Daily Coronavirus Webinar: Transport and infrastructure: building the path to recovery

Overview:

Transport and infrastructure will be major enablers as the economy builds back after lockdown. We were joined by Isabel Dedring, Global Transport Leader at Arup, Ian Funnell, Chief Executive Officer of ABB power grids and Josh Hardie, Deputy Director-General of the CBI, to discuss the path to recovery.

Here’s what they spoke about: 

• News from the last few days 
• Getting people moving
• Will we see international cooperation in aviation?
• Shovel ready vs. shovel worthy 
• The role of government in directing policy and investment.

News from the last few days 

A slide in markets in the US and news this morning on a 20% fall in GDP in the UK in April have given us much to reflect on. Such statistics “sharpen the mind” said Josh Hardie. They are shocking but they are also to be expected. “What it does is it throws into sharp relief the need for continued efforts on rescue,” said Josh. The furlough scheme is continuing and the CBI is currently looking at how non-bank lenders like the fintech firms who support 30% of the UKs SMEs can access funds from the Bank of England.

Next week from June 15th onwards, non-essential retail will be back in business and high streets will begin to reopen, said Josh. But as we restart we need to make sure that businesses are doing so safely and that they can follow the guidance on hygiene and social distancing. “There shouldn't be a trade-off between health and wealth,” said Josh. “Health and confidence is paramount to avoid that second lockdown,” he explained. But “long term economic health” is also critical for the health of communities which is why the restart is needed.

Over the next few weeks we should expect more discussions about the two metre distancing rules. Some businesses cannot operate at two meters distance, reducing that to one metre will allow them to survive. However, we do need to carefully consider the impact on infection rates of reducing that distance, said Josh.

Getting people moving

Public transport systems have been running at much lower levels of capacity during the Covid crisis. We need to think more about how people can safely increase capacity on public transport networks to enable the return to work (and to keep transport systems afloat financially). But transport operators themselves have some reservations about increasing capacity too much too soon.

“There is a question as to what capacity would you be prepared to operate your network, even if people are fine with getting on the network,” explained Isabel Dedring, Global Transport Leader at Arup. Most operators she has communicated with are comfortable with around 40 to 50% of capacity for the safety and confidence of passengers.

To get people moving, transport providers need to innovate so they understand more about how people use different services and types of transport. “In transport we have very poor data on how people use different modes,” said Isabel. We know when someone uses the public bus, but we don’t know when they are walking or cycling to work instead.

Will we see international cooperation in aviation?

Approaches to quarantine measures for international travellers have been different between countries. The UK’s 14-day quarantine system was introduced in early June but other nations imposed restrictions much earlier and have now lifted them.

There has been much discussion about bilateral “air bridges” or “travel corridors” and of internationally agreed protocols for testing and quarantine. But Isabel does not think we will see more international coordination in aviation going forward. The sector is so varied: some airports and airlines are doing reasonably well as internal flights in large countries like China and the US have restarted, but smaller airports which serve “weekend” or “city break” destinations are struggling. “The industry is not interested in coordination,” said Isabel.

Josh agreed that there is unlikely to be “a magic supra-national agreement” on travel, screening and quarantine measures but he does hope that bilateral agreements on travel corridors will gradually become the norm.

Shovel ready vs. shovel worthy 

We often hear about the need for “shovel ready” projects in infrastructure and transport. As we build back, such projects will be beneficial for job creation. But Isabel stressed that these projects also need to be “shovel worthy”. All too often, companies will pull out big, long-term projects that have been gathering dust when they are asked to show their “shovel ready” initiatives. Increasingly, companies are looking at smaller, newer and nimbler enhancements that can be rolled out more immediately, something that Isabel welcomes.

Ian Funnell, Chief Executive Officer of ABB power grids similarly stressed the need to “build back faster” as well as to “build back better.” He said that we need to think about initiatives that will kickstart the economy. He also drew our focus to sustainability: the shovel ready projects that companies keep on their books may not be “shovel worthy” now that we have shifted emphasis towards a net zero future.

Josh took the point that infrastructure projects can take a long time but noted that some of these projects will be crucial for job creation post-Covid. They will also be critical for the country’s future capability and productivity.

The role of government in directing investment 

In the energy sector, the government has invested £1.2bn in research and development (R&D) into new tech to drive the net zero agenda, said Ian. He thinks it’s a “great number” but also emphasised that there are some UK PLC companies that spend more than that on R&D. The government needs to invest more.

Isabel thinks that R&D spending needs to be more targeted, giving the example of driverless cars. Dozens of countries around the world have a stated aim to be leaders on driverless car technologies, so the UK needs to focus its efforts on the areas of that tech we really excel in: the artificial intelligence tech that driverless cars need to operate.

