Planning Reforms Latest Infrastructure Push to Save UK Economy from Recession

Hard-hit construction firms and would-be first-time buyers struggling to step onto the property ladder could be staring into a brighter future after the government announced plans to stimulate house building across Britain, in the latest attempt to provoke infrastructure activity and grow the recession-battered economy.

Planning regulations will be relaxed, applications fast-tracked, and first time buyers offered support in their purchase of a home, under the government's proposals.

"The measures announced today show this government is serious about rolling its sleeves up and doing it all it can to kick-start the economy," said Prime Minister David Cameron.

Around 70,000 new homes will be built, said the government, with 140,000 jobs created in the construction sector.

Concerning data from the private construction sector showed that after a rebound to expansion in output in July, August's activity plummeted to a contraction.

House prices have largely held up because of a lack of new supply into the market.

Nationwide reported a 1.3 percent increase in August.

This has meant many would-be first time buyers have been shunned by the property market, as they cannot afford the deposit required on a mortgage.

Deposit requirements are already bloated as recession-conscious banks are unwilling to take on extra lending risk, so many people are having to front 20 percent of the property's value to even get a mortgage.

However with a new round of house-building projects and an extension of the FirstBuy scheme, where the government and developers help finance first-time buyers mortgages with a 5 percent deposit, prices may ease.

Cameron also announced The Infrastructure (Financial Assistance) Bill under which contains the UK Guarantees Scheme, worth £40bn, where the taxpayer underwrites the finances of major infrastructure projects that are ready to start in the coming year.

There will also be £10bn for underwriting new home projects alone.

In theory no taxpayer cash will actually be spent, assuming the government does not have to be called on as guarantor should a project collapse and investors demand their money back.

This is now subject to approval from lawmakers in the House of Commons.

Government shifts focus to infrastructure

There has been an apparent shift in the government's focus as it, with some urgency, attempts to stimulate activity around the country's crumbling infrastructure, from the creaking Victorian rail network to the pothole-ridden roads.

Before, in the early days of the coalition when it was all doe-eyes and rose gardens, the government were sure that the cocktail of stinging public austerity, tax cuts and loose monetary policy from the Bank of England would be the economic malady-curing elixir.

Private sector firms would fill the void left by the retreating public sector, Chancellor George Osborne and Cameron claimed, while corporation tax cuts would make the UK more competitive and a low base rate would encourage spending not saving, boosting demand.

However the eurozone had other ideas and rained a sovereign debt crisis down on the global economy's head.

Since mid-2010 when the eurozone crisis first broke out, the UK's minimal growth has slumped to recession. Future forecasts have also been cut.

Britain's economy has been contracting from the end of 2011. Prior to this it had been stagnating.

The OECD, a body for the world's biggest economies, slashed its UK growth forecasts for 2012 to a -0.7 percent drop in output, down from a previous guess of a 0.5 percent expansion.

Bank of England economists also trimmed their predictions down to zero growth in 2012, from 0.8 percent.

"The outlook for UK growth remains unusually uncertain," said the Bank's report.

"The greatest threat to the recovery stems from the risk that an effective policy response is not implemented sufficiently promptly in the euro area to ensure that the adjustments in the level of debt and competitiveness required by some member countries occur in an orderly manner."

There was no significant advance of private firms and dwindling tax receipts have seen the UK's debt-to-GDP level catapult to its highest level for over forty years, at 65.7 percent - a value of £1.03tn. Consumers saved for fear of losing their jobs and to focus their spending on essentials, such as food and bills. The retail sector has been hammered by this demand slump.

Clearly the medication was not working. A second opinion was needed.

In his 2011 Autumn Statement, the chancellor declared the government's commitment to infrastructure projects by pledging £5bn of public money.

"For the first time we are identifying over 500 infrastructure projects we want to see built over the next decade and beyond. Roads, railways, airport capacity, power stations, waste facilities, broadband networks," Osborne told the House of Commons.

"And we are mobilising the finance needed to deliver them too.

"The savings I've announced in the current budget have enabled me today to fund, pound for pound, £5bn of additional public spending on infrastructure over the next three years."

Osborne said that the government was committed to its National Infrastructure Plan which outlined a series of areas that needed investment, and that this would help bring Britain's economy back to life.

CBI and BCC add pressure over infrastructure investment

In the months after the rhetoric and promises little progress was made.

Various industry lobby groups barked at the government from the sidelines to stay true to its words on infrastructure if they want to see the economy grow again.

The Confederation of British Industry (CBI), which represents 240,000 businesses that employ around a third of the total private sector workforce, wrote a report called An Offer they Shouldn't Refuse: Attracting Investment to UK Infrastructure highlighting several steps the government could take to ensure there is the cash to get projects off the ground.

Underwriting certain projects to enhance their credit rating would attract private investors, said the CBI, and more should be done to encourage pension funds to back infrastructure efforts.

"Infrastructure spending offers the UK the elusive growth boost we are all seeking. Business has been disappointed that we haven't made more headway in the past six months, and hopes that this report will act as a catalyst," said John Cridland, director general of the CBI.

The British Chambers of Commerce (BCC), another business lobbyist that represents 104,000 firms, called on the government to relax its austerity slightly and use its AAA credit rating to borrow cheaply from the bond markets and spend on infrastructure projects.

"We need an economic action programme so that Britain can excel, and make its way in the world," said John Longworth, director general of the BCC.

"We have the talent and the energy, but we need the political will to focus relentlessly on economic growth. It's not that nothing else matters, it's that without it, nothing else is possible."

Now the government appears to be building up its work on stimulating infrastructure activity.

Planning laws, the bane of construction firms but the beating heart of that truly British trait of nimbyism, will be relaxed under the new reforms aimed at boosting the construction sector.

A special task force - the new Cabinet sub-committee for growth implementation chaired by Osborne - has the remit of exploring how planning laws block or hinder infrastructure projects from going ahead.

By removing certain hurdles or simplifying the process, the government is hoping it can stimulate activity and investment without having to do anything fiscal and add to the country's vast debt pile.

This is a theme seen elsewhere in the government's latest growth drives, such as acting as a guarantor for infrastructure projects.

Despite the obvious attempts by the government to stimulate infrastructure activity without shaking the public by its ankles to see what falls out from its pockets, there has been some fiscal investment.

A £9.4bn injection for the dated rail network will see lines and stations upgraded.

Proponents of rail infrastructure improvement say it will create faster links between key regions and London, which should encourage business investment in areas that desperately need jobs and development, particularly in the north of England.

The investment will be funded by fare rises from 2010 and "substantial efficiency savings which projects like electrification will have on the long term operating costs of the railways," said the Department for Transport.

In effect this means the government is directly funding a significant part of the investment.

Whatever the government does, it has to be done soon as the public seems to be rapidly losing patience with them as they grind through life in a moribund economy.