Infrastructure 100 – CNBC Interview with Dr. Timothy Stone 

Now the Treasury predicts that maintaining Britain’s roads, railways, and major infrastructure

projects will cost between 40 and 50 billion pounds a year until 2030. When the Chancellor

delivered his emergency budget last week, he promised capital spending would not be cut at

least until the public spending review in October. So how will spending to maintain and upgrade

infrastructure fare in the age of austerity? Sonja, it’s going to be a tough ask to expect

infrastructure spending to continue at a time when we’re cutting back. Austerity is the name of the

game now.

Yeah, but I think it will probably see similar cuts as all the other budgets as well. I wouldn’t expect

infrastructure to be hit particularly hard, in particular, in areas like electricity, so energy, housing

or similar, that wouldn’t fit the overall context of the economy and I would not expect more severe

cuts than anywhere else.

Okay, Dr. Timothy Stone is a partner at KPMG and joins us now to talk about this report. Dr.

Stone, thank you very much for coming in. So what does the report tell us about these high-profile

infrastructure projects?

Firstly, it tells us that the projects have to continue and there’s a lot of fantastic activity around the

world, creative as you were saying just now, some energy driven ones. In the case, for example,

of Venice, a flood defense system, which uses just beautiful engineering and solves a

generational problem, but right across the piece from transport to energy to education to housing,

it’s going on and I think the big point that people need to remember is that with infrastructure, it

lasts for generations, many generations. The sewage system in London was built in 1860 and it’s

still around because it was properly planned. When our politicians take decisions, those decisions

create obligations and consequences that last for generations and we now need to be much

better at managing those consequences.

What the government is keen to point out as well as in these cutbacks, they do want the private

sector to fill some of the holes that are left by the public sector cutting back. Can the private

sector pick up the slack here in these infrastructure projects because this is the kind of thing

where the private sector can do more, isn’t it?

Absolutely, and, in fact, if you look in reality what happens conventionally anyway, the private

sector does the vast bulk of it. It’s just the mechanism by which they do it. So do we want the

private sector much more involved? Absolutely. In energy and transmission and generation,

that’s private sector anyway. In the roads, who builds the roads? It’s the private sector. It’s about

making sure that we get the incentives properly aligned and those obligations and consequences

properly sorted through for our grandchildren’s sake.

The report describes this as one of the global challenges of our time. Do you think it gets high

enough priority? It does take a long-term view and you’re faced with politicians with a four or five year time horizon.

Well, it will be interesting. If you look over the last few years, there have been a number of

politicians like John Hutton, for example, and indeed Charles Hendry in the current government

who have taken a very long-term view who do take the legacy consequences of their behavior

very seriously. I think we need to compare and contrast the vision that we have here in the UK,

which is, I think, quite profound with, for example, the US where Eisenhower created the

interstate system in the 1950s and they created the gas tax to pay for the maintenance. Well, the

gas tax didn’t go up with inflation unlike maintenance costs and today, the American Society of

Civil Engineers think that it will take about the same cost as the bank bailout to sort the interstate

system. That’s just one set of roads. Then you’ve got the bridges and the water and the

electricityA.and I think the real point here is about us being responsible citizens and

understanding the consequences of infrastructure because, in the end, it comes down to national

economic competitiveness. We have to be careful.

These big infrastructure projects, of course, we’re talking about things that are happening here in

the Western world, but there’s got to be a heck of a lot of this going on in Asia given the growth

story there and we talk week in, week out to representatives of countries with inadequate

infrastructure about the requirements that they need. We had somebody in from Afghanistan

recently talking about mining opportunities there and he was saying that, yes, there is a real lack

of infrastructure in that part of the world to actually get the stuff out into the international markets.

How much of the infrastructure 100 is focused on these emerging markets?

A fare amount. So, for example, energy in a place like Kenya where they have limited hydro, a

fantastic geothermal scheme that will make a transformational difference to the electricity

economy of the state. But you’re absolutely right, as you go around the Eastern part of the world,

the need for Russian infrastructure to support the development of these countries is fundamental.

Infrastructure is the bedrock of civilization. Unless we manage that process sensibly and carefully

and understand there’s long-term consequences, stupidity will follow.

Okay, we talked to Timothy Stone, partner at KPMG, thank you very much for joining us today.