Delivering returns from the next generation of UK infrastructure investment

Steve Bromhead BSC(Hons) MRICS
07 May 2014

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As the UK faces increased capacity restraints - congested roads and airports, as well as the risk of power shortfalls, it seems evident that there is a need for investment to replace ageing infrastructure on these shores, but is this really the case? 

The 2014 Global Built Asset Index published by ARCADIS this morning (Wednesday 7 May) suggests that European countries such as France, Germany and Spain all have 30% more built asset wealth than the UK but do not get a premium return on their investment, questioning whether or not over investment in new infrastructure and buildings leads to the development of expensive to maintain under-utilised assets. 

Currently, the UK is very good at making our assets work efficiently in comparison to other European countries.  Research shows that the UK gets 30% more return from our assets compared to our European peers which in turn compensates for the fact that our asset base is 30% smaller on a per capita basis. This has been supported by the privatised and regulated utilities model although, arguably, this may have constrained long term investment and integrated planning in the UK.   

How much infrastructure do we need in the UK? To put it simply, it is less than we aspire to, but more than we are prepared to pay for.

Steve Bromhead, EC Harris

Could we see a diminishing return on our asset base through poor planning forcing us to work even harder with the ageing infrastructure in the UK? Sweating assets can only go on for so long before the returns start to fall or disappear altogether.  

So how far are we behind the curve in new investments? We are facing a crisis in sustaining power generation and supply in the UK and we know we have capacity constraints on our transport system.  Our inability to determine the right solution for aviation and the political posturing around HS2 shows how we struggle to plan ahead and make decisions quickly.  Past research indicates that we have managed to invest quite steadily and make good returns from our assets but have we run out of time to stop a decline in this performance?

The challenge on government and the industry is to accelerate the investment that is already planned, look to the future and invest more readily in the ageing assets making quicker decisions around key investments that will benefit UK Plc.  There is also a challenge to make sure we maintain the return on the assets that we already have that require proper investment in maintenance and replacement to sustain the longer term returns that we have been used to. 

The constriction between required investment to drive an economic transformation and an increase in the pattern of expenditure is remarkably evident. Insights from current research shows just how critical it is to ensure that full scale planned economic benefits from the investment are secured. There is no doubt that this issue should play a vital part in the current HS2 debate. 

We must also consider pressures on our energy resources - we are not far off an energy crisis and any new investment will only be replacing that which we already have so the investment is unlikely to increase the returns that the UK is currently receiving from its built assets.  To add to the problem, returns from investment in energy are not perceived to be at the level investors want, further compounding the pressure on energy and its built assets. Maintaining the balance between delivering affordable infrastructure for the user and attractive returns for the investor is the critical issue for constructors and asset operators. 

So, how much infrastructure do we need in the UK? To put it simply, it is less than we aspire to, but more than we are prepared to pay for.  Planning and cost delivery of the UK’s next generation infrastructure depends on understanding and delivering the balance between financial and sustainable investment choices, but in return we must support the long-term and integrated approach we need to maintain our assets and invest in the growth forecast. 

Steve Bromhead is UK head of infrastructure at EC Harris

Highlights from the 2014 Arcadis Global Built Asset Index

UK placed 8th in the global ranking of national built asset performance

Placed eighth in the Index, the UK managed to extract £412 billion from its built assets in 2013. This is equivalent to just 28 per cent of the UK’s total GDP and compares unfavourably with the global average amongst advanced economies of 35 per cent.  

Whilst the report found that the UK uses the built assets that it has at its disposal very efficiently to generate GDP, the global comparison suggests that the UK government and private sector need to accelerate investment in both buildings and infrastructure in order to reinforce future UK economic growth prospects.

The top ten nations on the Global Built Asset Performance Index are:

         Country                 Built Asset Income (£) *

1.     China                     4.1tn

2.     USA                        3.3tn

3.     India                       1.2tn

4.     Japan                      1.1tn

5.     Germany               600bn

6.     Mexico                  589bn

7.     France                  487bn

8.     UK                        412bn

9.     Brazil                   377bn

10.  Turkey                  370bn  

*Income shown as a ‘Purchasing Power Parity’ measure of GDP to enable accurate global comparison