U.K. Prime Minister David Cameron is under political pressure as lawmakers battle over a potential expansion of Heathrow Airport, Europe’s busiest. For business, that’s only one hurdle in lifting the U.K. from its status as No. 14 among European countries in infrastructure.
About 60 percent of corporate rail-freight users aren’t satisfied with U.K. service, according to a survey released last week by the Confederation of British Industry, the nation’s biggest business lobby. A majority also said roads, ports and rails are “below average” when compared internationally. The World Economic Forum ranks Britain 24th globally for its roads, 22nd for air, 16th for rails and 12th for ports.
Increased spending on capital projects may help Britain’s economy as it struggles to recover from a recession, while also reducing the longer-term risk of freight bottlenecks once the world gets back on a sound financial footing. More than 20 companies, including Balfour Beatty Plc (BBY) and Carillion Plc (CLLN), wrote to the government in July asking for faster decision-making and new ways of financing construction projects.
“Talk is cheap and the industry has become fairly tired of empty promises,” said Joe Brent, an analyst at Liberum Capital Ltd. in London. “What everyone wants to see is orders and there still isn’t a huge amount of evidence that the pipeline of orders is opening up.”
The U.K., the world’s seventh-largest economy, came 24th in terms of the quality of its overall infrastructure out of the 144 countries analyzed by the WEF, putting it behind Oman, Barbados and Saudi Arabia. Switzerland topped the list, published Sept. 5, while Germany and France, Europe’s No. 1 and No. 2 economies, came in fifth and ninth respectively.
The CBI is asking the government to speed up tackling congestion on a number of key roads, including the A14 highway in east England, the main freight route to the Port of Felixstowe, Britain’s largest. Proposals to upgrade the road have been repeatedly announced and delayed, with the current planned upgrades not expected until at least 2018.
With the U.K. struggling to recover from a double-dip recession, Cameron’s coalition government in late 2011 identified about 250 billion pounds ($406 billion) of “priority” projects. At least 80 percent of the investment should come wholly or partially from the private sector, the plan said. The government hasn’t specified how the cost-sharing will work or how its share will be financed.
KPMG LLP, which helped compile the CBI study, says the amount needed is closer to 500 billion pounds.
“It’s bad, it’s very bad in the sense that it’s not fit for purpose for business in the modern age,” British Chambers of Commerce Director General John Longworth said of the infrastructure network. “There’s urgency about this issue.”
Chief Secretary to the Treasury Danny Alexander said on Sept. 23 that he would set up a industry group to monitor the progress of the national infrastructure plan.
In a sign of Britain attempting to catch up with its European peers, the government gave the go-ahead in January for the construction of a high-speed rail line linking London, Birmingham and Manchester. The project, known as High Speed Two, hasn’t been approved by Parliament or put out to bid.
The U.K. as of Nov. 1 had 113 kilometers of high-speed railway, as well as 204 kilometers planned linked to HS2, according to the International Union of Railways, which defined it as track that allowed trains to travel at least 250 kilometers per hour. France had 1,896 kilometers of such rail lines with 2,826 kilometers under construction or planned, and Germany had 1,285 kilometers and 1,048 kilometers respectively.
While Cameron and Chancellor of the Exchequer George Osborne may be reluctant to deviate from their goal of eliminating the government’s structural deficit, Balfour Chief Executive Office Ian Tyler says improving planning processes and a decision on the future of how infrastructure projects will be financed could help attract private money.
“We must not become complacent,” he said in an e-mail response to questions. “Now is the key time to keep this pressure on and to ensure that investors recognize projects will be viable in the mid- and long-term, making infrastructure an increasingly attractive investment proposition.”
The company, which is involved in the Crossrail project to connect Heathrow Airport with the London’s West End and Canary Wharf districts, said in July that its order book “remains strong despite the continuing uncertainty around governments’ investment decisions.” Carillion said last month that “new project opportunities in the U.K. await the final outcome of the government’s review of the current private-finance initiative.” They both spoke in statements.
Balfour has gained 18 percent this year after first-half earnings rose and as its exposure to the U.S. attracts investors, Liberum Capital’s Brent said. Carillion has fallen 8 percent on margin pressure in U.K. construction and weakness at the builder’s operations in the Middle East, he said. Brent has a “buy” rating on Balfour and a “sell” rating on Carillion. The FTSE 100 Index (UKX) has risen about 5 percent.
Business leaders, airlines and some members of Cameron’s Conservative Party have urged him to break a 2010 pledge and build a third runway at Heathrow, which is operating at 98 percent capacity, arguing it would spur economic growth.
Cameron’s Liberal Democrat coalition partners voted at their party conference last weekend for a policy of opposing the expansion of London’s Heathrow, Stansted and Gatwick airports. Cameron postponed a decision this month on airport expansion, including a possible third runway at BAA Ltd.’s Heathrow until after the next general election in 2015.
Cameron’s Conservatives hold their annual conference in Birmingham, central England, starting Oct. 7. The opposition Labour Party, which has called for tax cuts and more spending on infrastructure, meets Sept. 30.
With pressure on Britain’s transport system even as traffic and freight volumes are damped by economic weakness, a recovery will worsen the logjams, the chamber’s Longworth said.
“We can’t use economic constraints as a reason not to make these kind of investments,” Nicola Walker, CBI’s head of infrastructure, said in a telephone interview. “We can already see it creaking now and now is the time we need to act.”
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