Heathrow Non-Executive Director and former Deputy Governor of the Bank of England Rachel Lomax has urged the Government to ‘grasp the nettle’ on airport capacity or risk undermining investor confidence in the new National Infrastructure Commission.
Addressing the British Chambers of Commerce Annual Conference, she called on the Government to get on with implementing the Airports Commission’s unanimous recommendation for Heathrow expansion, during what should be a ‘golden age of infrastructure investment’, precipitated on historically low interest rates. She said:
“We should be living through a golden age of infrastructure investment. I believe this is George Osborne’s dream, when he talks about ‘getting Britain building again’ to ‘ensure it is ‘fit for the future’. But there is a real risk that this golden opportunity will be squandered."
If after all the Airport Commission’s labours, the Government still finds itself unable to grasp the nettle and address what is undeniably a major pinch point in our national connectivity, it will put a big question mark for investors over whether the NIC can succeed. And they will draw their own conclusions about the political risks of investing in UK infrastructure. If the Davies report is allowed to gather dust, it can only undermine the credibility of the National Infrastructure Commission and make its work much more difficult."
The full speech is copied below (check against delivery):
Delighted to be with you today and to revive my relationship with Chambers of Commerce.
During my time as a member of the MPC I spent many hours talking to business groups, up and down the country, including local Chambers of Commerce. These regional visits were one of the more enjoyable parts of the job, but they served a serious purpose. Not just for Committee members to explain the thinking behind their decisions but also to give them an opportunity to hear first-hand from businesses on the front line of the real economy.
I am sure MPC members continue to enjoy and benefit from their regional visits. But the monetary policies they are seeking to explain seem light years away from those I was talking about back then. None of today’s members of the MPC have ever needed to explain a change in interest rates, few of them have even voted for one. Short-term rates have remained stuck at 0.5% since March 2009.
It’s been an extraordinary period. Never have interest rates been so low for so long.
Businesses are conditioned to think that low rates are a good thing – and in so far as they cut the cost of borrowing to finance expansion, that is still true. But the big picture is more worrying. This unprecedented period of ultra low interest rates is a sign of troubling trends in the global economy: of persistent low growth and deflation.
Today’s big question is what can be done to avoid secular stagnation. Since the financial crisis monetary policy has done most of the heavy lifting, and delivered more than many economists thought possible. But as Governor Carney recently warned, central bank monetary policy options are now severely limited.
It’s time to look at what other weapons are available.
One obvious – perhaps the most obvious - way of stimulating growth is to expand spending on infrastructure. That would certainly boost demand and increase employment. But investment in infrastructure offers much more than a short tem fix. Correctly done, it will improve the long-term supply potential of the economy – by providing the capacity to accommodate our growing population and by relieving the pinch points in our critical infrastructure networks that strangle business growth.
After decades of under-investment in our national infrastructure, there is no shortage of growth enhancing projects – whether it’s new transport links or extra energy generating capacity. And, with interest rates so low, never has it been cheaper to fund long-term investment.
This investment need not require a significant increase in government borrowing. In this country, much of our critical national infrastructure - water, energy, airports – is privately owned. And there is no shortage of private funding just looking for an opportunity to invest in the right infrastructure projects.
All this is quite uncontroversial. Indeed higher investment in infrastructure is probably the only policy on which most economists - and even the politicians here today - could agree.
We should be living through a golden age of infrastructure investment. I believe this is George Osborne’s dream, when he talks about ‘getting Britain building again’ to ‘ensure it is ‘fit for the future’.
But there is a real risk that this golden opportunity will be squandered. Why?
There was a time when people thought that we Brits - unlike say the French - simply could not manage big infrastructure projects. But HS1 and the London Olympics proved them wrong.
In my view the critical reason is politics.
This is not a personal criticism of today’s politicians. Delay is nothing new. London’s Cross Rail will carry its first passengers in 2018: but did you know that the study that gave the line its name reported in – not 1994 - 1974! We have a political system that makes it very difficult for our politicians to take the tough decisions needed to support big infrastructure projects.
At the root of our political problem is the long time horizons involved. It is not just Nimby- ism and the tendency for anti-s to shout louder than the pro-s. The real problem is that today’s politicians get all the grief of taking locally unpopular decisions - and their successors get all the glory. They have every incentive to delay. But the result is damaging for our economy and our country.
If private funders are to invest in infrastructure they need a stable and supportive political and regulatory environment. The big suppliers of long-term finance, like pension funds, insurance companies or sovereign wealth funds, need predictable income streams. Even in the best-regulated industries long-term investment in infrastructure can be politically very risky. Governments play a critical role – for example by providing support for highly controversial planning applications.
We need to find ways of helping our politicians to take well thought through decisions about infrastructure that are in the long term national interest. That was the thinking behind the proposal to set up an independent National Infrastructure Commission, originally made by Sir John Armitt, before the last election. The proposal reflected consultation with a wide range of interested parties and enjoyed a rare degree of cross party support.
As a member of John Armitt’s team, I was delighted when the Government decided to go ahead with setting up an NIC chaired by Lord Adonis. With a mission to ‘enable long term strategic decision taking to build effective and efficient infrastructure’ it aims to ‘provide greater certainty for investors by taking a long term approach to the major investment decisions facing the country’. It could be just what we need to unlock the investment in infrastructure that this country so badly needs.
The NIC will start by looking at three areas: transport in the North and in London, and energy. It will be following the approach pioneered by the Airports Commission, chaired by Sir Howard Davies: first, in consultation with others, assembling the evidence base and identifying options, and then evaluating the options and providing independent advice to Government. It is, I believe, a promising approach.
But the jury is still out on whether it can work. And the acid test will be the fate of the Airports Commission, in many ways the prototype for the National Infrastructure Commission. This was an exceptionally thorough study of a long-standing infrastructure challenge, supported by widespread consultation, and leading to a clear recommendation to Government.
As a member of Heathrow’s board, you will be unsurprised to learn that I believe that giving the green light to expansion at Heathrow - the UK’s only hub airport - is the right answer – a view shared I know very strongly by the BCC itself. You will be hearing from other people this afternoon, on this theme, so I won’t rehearse the arguments now..
But I do want to leave you with a broader point. If after all the Airport Commission’s labours, the Government still finds itself unable to grasp the nettle and address what is undeniably a major pinch point in our national connectivity, it will put a big question mark for investors over whether the NIC can succeed. And they will draw their own conclusions about the political risks of investing in UK infrastructure. If the Davies report is allowed to gather dust, it can only undermine the credibility of the National Infrastructure Commission and make its work much more difficult.
The stakes are high and the prize is great. I believe the Government will take the right decision. But we can’t be complacent. I want to thank your members, Chambers of Commerce all over the country, for demonstrating that there is support for expanding Heathrow from business right across the UK, from all the nations and regions.
I hope you will continue to stress that there is no bigger or more urgent infrastructure decision for Britain – not just London - than tackling our lack of hub capacity. In turn, I can assure you that, when we get the right decision, Heathrow is ready to deliver.