CBI/KPMG infrastructure survey 2012
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The CBI/KPMG infrastructure survey, conducted in June and July 2012, provides a business-wide assessment of the state of the UK’s economic infrastructure networks. The survey underlines the critical ...

The CBI/KPMG infrastructure survey, conducted in June and July 2012, provides a business-wide assessment of the state of the UK’s economic infrastructure networks. The survey underlines the critical role that infrastructure plays in making the UK an attractive place to do business and in helping firms to take advantage of growth opportunities both here and abroad.

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CBI/KPMG infrastructure survey 2012 CBI/KPMG infrastructure survey 2012 Document Transcript

  • Better connected, better businessCBI/KPMG infrastructure survey 2012 In partnership with
  • Tom Thackray Jessica LengSenior policy adviser Sector senior business managerBusiness environment directorate Infrastructure, building & constructionCBI KPMG LLPT: +44 (0)20 7395 8152 T: +44 (0)113 231 3948E: tom.thackray@cbi.org.uk E: jessica.leng@kpmg.co.ukwww.cbi.org.uk www.kpmg.co.ukAbout KPMG:KPMG is a global network of professional firms providingaudit, tax and advisory services, with 145,000 outstandingprofessionals working together to deliver value in 153countries worldwide. Working with private and public sectororganisations across a wide range of business sectors,KPMG’s vision is simple - turn knowledge into value for thebenefit of their clients, people and capital marketsSeptember 2012
  • Better connected, better business CBI/KPMG infrastructure survey 2012 3ContentsForeword by John Cridland, CBI 4Foreword by Richard Threlfall, KPMG 5Overview 6The infrastructure landscape 8The second CBI/KPMG infrastructure survey 101 Infrastructure impacts business investment decisions 132 Weak domestic networks risk holding back growth 203 Quality infrastructure can help exploit growth opportunities 264 Action is needed to boost private investment in infrastructure 335 Government policy is not yet addressing key infrastructure challenges 38References 43
  • 4 Better connected, better business CBI/KPMG infrastructure survey 2012 Foreword John Cridland As the UK struggles to cement a lasting economic While our transport infrastructure feels the squeeze, recovery, creating the right conditions for business we should be optimistic about our digital networks. investment must be at the heart of a strategy for growth. Businesses recognise the significant improvements Once again, this survey has shown the importance of that have been made in recent years and acknowledge high-quality and affordable infrastructure in creating the government’s commitment to delivery. As this environment. technology continues to improve, it is vital that we go further on broadband speed and coverage, providing Businesses rely on infrastructure to get closer to their faster and more reliable web access to companies that customers and supply chains, and the strength of their rely on it as their gateway to new markets. networks influences their ability to export and innovate. Companies will only succeed in the global economy In short, a mixed picture of progress emerges from this with reliable connections to growing markets. year’s results. Business leaders welcomed a number of the government’s recent policy initiatives, such I am confident that ministers are heeding these crucial as changes to the planning system and the move to messages. With the publication of a revised National incentivise pension fund investment in infrastructure. Infrastructure Plan, the coalition has taken positive But a failure to translate positive ideas into action on steps to identify a clear pipeline of priority projects of the ground has left many business leaders sceptical paramount importance to our future competitiveness. about the overall impact of government policies. But with tightening fiscal conditions and equivocal leadership, the government faces a significant To develop the networks that will keep us competitive, challenge in attracting private investment. we need a relentless focus on delivery. Big decisions on the future of our infrastructure – on aviation capacity, Business leaders need to see action being taken to electricity market reform and the future of road funding upgrade our networks as a matter of urgency. We are – must be taken and followed through with conviction. losing out to our closest competitors – other developed Through our Infrastructure Board, the CBI will continue economies are believed by businesses to offer a better to articulate the strong business case for action and standard of infrastructure than the UK. Increasing develop the solutions to get these projects moving. demand for domestic and global travel is putting pressure on transport networks and local, national and international routes are all feeling the strain. Rising energy costs and uncertainty about future water supplies also compound doubts over whether the UK’s current connections can adequately support business ambition. John Cridland Director-General CBI
