Infrastructure (Financial Assistance) Bill
Nick Raynsford (Greenwich and Woolwich, Labour)
I draw attention to my interests as declared in the register.
There has been a paradox in this debate. We have heard a series of speeches by Members on both sides of the House setting out a persuasive case for increased infrastructure investment. Many have highlighted particular schemes in their constituencies that are fundamental to the future of their areas. At the same time, however, the Chief Secretary was either unable or unwilling to identify a single project that was likely to benefit from the Bill. Despite all the hyperbole that we have heard from the Government about its benefits, no Member will be able to go home tonight any more confident that the schemes that they desperately want and need for their constituency will go ahead. That is the conundrum in the Bill. It is not a bad Bill, and I and the Opposition will not oppose it, but there is deep scepticism about whether it will deliver all that is expected of it.
There is no question about the need for increased investment in infrastructure. Construction has been hit more severely by the recession than almost any other sector of the economy. Output has been falling quarter on quarter for the past year, and the situation is worsening, not improving. The forecasters in the industry are deeply pessimistic. The Construction Products Association forecasts two more years of decline and states:
“Between now and 2014, total construction is expected to lose £10 billion as public sector construction activity falls away sharply. Although this has been expected for some time following the government’s deficit reduction plan announcements, the hoped for recovery in the private sector, which was expected to offset these falls, has not materialised.”
Experian’s latest forecast, which is significantly more pessimistic than the previous one issued in March, states:
“The prognosis for construction is significantly weaker than in March…Significant recovery is now postponed until 2015”.
The problem is spread widely through all sectors of construction—industrial, commercial, residential, health, education, housing and infrastructure. All are looking very fragile, and almost all are at levels of activity substantially below those seen before the credit crunch.
Ironically, infrastructure was the sector of construction that best withstood the initial impact of the recession. In part, that reflected the fact that investment in infrastructure schemes takes a long time, so schemes that are in place are likely to roll on for some time. Although I shall be critical of the Government in many ways, I pay tribute to them for agreeing to maintain investment in Crossrail because there was doubt about that when they came to office, and it would have been catastrophic if they had pulled the plug on that scheme. Of course, it is now a major part of the ongoing infrastructure investment that brings real benefits. However, the latest Experian report confirms that infrastructure is no longer an engine of growth, and its September forecast is much more pessimistic than the one in March about the future prospects for infrastructure.
Housing is equally badly affected. In the 12 months that ended in June, just 98,000 homes were started, compared with 109,000 in the previous 12 months,
which ended in June 2011. That is a 10% fall in the latest year, and the most recent figures imply that the situation is worsening. The second quarter of 2012 showed just 23,500 starts, compared with 29,900 in the second quarter of 2011—a fall of 22%.
It is worth recalling that the Treasury set out the criteria in July for schemes to qualify for backing under the Bill as being: nationally significant; ready to start—“shovel ready” is the informal way of putting it; financially credible; dependent on a guarantee and not otherwise financeable; and good value for the taxpayer. As my hon. Friend Stella Creasy said in her excellent speech, that implies that the schemes are almost perfect, but not quite perfect enough to get funding on their own, which raises a question about why they are otherwise unlikely to succeed. Many commentators have made that point.
Let me consider the first criterion—“nationally significant”. I intervened on the Chief Secretary—I am glad that he is back in his place—to ask whether there was any significance in the fact that the first criterion in the Treasury list is not repeated in the Bill. He assured me that I should not read anything into that. I remain slightly puzzled because, looking at the breadth of the definitions in clause 1(2), I am astonished at what is included. Many schemes that are in no way nationally significant could qualify under those criteria. I am therefore a little surprised that nationally significant schemes, which, I am sure, we all support, are not precisely defined as one of the priorities in the Bill. The lack of clarity on that and on the schemes that are likely to qualify make it hard to believe that the new guarantees will provide a rapid response to the problem of delayed or stalled infrastructure schemes.
In July, Lord Sassoon said that there were £40 billion of projects in the national infrastructure plan that could be eligible for support under the scheme. He expressed the hope that the first guarantees would be granted this autumn. We are now only days from the official start of autumn, and just three months from its official end. Can we feel confident that Lord Sassoon’s expression of hope will be realised? [Interruption.] It is a very flexible autumn.
On housing, I am sceptical about the very ambitious targets for new homes. I think that the Chief Secretary referred to the possibility of up to 70,000 homes being started as a result of guarantees facilitated by the Bill. If we consider what is happening in the private sector, the problem is not supply, but lack of demand because people are nervous about their jobs and the economy, and because of the tight lending criteria that most lenders apply. The idea that simply facilitating additional supply by increasing loans will be a solution is somewhat optimistic. In the social housing sector, there is already a relatively well developed market for housing association bonds. Indeed, the trade magazine, Inside Housing, suggested that
“offering underwritten paper brings in uncertainty when it comes to take-up.”
According to an article in the magazine on
“‘may look elsewhere’ if government guarantees drove down the price of housing association bonds.”
Other questions are highlighted in the latest issue of Inside Housing from
“The social housing regulator is concerned that some housing associations are mistakenly planning to use the government’s commitment to underwrite borrowing to fund existing development plans or refinance more expensive debt already on their books”,
and the regulator is worried that that may result in schemes being delayed that otherwise would proceed while housing associations look for possible alternative funding sources. All in all, there are serious question marks about the scheme, and the Government’s confidence in unleashing a great quantity of new infrastructure investment seems to be misplaced. Having said that, it is not a bad Bill and the Labour party will not oppose it. We are, however, sceptical about whether it will deliver what it promises.