David Cameron unveils plan to sell off the roads

Sovereign wealth funds to be allowed to lease motorways in England, says prime minister

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Nicholas Watt, chief political correspondent

The Guardian, Sunday 18 March 2012

David Cameron: 'We need to look at innovative approaches to the funding of our roads – to increase investment to reduce congestion.' Photograph: Mike Segar/AP

David Cameron will clear the way for a multibillion-pound semi-privatisation of trunk roads and motorways as he announces plans to allow sovereign wealth funds from countries such as China to lease roads in England.
Just 48 hours before the budget, the prime minister will give a speech calling for radical action to improve Britain's infrastructure, which is falling behind those of key competitors in Europe.
In his most eye-catching proposal, Cameron will announce that the Treasury and Department for Transport are to carry out a feasibility study looking at using private-sector funds to improve and maintain trunk roads and motorways.
The prime minister's plan, modelled on the funding of the mains water and sewage network, would see sovereign wealth funds and pension funds given the right to lease roads over a long period. They would be set a series of targets to, for example, reduce congestion and carry out improvements. George Osborne recently travelled to China to persuade the world's largest fiscal-surplus country to invest in Britain's infrastructure.
If the road companies met the targets they would receive a proportion of the vehicle excise duty, which currently all goes to the Treasury. This would be seen as a particularly radical step because it would be a form of hypothecation – allowing a stream of revenue to be directed at a particular project. The Treasury normally resists this because it likes to keep control of prioritising spending across government.
But Cameron, who is fully supported by the chancellor, will make clear that the poor state of Britain's infrastructure and its public finances means that bold steps have to be taken.
There will be no tolls on the existing road network. But if the road companies create new capacity – by adding lanes to existing roads or building new roads altogether – then they would be entitled to charge for their use.
The prime minister will say: "We need to look at innovative approaches to the funding of our national roads – to increase investment to reduce congestion. Road tolling is one option, but we are only considering this for new, not existing, capacity. For example, we're looking at how improvements to the A14 could be part-funded through tolling.
"But we now need to be more ambitious. Why is it that other infrastructure – for example water – is funded by private-sector capital through privately owned, independently regulated utilities, but roads in Britain call on the public finances for funding?
"We need to look urgently at the options for getting large-scale private investment into the national roads network – from sovereign wealth funds, pension funds, and other investors. That's why I have asked the Department for Transport and the Treasury to carry out a feasibility study of new ownership and financing models for the national roads system and to report progress to me in the autumn."
The bankers NM Rothschild suggested in a report in 2010 that privatising the road network could raise £100bn. Government sources said the scheme proposed by Cameron would raise far less because he plans to lease out trunk roads and motorways, rather than embarking on a full-scale sell-off, as NM Rothschild suggested.
The Cameron scheme would see a regulator for roads established along the lines of Ofwat, which oversees water and sewerage providers. Government sources were joking that they would have to think of a better name than Ofroad.
The water regulator carries out five-year reviews for companies that provide water and sewerage services.
This has allowed companies to carry out investments that have, according to government sources, vastly improved the water infrastructure. The announcement is designed to show that even in straitened economic times the government is committed to pressing ahead with radical plans to promote economic growth. Osborne has little room for manoeuvre in his budget, though it is expected that the independent Office for Budget Responsibility might signal a modest improvement in its growth targets.
Osborne confirmed on Sunday that the main points of the budget were agreed by the "quad" group of ministers – the chancellor, the prime minister, Nick Clegg and Danny Alexander – last Monday. It is understood that the chancellor will announce the scrapping of the 50p top rate of tax for people earning above £150,000. But he will balance that by saying that he hopes to ease the burden of low-income earners by moving more rapidly to raise the tax allowance to £10,000. This target, which was a key Lib Dem pledge in its manifesto for the last general election, was meant to have been reached by April 2015. It is understood that the chancellor now hopes to achieve this a year early.
The prime minister will make clear that his focus remains in promoting growth as he sweeps aside objections from the National Trust and the Daily Telegraph to press ahead with major infrastructure projects that would require reforms to Britain's planning laws.
Cameron will say: "The truth is, we are falling behind … our competitors. And falling behind the great, world-beating, pioneering tradition set by those who came before us. There is now an urgent need to repair the decades-long degradation of our national infrastructure and to build for the future with as much confidence and ambition as the Victorians once did.
"Infrastructure matters because it is the magic ingredient in so much of modern life. It is not secondary to other, more high profile elements of economic strategy. It affects the competitiveness of every business in the country; it is the invisible thread that ties our prosperity together. It gets power to our lights, water to our taps, workers to their jobs, and food to our shops. It enables factories, offices, warehouses, workshops to function, to trade, to grow.
"But infrastructure isn't just about business. It's not just about big, high-profile projects. It is an all-pervasive force in society too. It's the network that powers smart phones, allows us to log on to Facebook, to travel, to live the lives we choose. It is the platform for active citizenship. And its value lie in its ability to make things possible tomorrow that we cannot even begin to imagine today. If our infrastructure is second-rate, then our country will be too. We used to understand this in Britain."
The shadow transport secretary, Maria Eagle, said: "Motorists already suffering from record fuel prices now face a road charging free-for-all, adding to the cost of living crisis facing households up and down the country.
Instead of easing the burden on drivers and boosting our stalled economy through a temporary cut in VAT, ministers look set to let private companies take over the strategic road network and charge drivers for access.
"These proposals risk simply driving traffic on to local roads, increasing congestion and emissions while yet again setting back efforts to improve safety.
"Ministers seem to be intent on repeating the mistakes of rail privatisation, which was supposed to lead to cheaper fares and lower costs but has instead given powerful vested interests the chance to rip off passengers while increasing the cost to the taxpayer.
"Motorists now seem set to be in the firing line for the next phase of the Tories' ideologically driven rip off culture.
"This budget is increasingly looking like a series of desperate acts to divert attention from the government's failure to set out a coherent plan for jobs and growth."

David Cameron unveils plan to sell off the roads | Politics | The Guardian