Chancellor Philip Hammond’s move to boost infrastructure spend has received a mixed reception from investment commentators.
In yesterday’s Autumn Statement Hammond committed £23bn over the next five years to a new national productivity investment fund, saying: “We are investing today for the economy of the future”, adding that investing in infrastructure will directly benefit businesses.
Barings investment manager and director of asset allocation research Christopher Mahon dismissed the infrastructure plan as “upside down”.
Mahon says: “The Treasury has already committed eye watering sums of money to programmes such as HS2, Heathrow & Hinkley that won’t be completed for another 20 years. Billions upon billions have been promised, with those projects costing £56bn, £19bn, and £18bn respectively.
“Meanwhile only token amounts of money are being spent on practical projects that are needed today such as easing rail and road bottlenecks. It is a great shame the Chancellor continues to be seduced by the glamour of the mega and ignores the utility and timeliness of the micro. Britain seems to be locked into a type of topsy turvy spending dogma which results in the UK’s well known productivity stagnation.”
Liontrust Macro Equity Income fund co-manager Jamie Clark says Hammond’s plans show “fiscal activism has made an emphatic comeback” and that the Government will be be assuming a bigger role in the economic life of the country”.
Clark says: “This was underscored in the long-term commitment to increase infrastructure expenditure from 0.8 per cent of GDP in the present fiscal year, to 1-1.2 per cent on an ongoing basis. Modest in the context of the multi-decade decline in infrastructure expenditure, but an inflection that is party to a more global recourse to fiscal policy.
“We believe this shift augurs the end of ultra-easy monetary policy, implies higher sovereign debt yields, and therefore an incredibly difficult period for assorted bond-proxy equities – tobaccos and consumer staples – that have rerated aggressively in the post-crisis era.”
The Centre for Policy Studies welcomed the Government’s plans to focus on infrastructure but was wary of it borrowing more to do so.
Head of economic research Daniel Mahoney says: “The Statement’s focus on boosting productivity – particularly through the promotion of infrastructure and housing – is welcome. However, the Chancellor simply announced further borrowing for investment. Although modest compared to Labour plans, this is a concern given that the debt to GDP ratio is set to reach 90 per cent.
“There were also no measures put forward to improve the quality of infrastructure or to reduce regulatory burdens that are constraining housing supply. This was a major missed opportunity.”
Investment Association chief executive Chris Cummings is also positive about the spotlight on infrastructure but says that the Government will need to work with the industry, which the IA will support, largely through the backing of a new UK municipal bond market.
He says: “[This] will help local authorities secure much-needed financing to invest in new infrastructure projects and meet their refinancing needs.
“Providing long-term capital is one of the asset management industry’s most valuable roles in society, and we already fund 60 per cent of all new capital market fundraisings. As the Government looks to improve the UK’s infrastructure, build more housing and create jobs and economic growth through investment the industry has clearly demonstrated its willingness to make even more investments to help build the British economy.”