  • Better connected, better business CBI/KPMG infrastructure survey 2012 5Foreword Richard ThrelfallInfrastructure is the backbone of our economy. Our roads, Despite the announcement and subsequent dialoguerailways, ports, and airports connect people to jobs and around the Pensions Infrastructure Platform, anour businesses to markets. Our power stations, gas, immediate and workable solution to investment inwater and electricity networks keep homes, offices and infrastructure, particularly greenfield projects, remainsindustry working, day and night. Our communication conspicuous by its absence. However, the appointmentnetworks drive efficiency and global reach. Yet we take it of an Infrastructure Minister, the recently announcedall for granted. Until, that is, we find our infrastructure in UK Guarantees Scheme and the Infrastructure Billneed of repair, absent or obsolete. are all significant steps in the right direction. Strong, clear direction by government will undoubtedlyIncreasingly there is widespread recognition of the build confidence with private sector funders that UKinvestment needed in the resources and facilities that infrastructure is a worthwhile venture. Government asour communities and businesses depend upon. The catalyst is more powerful than government as procurer.National Infrastructure Plan 2011 highlighted over£300bn of priority infrastructure projects but it is widely Significant challenges lay ahead to make a tangibleacknowledged the total requirement is likely to be step change to the UK’s infrastructure investment andnearer £500bn. delivery. Economic and regulatory uncertainty have a compounding effect. Infrastructure is a heavyweightInfrastructure has come a long way in the last few years. in political debate – get it right and it is a facilitator forIt is now at the forefront of the political debate. It is our growth, but do it badly and it hinders it. Better disciplineantidote to austerity. It is a key pillar of the coalition’s is needed to ensure that less time is spent deliberatinggrowth programme. Everyone agrees it matters. But is the route and more focus on reaching the destination.it actually being delivered? Where is the impact on the With further anticipated emphasis on infrastructureground? Will anyone look back and recognise that this in the Autumn Statement as well as the long-awaitedgeneration has created anything close to our Victorian outcome of the PFI review there is real opportunity tolegacy of infrastructure improvements? Or indeed just make the journey as smooth and direct as possible.properly maintained what we inherited?KPMG are proud to be working once again with theCBI to bring to bear evidence of the views of businesson the state of our infrastructure. As John says, it isa mixed picture. In some areas such as broadbandprovision there is a real sense of strategic vision andaction. Huge investment has gone into our water Richard Threlfallinfrastructure over many years, and more recently Partner, UK Head, Infrastructure, Building andin waste recycling. But there is so much more to do. ConstructionIn other areas the deficit is more stark. In energy KPMGgeneration the way forward remains unclear. Inaviation we are devoid of a solution. In both casesaction is long overdue.
  • 6 Better connected, better business CBI/KPMG infrastructure survey 2012 Overview The second CBI/KPMG Infrastructure impacts business infrastructure survey investment decisions • The survey was conducted in June and July 2012 • A large majority (over 80%) of firms see the quality and reliability • There were 568 respondents from businesses of transport and digital infrastructure as significant considerations of all sizes and sectors across the UK, in investment decisions. Businesses attach the greatest weight including investors in, and providers and to transport infrastructure but digital networks are of growing users of infrastructure importance and are a major consideration for the smallest firms • The survey was distributed to senior • When it comes to energy supply, the cost of infrastructure has even executives of companies from all regions of greater significance than quality. Energy costs have a particularly the UK. important bearing on investment for over 90% of companies in the manufacturing sector • But the UK is losing ground on its closest competitors:over 60% of companies judge infrastructure elsewhere in the EU to be better than our own • Almost two thirds (61%) of companies rate UK transport infrastructure as below average by international standards with just 14% deeming it to be above average. 95% of companies are concerned about rising energy costs. Weak domestic networks risk holding back growth • While 61% of companies are satisfied with their links to domestic markets, there is substantial variation between regions: four in five companies in London (77%) are satisfied with their domestic links, compared with just over half (56%) in the North West and North East • Two thirds of companies (65%) report a decline in the standard of local road networks, with congestion and lack of investment cited as the main concerns • Businesses are broadly positive about the proposed High Speed 2 rail link, with two thirds predicting it will benefit growth • Less than one in five companies (19%) think that interconnectivity of different transport modes has improved over the last five years.
