The money to invest in growth
Britain needs to invest in housing, utilities, healthcare, prisons and court houses, schools, fast broadband, defence and so on. Add it up and it comes to over £500bn. It’s all urgent but ‘unaffordable’. But the cost of flood damage and blackouts, and not investing is even less ‘affordable’. The topic was covered in depth by the BMBI experts at the latest annual BMBI Round Table Debate. This is what they had to say:
Tim Wood – Editor, BMN: Our next topic is the money to invest in housing, power generation, power transmission (£60bn), water, sewerage, flood protection, roads, rail, prisons, defense, education, and hospitals to enable growth. The standout figure there is £500 billion. The question is, how do you prevent these issues that we’re getting, like flood damage and blackouts, etc.? It’s better to get them in the first place rather than have to pay the money to correct it. Charles, you were talking about your experiences in Ireland?
Charles Burns – Divisional Director, Brett Martin: In Northern Ireland, we’ve had a misfiring, malfunctioning government for quite a while which has led to a lot of decisions not being made, particularly on water infrastructure. That has now led to a significant fall in the housebuilding market because people cannot connect to the main sewer. We couldn’t extend our factory because we couldn’t connect to the sewer.
Power is also an issue. We would like to connect wind turbines to the network, but we couldn’t so we didn’t put them in. There are lots of network issues.
What’s interesting, if you go down into the south of Ireland, they recognised this about 15 years ago and embarked upon a very significant infrastructure build because they realised that sewage and water provision was a central part of their whole national plan.
I think what we have is a disconnect. If you leave these long-term decisions to the private sector, that is an incomplete way to manage issues as complex as this because we are beholden to shareholders and business owners so it can fluctuate quite dramatically.
We’ve got lots of problems here in the UK in terms of water companies. I see that as poor regulation. The model is not completely wrong, it’s for the regulator Ofwat to ensure that the plans the water companies have fit into a national plan. If the water companies fail to deliver that then that’s an issue to do with their breaking of their license. I don’t think that’s a failure of the model, that’s a failure of delivery.
Power is effectively the same, it’s a national plan. All of these things require very long-term, strategic planning from the government which the private sector absolutely plays a part in, but ultimately, it’s set by government.
If you look at what’s happened in the US, Biden put an infrastructure act in and invested a couple of hundred billion. They then did the Inflation Reduction Act, which was more about a national development plan which is about £500 million, and they got cross-party support. What’s happening now is the Heidelbergs of this world, and I’m sure the Wienerbergers, then get in and become part of that supply chain, but ultimately, the train track is set by the government.
The Americans have funded it by long-term debt. Here, the chancellor will have to work some financial wizardry, but effectively, it’s capital investment. It’s not current investment. I am a strong believer that government has to get bipartisan support and set a long-term national plan for key issues whether it’s manufacturing, construction, provision of water and sewage, or power.
John Newcombe – Chief Executive, BMF: I don’t see the government’s role as short-term stimulus and short-term investment in schemes, like the Green Deal. We’ve asked for a national retrofit strategy which would be over a large period of time, 15 to 20 years, which would have the commitment of government regardless of who was in power.
I 100% agree with the vision, I just practically don’t see that would happen in the UK where you have such a contrast between the two parties. I mentioned earlier about the Industrial strategy which is a 10-year programme – whether that gets cross-party support we’ll have to wait and see, but I’m slightly cynical. In Europe I think it’s easier because you don’t necessarily have two major parties competing with each other.
Charles Burns: Ultimately, it’s a political problem. The private sector cannot put in the necessary infrastructure for a 20-year plan.
John Newcomb: Back to your particular example in Northern Ireland – one of the issues was there wasn’t a government but there is now. Do you see the issues you faced you in terms of sewerage in Ireland being tackled by that government now?
Charles Burns: Well, they’ve acknowledged they have a 10-year problem. But unfortunately, in true Northern Ireland fashion, we just go to Westminster and ask for more money. That’s typically our solution and Westminster quite regularly are saying, ‘No’. So, have they acknowledged it? Yes. But part of our challenge is we keep looking elsewhere rather than necessarily looking at ourselves. I know you’re saying the political parties can’t come together but they have to for these long-term issues or they don’t get solved.
Andrew Brewin – Finance Director, Keystone Lintels: I think the challenge with this is we talk about the big number in infrastructure that’s needed to be invested and the reasons why we should, but there’s also a question of if we don’t invest, what’s the outcome of this?
There are some big issues that need dealing with. These are not nice-to-haves, they’re essentials. Water, sewerage, infrastructure, schooling, energy, transport, they’re almost prerequisites we need to drive the country forward.
If we’ve gone behind in the curve, if we don’t invest, the number’s just going to get bigger and bigger and the gap’s going to get bigger and bigger.
Mike Rigby – CEO, MRA Research: Data centres are gobbling up a huge amount of power, and also water. Ireland suddenly hit a cap with data centres that they can’t put in and so Amazon and the rest of them are going around Europe. We’ll probably get a benefit from that but plugging them in means huge amounts of money. Every search you do through AI needs 10 times the power. Ireland has a fifth of its power going to data centres. It’s astonishing, and it would rise if it was able. So, when we talk about housing, with data centres taking more and more power, it’s another constraint on growth.
Charles Burns: Ireland’s success in the data centre market was connected to the rollout of wind turbines to supplement the energy. So, you had government with an integrated plan because they knew this was happening. Okay, the data centres have become huge, but Ireland got a headstart on most European countries because of it.
Mike Rigby: Absolutely, and you just see the number of data centres they’ve got. It’s massive.
Charles Burns: Yes. For a country of 4.5 million people! But it was integrated with a rollout of wind turbines to create the extra power, and done in parallel.
Dan Cheung – Lead Channel Marketing Manager, wienerberger: It goes to show, if the motivation is there, things can be done.
Ian Doherty, Owlett Jaton: I have very little confidence that the government has got an energy plan because, as say data centres and the scary amount of power needed for the electrification of cars. How much extra capacity do you need just to take all those diesel cars off the road or to get rid of gas from household heating? Is there a real plan to say there’s going to be enough power? I haven’t seen anything that’s said, ‘Here’s the grand plan’.
Mike Rigby: There’s a big question mark over that at the moment. There’s not even any hints of a plan.
Ian Doherty: Google have just announced they’re going to buy a nuclear reactor to drive one of their data centres. That’s the amount of power it uses.
Charles Burns: The Inflation Reduction Act in the US has the development of the Grid as part of it to assist with modern manufacturing of gigafactories etc. Other companies are integrating their manufacturing approach to an energy supplier approach or water supplier approach. Therein lies the opportunity.
This write-up was first published in the Builders Merchants News.
