-possible ethos here," said Kevin Cammack, an analyst at Cenkos Securities.

For most of the period since the 1970s, British government investment as a percentage of GDP has lagged that of France, United States, Germany and Canada according to data from the Organization for Economic Co-Operation and Development.

"We've not been heavy investors in infrastructure in this country. But we are at a point now where our economy needs these investments brought forward quickly," said Lee Hopley, chief economist at EEF, a group representing British manufacturers.

David Marshall at John Laing Infrastructure Fund, which invests in public-private ventures, said the Dutch government can sign off on a project eight weeks after announcing a preferred bidder. In Britain, it can take up to two years, he said.


One area of pressing concern is energy.

After a decade of internal policy wrangling - which has occurred elsewhere in Europe - the government hopes to pass a law within a year to fix Britain's future mix of nuclear, fossil fuel and renewable energy sources, as well as guaranteed prices for utilities that will reassure them about future profits.

Mark Powell, a partner at consulting firm ATKearney, said Britain could ill afford further delay.

"At the moment we're not really building anything," he said. "We will end up with an energy system that will spend more money keeping the lights on than we otherwise might have had to do."

Businesses complain of a lack of decisiveness in other vital areas of the economy.

In aviation, a decision by the former Labour government to expand Heathrow Airport was put on ice by the Conservative-led coalition. It has asked a commission to report back on the issue by mid-2015, after an interim report at the end of this year.

A planned high-speed rail line linking London with cities in the north-west is due to be completed only in 20 years time although a first section to Birmingham will open sooner.

In the shorter term, a new transport strategy is due to be announced this year, raising the prospect of more construction of major roads, something businesses say they badly need.

Deirdre Fox, director of strategic business development at Tata Steel Europe, said Britain's thinking traditionally has not been as long-term as some of its neighbors.

Tata Steel's potential clients in Britain include power companies and their supply chain partners. Many of them are holding off on decisions on energy infrastructure projects - estimated at 110 billion pounds by the government over the long term - as they wait for clarity on the UK's strategy.

"If you don't have the confidence that a decision you make today is going to be consistent for the next five or 10 years, why would you make it?" Fox said.

($1 = 0.6609 British pounds)

(Additional reporting by Christine Murray; Editing by Giles Elgood)