  • Better connected, better business CBI/KPMG infrastructure survey 2012 7Quality infrastructure can help Government policy isexploit growth opportunities not yet addressing key• The quality of international transport connections hold sway on infrastructure challenges investment decisions for 65% of companies• But the availability of direct flights to emerging economies is an • Far more firms lack confidence in transport increasing concern: 54% of companies who deem direct flights to networks improving over the next five years China crucial are dissatisfied with current availability than believe they will improve, giving a• Companies are positive about the current state of digital networks: negative balance of -46% four in five (82%) report that they have improved over the last • Two thirds of businesses also believe that five years and a similar proportion (79%) believe that they will energy (67%) and water (69%) infrastructure continue to improve over the next five years will not improve over the same period• But more businesses believe that mobile broadband networks • Just a third of companies (35%) believe that in the UK are below average than above it for both speed and government policies on infrastructure will breadth of coverage. have a positive impact on investment, a proportion that is 10 percentage points lower than last year’s result • But almost half of infrastructure providersAction is needed to boost private (48%) believe the government’s policies will lead to increases in investment.investment in infrastructure• The UK is rated highly as a destination for infrastructure investment compared with other economies: 43% believe the UK compares favourably with other EU states• But business leaders rate China and the US as better destinations for investment than the UK• Almost all businesses (97%) see the planning system as a barrier to infrastructure delivery. While 45% of companies believe recent changes to the regime will have a positive impact, even more (48%) believe they will have no impact• Attracting finance for projects from a broader range of private investors is a necessity in the eyes of business – a positive balance of +76% believe this would have a significant impact on overall investment levels. ££ £££££ ££££££££££ ££££££££££ ££££££££££££
  • 8 Better connected, better business CBI/KPMG infrastructure survey 2012 The infrastructure Exhibit 1 Major government initiatives announced since the first CBI/KPMG infrastructure survey landscape November 2011: Government announces priority infrastructure funding and intention to unlock £20bn of pension fund investment in infrastructure at the Autumn Statement Infrastructure plays a crucial role both as a driver and Update of the National Infrastructure Plan is published, an enabler of economic growth. The building of new setting out a pipeline of over 500 infrastructure projects networks or the upgrading of existing assets creates across a range of infrastructure types growth and jobs during the construction phase before that infrastructure becomes operational, but the December 2011: Water white paper is launched, a vision for benefits of projects are far wider. For businesses, the future water management in the UK right infrastructure can have a dramatic impact on their development, enabling them to gain access to January 2012: Government announces it will press ahead new markets, take advantage of new technologies with proposed High Speed 2 rail link and get closer to their customers, supply chains and competitors. March 2012: Budget 2012 includes an additional £150m to support private sector roll-out of broadband infrastructure As the UK battles to recover from the financial crisis and and a commitment to streamline the planning system for compete successfully for private sector investment in nationally significant infrastructure projects the global economy, the quality and affordability of its infrastructure are of major significance. Yet studies have Launch of pension infrastructure platform (PIP) is confirmed, consistently portrayed our networks as a cause of concern, a joint investment scheme to boost pension fund investment with the OECD’s 2011 Going for growth report concluding that in UK infrastructure under-investment in the UK has led to more congested and less reliable infrastructure compared with other nations.1 National Planning Policy Framework is published, a new policy document setting out principles for the sub-national The coalition government has rightly put the UK’s planning system infrastructure development at the heart of its plan for economic growth (Exhibit 1). In a recent speech, the prime The Prime Minister makes a speech on private investment in minister referred to it as “the magic ingredient” in modern the road network and announces a new feasibility study on life that “affects the competitiveness of every business in funding and ownership the country”, while acknowledging that the standard of UK networks has fallen behind that of its competitors. But with May 2012: Draft Energy Bill is published including measures a pipeline of projects worth over £250bn to 2015 and