Building 21st century sustainable infrastructure (part 2): institutional reform
The new UK Government under Prime Minister Theresa May has committed to boosting UK productivity, to addressing the widening wealth gap, and to supporting the transition to low-carbon economic growth. Achieving all this will require the right investments by both the public and private sectors, particularly in sustainable infrastructure, at a time of heightened economic uncertainty.
‘Building 21st century sustainable infrastructure (part 1): time to invest’ highlighted that the current global economic environment provides an opportunity and rationale to borrow at below-zero real interest rates in order to invest in infrastructure. This policy brief sets out the institutional reforms that the Government should implement to facilitate its delivery.
To facilitate an enhanced investment programme for sustainable infrastructure the Government should consider the following:
- Design institutional frameworks to promote stable policies that are free from short-term political interference by devolving responsibility for complex decisions to independent technocrats who operate transparently and are accountable to Parliament.
- Develop fiscal rules in line with the principles of full resource-based balance sheet accounting, which distinguish between borrowing to invest and borrowing to consume.
- Prioritise investments with a positive financial return to the public finances over more expensive off-balance-sheet investments.
- Devolve decision-making and financing to the local level, providing increased fiscal autonomy for cities, and reform planning laws.
- Build upon existing city governance mechanisms and planning systems to enhance civic autonomy.
Enabling the National Infrastructure Commission
- Give the Government the ability to issue infrastructure bonds through the National Infrastructure Commission.
- Provide risk guarantees and define a long-term vision of coherent policies to keep the infrastructure project pipeline full.
- Commission an independent assessment to consider bringing Private Finance Initiative contracts on-balance sheet and devolving responsibility to the National Infrastructure
- Commission to carry out a rigorous business case assessment for investments that are believed capable of generating positive returns.
Natural Capital Accounting
- Adopt the recommendation from the Natural Capital Committee that the National
- Infrastructure Commission should have a natural capital investment plan.
- Ensure the National Infrastructure Commission encourages infrastructure investment in capital assets that are compatible with ambitious decarbonisation.
- Empowering the Green Investment Bank
- Capitalise the Green Investment Bank and provide risk guarantees to reassure private investors that the Government’s reduced minority share in the bank constitutes a sufficiently large stake to mitigate against sudden and adverse policy changes.
- Consider the National Infrastructure Commission taking on all Green Investment Bank infrastructure-related projects.