Ian agreed that R&D spending is often “spread way too thin.” We should “focus on areas where UK PLCs can excel and invest in them,” he said.

Key questions we answered:

1. Josh, what role can investment in infrastructure – green infrastructure in particular – play in driving the UK’s recovery?

• Similarly to Brexit, it could feel like climate change and net-zero have fallen off the agenda in recent weeks. Our response is that we mustn’t let this happen. The clock is still ticking, and the urgent need for action hasn’t gone away. Yes, there’s been a fall in global emissions this year as result of pandemic. But it’s very likely they will rise again as economies reopen.
• We also know that investment in low-carbon technologies and infrastructure programmes will create new jobs, generate growth, and help us build a more sustainable future.
• Infrastructure investment is a big economic multiplier. CBI research shows that for every £1 spent on construction activity, £2.92 is created in overall value.
• We believe in five principles:
  • Prioritise public spending and policy on low-carbon programmes
  • Deliver on existing fiscal commitments to leverage investment and cut emissions
  • Drive investment and stimulate a green recovery through smarter regulation and clear policy
  • Build the foundations of a green economic recovery into the plans to support companies recovering from the pandemic
  • Coordinate a global response to climate crisis, using our leadership of COP26, G7 and G20 next year.
• It’s also critical to ensure this economic benefit is felt around the country. Major transport projects can help boost the connectivity across regions.

2. Isabel, do you think we can restart the economy with only partial use of public transport? Is there enough capacity in the transport system?

• Transport networks around the world are operating at around the 40-50% capacity mark.
• The data on transport usage is very poor, particularly for people who use different modes of transport not involving public transport, such as walking and cycling.
• On the road network, you have a lot of pressure to put in social distancing measures for pedestrians and cyclists. Can the road network cope with this?
• A lot of variables need to be resolved.

3. Isabel, how do you think the next 12 to 18 months will be?

• Over 18 months, you will see very different trajectories of transport recovery depending on the country you are looking at.
• Transport is a deeply un-agile industry that is used to thinking decades ahead.
• In the medium term, the industry has to think about how to fix old business models. A prime example is aviation, which in the medium term is in for a very rough ride.
• We could see radical changes in the funding and financing of global operators as their models may have been rendered obsolete by this crisis.

4. Josh, what are you hearing about the proposed quarantine?

• It is no secret what a hotly debated issue this is.
• A ministerial taskforce has been set up, and a bit more guidance on air travel has come out.
• We could see more bi-lateral agreements being formed on aviation and the quarantine policy. And the more bi-lateral agreements we get, the more normalised certain approaches will become. But I don’t think we can expect to see a major international consensus on this issue.

5. Ian, what do you think we can expect government to do in terms of galvanising infrastructure investment?

• ‘Building back better’ is the term we use – but I think we should focus on ‘building back faster’.
• We need to make sure we have the skills and don’t end up with a lost generation. The young need to be engaged in what building back better looks like.
• We need a significant reduction in carbon, so building back greener is key with sustainable investment.
• The UK economy has been largely driven by renewable energy over the last few months.
• In addition, McKinsey did a report last month on government investment in energy. It found that for every £10m government invests in fossil fuels, around 27 jobs are created. With green energy investment, you create 75 jobs per £10m invested.

6. All, how can we put in place an agenda for infrastructure investment that feeds through quickly?

• Ian – I am encouraging government to think about the policies they can put in place now to build greener, smarter systems – whether that is electric trains or other green technologies. You do not have to wait five or 10 years for the emerging technologies to appear. These technologies are on the shelf today.
• Isabel – Public-private partnerships have been associated with negativity over recent years. There is a sense of an adversarial relationship between the public and private sector. But that has changed during this crisis with many more collaborative behaviours being noticed in our sector. Government can take advantage of this.
• Josh – We need to build back faster and prioritise shovel worthy projects. We also need to remember some of these long-term projects are critical to our long-term competitiveness and productivity. But there are things we can do faster. Also, when we are talking about infrastructure investment, it needs to fill an immediate role – the creation of jobs.

7. Ian and Isabel, what would you ask the Chancellor to include in his July economic statement?

• Ian – I would say we need tax incentives for industrial automation and energy efficiency. We need to pick the things we want to excel in and invest heavily in them.
• Isabel – Revenue from fuel duty is evaporating because of the rise of lower emission vehicles. And that will only continue, so now is the time to re-think how we raise revenue. We also need a multi-modal approach to pricing. Finally, we could pay people to cycle, and charge people differently to use the road network. Then this revenue could be used to support greener technologies.