beyond aimed at reforming the electricity market and less public money available to invest, the government faces a huge challenge in attracting sufficient private finance Plans for a 20-year strategy for the national road network to deliver essential upgrades (Exhibit 2). are announced alongside terms of reference for the new feasibility study It is in this context that our survey gathered views from infrastructure investors, suppliers and users on where July 2012: Consultation is launched on a draft aviation investment in UK infrastructure is most needed and how policy framework, but the key question of capacity is not public policy can improve the standing of the UK as an addressed attractive destination for private investment in infrastructure. Government announces HLOS, bringing £4.2bn of additional investment in new rail projects including the Northern Hub UK guarantees scheme is announced, with the government committing to underwrite private investment in up to £40bn of infrastructure projects
  • Better connected, better business CBI/KPMG infrastructure survey 2012 99Exhibit 2 Transport • 90% of passenger distance travelled each year on roads • • 46% increase in road traffic volumes by 2035 20,000 miles – length of UK rail network Digital • 36-46% increase in passenger demand for rail expected by 2030 • 68% take-up rate of broadband connections • 20 times more trade done with countries with which the across the UK UK has a direct air link • 58% of the population have access to • 380m passengers a year – expected demand for air superfast fixed-line speeds travel from UK airports by 2050 • 1% of properties without access to mobile 3G internet Water Energy • 3,400 litres of water used per person per day • 9% decrease in level of replenishment of • 374 TWh total electricity supply in 2011 groundwater by 2025 • 9.4% of UK’s electricity delivered from • £98bn of private investment in water renewables networks since 1989 • 20 gigawatts of additional generating capacity needed by 2020 • 40% increase in global energy demand over the next decade Waste • 525kg per capita of municipal waste generated each year • 1.5% of the UK electricity supply comes from waste • 50% of municipal waste sent to landfill each year • 52% of commercial and industrial waste recycled in 2009Sources: DfT, DECC, Environment Agency, Defra, Ofwat, HM Treasury, Ofcom , Frontier Economics
  • 10 Better connected, better business CBI/KPMG infrastructure survey 2012 The second CBI/KPMG infrastructure survey The CBI/KPMG infrastructure survey is now in its second Conducting the survey year, following the inaugural report in 20112 which The online survey was conducted over an eight-week period coincided with the launch of the CBI’s Infrastructure in June-July 2012 and responses were received from 568 Board. Since then, the UK’s weak and uneven recovery participants. The survey was distributed to senior executives has brought the need for infrastructure renewal into from companies of all sizes, representing all major economic sharp focus, as policymakers and other stakeholders sectors and based in all regions of the UK. Infrastructure search for ways to reinvigorate the economy. investors, providers and users all took part, enabling us to analyse the views and experiences of a diverse range of The survey results provide an important business-wide companies. perspective on the quality, reliability and affordability of the UK’s networks, and how these factors impact Questions focused on the five main classes of economic investment decisions and business growth. The findings infrastructure: energy, transport, water, waste and digital. highlight strengths and weaknesses in our economic Participants were asked to rate the overall quality and infrastructure relative to other economies and identify reliability of each type and to assess their significance for priority areas for new investment. The survey also considers investment decisions. In addition, companies were asked the attractiveness of UK infrastructure from investors’ about the current conditions for investing in infrastructure perspective and assesses the key barriers to infrastructure and their views on the government’s policies for developing delivery that need to be addressed. the UK’s networks. Responses were received from all sectors of the economy… Companies across all sectors of the economy responded to the survey (Exhibit 3). Manufacturing and construction companies formed the two largest categories of participants, each accounting for almost one in five of the respondents (18% respectively). However, the services sector was also well-represented, with financial and professional services making up over 15% of participants. In the analysis of the results, responses were weighted according to the sectoral contribution to Gross Value Added based on the latest available Office of National Statistics estimates.3 Responses were also split by firms that classed themselves as infrastructure providers and those that were solely users. A quarter of all those surveyed said that their company was primarily a provider of infrastructure (Exhibit 4).
