Anthony Hilton: Back to drawing board on infrastructure plans

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Legal & General chief executive Nigel Wilson delivered some timely advice to the Government last week when he said on Radio Four’s Today programme that it should abandon all the big infrastructure projects beginning with the letter H. 

Specifically, he had in mind the termination of the HS2 high-speed rail link to Birmingham, the Hinkley Point nuclear plant and the third runway at Heathrow.

Instead, he believes the country would get much better value spending its limited resources in areas such as social housing, renewables and more mundane but much-needed projects.

Wilson’s comments carry a lot more weight than most because he practises what he preaches. In the few years since he took the helm, Legal & General has become easily the most ambitious of the insurance companies in seeking out the higher long-term returns to be got from infrastructure and similar illiquid investments.

So is he on to something? Is the Government poised to pull the plug on one, two or all three? And is it right to do so?

The Government may well pay close heed to what he says for reasons that may not be widely appreciated. The first is that Theresa May’s head of policy at No.10 is John Godfrey. Until July, when the Prime Minister came to power, he was head of policy at Legal & General — and very much at one with Wilson on infrastructure. Having spent the last 10 years with the insurer, he may not be widely known, but his early career was politically focused. This has given him a better knowledge than most about how the Government machine works and how to get things done.

A second factor — though it is slightly mischievous to point this out — is the influence of May’s chief of staff, Nick Timothy.

Clearly, he has the PM’s ear, which is significant because there is a widespread — though obviously unsubstantiated — view that he harbours a deep loathing for George Osborne, and by extension for the things Osborne promoted when in Government. 

Prominent among these, of course, were HS2, Hinkley and Heathrow expansion. So for that reason alone, you might expect a shadow to fall across them.

Alternatively, you may like to believe that ministers would never allow their own or their advisers’ personal likes and dislikes to influence the decisions they have to take for the good of the country. That is probably not the way to bet though, particularly when the PM’s constituency of  Maidenhead is just sneezing distance from Heathrow.

HS2 is probably the easiest to can. It is the wrong railway, taking the wrong route to the wrong place — and it seems now to have lost its chief executive, who has decamped to Rolls-Royce. If we need more rail capacity to Birmingham, it can be delivered at a fraction of the cost by upgrading the line out of Marylebone to Birmingham Snow Hill. This would be a conventional train service — but who needs to save a few minutes on a journey in the age of Wi-fi?

If, for prestige reasons, we need another high-speed train, then let’s put it where it is needed and link Liverpool to Manchester, Leeds and Newcastle, with a southern spur through Sheffield and Nottingham to Birmingham. 

Next, in terms of cost, comes Hinkley. Last week, a clutch of senior business figures — Sir Richard Lambert, Sir Simon Robertson, Lord (Chris) Patten and others — wrote to the Financial Times in support of the project. 

They are all members of an EDF advisory board — the French firm being the potential builder of the plant — but what was interesting was that, given they hold this position, how feeble and unfocused their arguments were, and how little they addressed specific concerns about Hinkley. 

The letter’s most telling point was that we urgently need more nuclear capacity, but it failed to recognise that there are other cheaper designs for proven reactors we could have as an alternative. They also failed to mention that the two reactors being built to the Hinkley design in Finland and France, are massively late, over budget and still not working.

Finally to Heathrow. Most would probably agree with Sir Howard Davies and the Airport Commission that Heathrow makes the most logical case for expansion. The business community by and large agrees, as manufacturers’ organisation the EEF made clear last week. 

But then we confront three problems. The first is that it will take longer to build another runway at Heathrow. Completion is possible by 2025 for Gatwick, against the earliest of 2029 for Heathrow. The second issue is cost. At £7.8 billion, Gatwick would be well under half the estimated £17.7 billion of Heathrow, and financed entirely by the private sector.

There are worries, too, that the Heathrow figure may be understated. It should be doubled to around £36 billion, according to Transport for London, to take account of roadworks and other costs of access.

The third issue is practicality. There is no doubt the Heathrow expansion will be resisted to the bitter end by some very vociferous people. Even if the project has the best case, is it so much better that it is worth spending years in legal wrangling and planning to secure it? Would it not me more pragmatic and sensible to take the second-best option that is deliverable — Gatwick — and get on with it?

Part of the deal might even be to build a high-speed train link to cover the 35 miles between Gatwick and Heathrow. If you cut the journey time to about 20 minutes, which such a train could do, the two airports would in effect be one for making connections.

And if Heathrow still needs more capacity, let it buy Northolt — only eight miles away, or four minutes by fast train. 

Source Article from http://www.standard.co.uk/business/anthony-hilton-back-to-drawing-board-on-infrastructure-plans-a3343901.html

September 13, 2016 |
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