  • Better connected, better business CBI/KPMG infrastructure survey 2012 11 Exhibit 3 Respondents by sector (%) Exhibit 4 Infrastructure providers (%) Primarily Agriculture 1 infrastructure Public Other 9 Mining & quarrying 2 providers 25 sector 4 Manufacturing 18 Professional & suppo rt services 12 Gas & electricity 5 Real estate 4 Water & waste 4Finance & insuranc 4 e Information & Primarily communic ations 5 infrastructure Construction 18 users 75 Wholes ale, Transpor t & retail & storage 10 leisure 4 Exhibit 5 Primary location of respondents by region (%) …and from all parts of the UK Northern Scotland 6 Most respondent companies have operations in more Ireland 3 North East 4 than one region of the UK, so the survey also asked them to identify their primary location (Exhibit 5). London 31 North West 7 Just over 30% of respondents were primarily based in London with a further 15% in the South East. Yorkshire an d Respondents across other regions were more evenly the Humber 5 spread, ranging from 3% each primarily located in Wales and in Northern Ireland to 9% in the West Midlands. East of England 8 East Midlands 5 West Midlands 9 South East 15 Wales 3 South West 4
  • 12 Better connected, better business CBI/KPMG infrastructure survey 2012 Exhibit 6 Respondents by UK workforce size (%) 5000+ 0-49 19 16 There was a good response from companies of all sizes… Companies of all sizes, measured by number of employees, 50-249 participated in the survey (Exhibit 6). SMEs (those 14 employing up to 250 people) made up 30% of respondents, while medium-sized businesses (50-499 employees) accounted for over a quarter (28%) of the survey sample. Large companies employing over 500 people made up just 500-4,999 over half (56%) of participants. 37 250-499 14 Exhibit 7 International presence of companies (%) Over 50 countries 16 …and with varying degrees of international reach The survey asked participants about the number of 21-50 countries 6 countries in which their firms are active (Exhibit 7). Most respondents (61%) represented companies with UK only 39 operations in at least one country outside the UK, with 11-20 countries 7 25% active in between one and five countries. At the top end of the international scale, 16% of respondents had operations in over 50 countries. The scale of the 6-10 countries 7 geographical footprint of participant companies means respondents were well-placed to assess how the UK’s infrastructure compares with that of other countries. 1-5 countries 25
  • Better connected, better business CBI/KPMG infrastructure survey 2012 131 Infrastructure impacts business investment decisionsThe quality, reliability and cost of infrastructure are key The state and cost of UK networks have aconsiderations for companies when making decisions significant bearing on investment decisionson where and when to invest. While each infrastructure Sustained economic recovery depends on businessesclass has an impact, transport, energy and digital already active in the UK having the confidence to investnetworks are almost universally significant for business and on attracting mobile capital from across the globe.investment decisions across all sectors and business The overall business environment must encourage thistypes. In the face of fierce international competition investment, with infrastructure one of the major elements.for mobile capital, the UK must create the conditions The findings of this survey highlight the crucial bearing thatto encourage high levels of business investment. But infrastructure provision has on firms’ investment choices.weaknesses in some UK infrastructure classes pose therisk that companies may opt to invest elsewhere. Respondents were asked to rate the significance of the quality and cost of each of the five economic infrastructureKey findings classes on their investment decisions (Exhibit 8). The quality and reliability of transport and digital networks emerge as• A large majority (over 80%) of firms see the quality significant for the highest proportion of companies, with and reliability of transport and digital infrastructure over four fifths of respondents stating that they have an as significant considerations in investment decisions. impact on investment decisions (84% for transport and 81% Businesses attach the greatest weight to transport for digital). Quality and reliability of energy infrastructure are infrastructure but digital networks are of growing also highlighted as important by 71% of respondents, but importance and are a major consideration for the energy cost is even more significant (cited by 74%) – a result smallest firms unique to this infrastructure class.• When it comes to energy supply, the cost of infrastructure has even greater significance than quality. Energy costs have a particularly important bearing on investment for over 90% of companies in the manufacturing sector• But the UK is losing ground on its closest competitors: over 60% of companies judge infrastructure elsewhere in the EU to be better than our own• Almost two thirds (61%) of companies rate UK transport infrastructure as below average by international standards with just 14% deeming it to be above average. 95% of companies are concerned about rising energy costs.
  • 14 Better connected, better business CBI/KPMG infrastructure survey 2012 Exhibit 8 Significance of quality, The quality and reliability of transport reliability and cost for investment (%) networks are the top infrastructure priority Transport infrastructure plays a key role in the day-to-day Energy operations of most businesses and the survey highlights 30 41 23 6 these networks as highly significant in investment decisions. Quality and reliability More than four fifths (84%) of all respondents state that 33 41 21 5 the quality and reliability of transport infrastructure are Cost significant, with 43% deeming them ‘very significant’. The results are largely uniform across all sectors but perhaps Transport predictably, respondents from the transport and storage 43 41 12 4 sector give the highest rating to their importance, with 82% Quality and reliability classing transport infrastructure as ‘very significant’ in their 35 42 18 5 investment decisions. Cost While road, rail and air links are an important consideration Water for all firms, they have a greater significance in investment 12 30 43 14 decisions the larger a company becomes, reflecting the need Quality and reliability to link multiple operations across the UK and internationally 11 25 48 16 (Exhibit 9). Almost half of respondents from large companies Cost (48%) judge the quality and reliability of transport as ‘very significant’ in their investment decisions compared with just Waste over a quarter of SMEs (26%). 10 29 46 15 Quality and reliability 12 27 47 14 Cost Digital 43 38 14 5 Quality and reliability 29 40 24 7 Cost 0 20 40 60 80 100 Very significant Significant Not very significant Not at all significant
  • Better connected, better business CBI/KPMG infrastructure survey 2012 15Exhibit 9 Significance of quality and reliability Exhibit 10 Significance of qualityof transport infrastructure for investment (%) and reliability and cost of energy infrastructure for investment (%) All firms All 43 41 12 4 30 41 23 6 SMEs Quality and reliability 26 48 20 6 33 41 21 5 Medium-sized* Cost 40 41 17 2 Large Manufacturing 48 41 8 3 43 43 13 10 20 40 60 80 100 Quality and reliability 54 36 91 Cost Very significant Significant 0 20 40 60 80 100 Not very significant Not at all significant Very significant Significant*This category covers businesses with 50 to 499 employees so there is some Not very significant Not at all significantoverlap with SME figuresBusinesses prioritise cost overquality on energy infrastructureEnergy infrastructure also plays a significant part inbusinesses’ investment decisions. For this class ofinfrastructure the cost of supply is even more important thanquality and reliability, with three quarters of respondents(74%) stating that it has a significant bearing on theirinvestment decisions. This is in contrast to the results forthe other infrastructure classes, where businesses tend toprioritise quality and reliability over cost.Energy infrastructure is particularly important to themanufacturing sector, which contains a number of theenergy-intensive industries under increasing pressureas a result of rising energy costs. More than four fifths(86%) of respondents from this part of the economy saythe quality of energy supply is an important factor in theirinvestment choices and for 90% the cost of energy is a keyconsideration (Exhibit 10).
  • 16 Better connected, better business CBI/KPMG infrastructure survey 2012 Waste and water networks have a …while firms across the board demand large bearing on construction and high-quality digital infrastructure manufacturing firms’ investment… The results of the survey show that having high-quality and The quality of waste and water infrastructure and cost of supply reliable digital infrastructure is becoming more and more are highlighted as a priorities for under half of businesses significant for UK firms. For more than four fifths (81%) overall (Exhibit 8), reflecting that these are not central of all respondents this is an important consideration in considerations for most companies in the services sector. their investment decisions, a 7 percentage points higher proportion compared with the results of the 2011 survey A majority of respondents in the manufacturing and (Exhibit 11). The number of respondents that deem the construction sectors, however, identify the quality and quality of digital networks as ‘very significant’ has also reliability of waste and water infrastructure as significant increased, from 32% in 2011 to 43% this year. factors in their investment decisions (57% and 51% respectively in manufacturing and 61% for both in construction). The The quality of broadband infrastructure is particularly costs of waste and water infrastructure are also important important for the smallest firms who rely on internet considerations for these sectors (cited as significant factors by communications to reach their customers and suppliers in 55% and 46% respectively of respondents in manufacturing the absence of extensive operational networks and multiple and 65% and 56% of those in construction). business premises. Over half (53%) of respondents from companies employing fewer than 50 people state that it has a very significant impact on their investment decisions, compared with 30% of those from companies employing Companies that 81% over 5,000 people. consider the quality Exhibit 11 Significance of quality and reliability and reliability of of digital infrastructure for investment (%) digital networks to 32 42 18 8 have a significant bearing on 2011 43 38 14 5 their investment decisions 2012 0 20 40 60 80 100 Very significant Significant Not very significant Not at all significant
  • Better connected, better business CBI/KPMG infrastructure survey 2012 17But relative weaknesses in theUK’s infrastructure mean we risk Exhibit 12 The World Economic Forumlosing out on investment rankings for overall quality of infrastructureGiven the significance that most businesses attach to Rank Countryinfrastructure, it is crucial that the UK’s networks match upwell with those of other countries. As markets become more 1 Switzerlandglobal, businesses have greater choice about where to basetheir operations. Those economies that can offer the most 2 Singaporeattractive business environment – including a high standardof infrastructure – will thrive. 3 FinlandBut businesses believe the UK’s networks are falling behind 4 Hong Kong SARthose of some of our closest competitors, posing a threatto this country’s attractiveness as a place to invest. Relative 5 Franceweaknesses in transport and energy networks are a particularcause for concern. 6 United Arab EmiratesThe World Economic Forum ranks the UK 24th for the overall 7 Icelandquality of its infrastructure behind 13 European countries,as well as a number of other advanced economies (Exhibit 8 Austria12).4 To check the views from businesses, we askedcompanies to assess how the quality, reliability and value 9 Germanyfor money of the UK’s economic infrastructure compare withother specific locations. The results show that although our 10 Netherlandsinfrastructure compares favourably with that of emergingeconomies, it lags behind EU countries and other developed 24 United Kingdomnations according to the majority of respondents (Exhibit13).
  • 18 Better connected, better business CBI/KPMG infrastructure survey 2012 Exhibit 13 UK infrastructure compared The UK’s transport and energy networks compare with international destinations (%) unfavourably with those of other countries One of the more concerning results from the survey is that for two of the most significant infrastructure classes for 1 EU 13 56 26 4 business investment – transport and energy – the UK’s 13 29 58 networks are not up to scratch. For both these networks 8 12 44 26 10 2011 more respondents believe the UK is underperforming than 14 25 61 outperforming relative to other international business 2012 destinations (Exhibit 14). 2 11 40 35 12 Non-EU developed countries A startling 61% of companies feel the UK’s transport 33 27 40 infrastructure is below average in an international context 5 9 25 35 26 2011 and only 14% consider it as above average (giving a negative 33 24 43 balance of -47%). Tellingly, the results are fairly consistent for 2012 all sectors, but respondents from professional services firms are particularly concerned, with four in five (82%) judging Emerging economies 1 21 68 9 this form of infrastructure to be below par. Furthermore, 67 11 22 these results are much less positive than those from the 2011 3 20 57 16 4 2011 survey: only 12% felt that the UK’s transport infrastructure 71 11 18 was significantly below average last year, compared with the 2012 quarter (26%) that judged it as such this time. 0 20 40 60 80 100 1 16 65 14 3 2 26 55 13 4 Nearly two thirds (61%) of companies feel our infrastructure 95% Proportion of businesses that are compares unfavourably with other EU markets and just 14% 3 2 20 55 20 believe it compares more favourably, leaving a balance 7 33 33 16 11 concerned about of -47%. Our infrastructure also seems to be struggling when set against other advanced economies outside the energy costs EU – 43% of businesses believe the UK’s networks compare unfavourably with these destinations. However, respondents from the most international companies5 surveyed are slightly less critical, with 36% feeling the UK compares well with these destinations compared with 33% who took the opposite view. For the great majority (71%) of companies, UK infrastructure still compares well with that of emerging economies, which are still looking to invest to bring their networks up to the standards of developed nations. However, there is no room for complacency here, as almost a third of infrastructure providers believe that the UK compares unfavourably with even these economies.
  • Better connected, better business CBI/KPMG infrastructure survey 2012 19Exhibit 14 UK infrastructure These results underline how highly companies prioritisecompared internationally (%) continued investment in the UK’s transport system and the need to get projects off the ground quickly to upgrade our networks. The government has taken some positive steps in Energy setting out a National Infrastructure Plan and announcing1 13 56 26 4 its commitment to a wide range of transport projects , but 2011 the results indicate that businesses need to see quicker 8 12 44 26 10 progress to spark a change in their overall assessment. 2012 Although less extreme, the results for energy infrastructure Transport are also fairly negative, with over a third of companies (36%)2 11 40 35 12 believing the UK compares unfavourably with other nations, 2011 and just one in five (20%) seeing us as ahead of the pack. Once5 9 25 35 26 again, it seems to be the cost of energy supply that is driving 2012 businesses concerns in this area. The overwhelming majority of respondents (95%) state that they are concerned about energy Water costs, with two thirds of companies (67%) in the manufacturing1 21 68 91 sector classing themselves as ‘very concerned’. 2011 3 20 57 16 4 Historically, wholesale energy prices before taxes have been 2012 higher in the UK than in other EU countries7. The survey results indicate that businesses, particularly in the manufacturing Waste and construction sectors, are concerned about the impact of1 16 65 14 3 rising energy costs on future investment in their UK operations. 2011 The government needs to develop a positive response as we2 26 55 13 4 face the prospect of prices rising further to meet the cost of 2012 infrastructure renewal and ambitious emissions reductions targets, particularly ensuring that the UK’s energy-intensive Digital industries are not put at a disadvantage internationally.2 20 55 20 3 2011 7 33 33 16 11 20120 20 40 60 80 100 Significantly above average Above average Average Below average Significantly below average
  • 20 Better connected, better business CBI/KPMG infrastructure survey 2012 2 Weak domestic networks risk holding back growth The survey reveals that the quality of domestic Businesses are broadly satisfied with transport connections is viewed as critical for a large their links to other parts of the UK… proportion of businesses. Well-functioning networks Respondents to the survey were asked to provide an help to improve business productivity by reducing overall assessment of the standard of the infrastructure time lags and bringing firms closer to their customers that connects their UK operations to domestic markets. On and supply chains.8 Improving connectivity across the the whole, businesses seem to be satisfied. The majority UK is therefore an important means of enabling the – 58% – rate this domestic infrastructure as ‘OK’, showing private sector to maximise its economic contribution that while there is significant room for improvement, in all regions. companies do not believe it is substantially damaging their competitiveness. Of the remainder, twice as many rate the While companies are generally satisfied with the UK’s domestic infrastructure as good (29%) as rate it poor overall standard of domestic connectivity, they see (13%). some real weaknesses – particularly in the road network – which threaten to undermine growth. The As well as rating the quality of the UK’s domestic survey also shows that different regions have different connections, respondents were also asked how satisfied transport network priorities and that projects can have they are with their links to other UK regions (Exhibit 15). contrasting impacts on businesses depending on A majority (61%) said they are satisfied, with 7% classing where they are based. themselves as ‘very satisfied’. But while this result may seem positive, it is a lower proportion than the result from Key findings last year’s survey, and a larger proportion of respondents • While 61% of companies are satisfied with their links are satisfied with their company’s links to EU markets than to domestic markets, there is substantial variation they are to other markets in the UK. between regions: whereas almost four in five companies in London (77%) are satisfied with their Exhibit 15 Satisfaction with links domestic links, only just over half (56%) of those in the to other UK regions (%) North West and North East are satisfied • Two thirds of companies (65%) report a decline in the standard of local road networks, with congestion and lack of investment cited as the main concerns • Businesses are broadly positive about the proposed High Speed 2 rail link, with two thirds predicting it will benefit growth • Less than one in five companies (19%) think that interconnectivity of different transport modes has improved over the last five years.
  • Better connected, better business CBI/KPMG infrastructure survey 2012 21 In addition, almost one in five respondents (17%) from the By contrast, a higher proportion of businesses in other parts transportation and storage sectors say that they are ‘not of the country see weaknesses in the standard of domestic at all satisfied’ with their links to other UK regions and infrastructure links. For instance, 56% of respondents from almost a quarter of them (23%) rate the standard of the UK’s companies primarily based in the North West and North domestic infrastructure as poor or very poor. It is perhaps East regions are not satisfied with their businesses’ current particularly concerning that one of the sectors that relies links to domestic locations. A relatively high proportion of most heavily on domestic infrastructure seems to be the companies primarily based in the East and West Midlands least impressed with it. are similarly unimpressed with their links within the UK, with 59% of respondents from these regions stating that they are …but the response varies not satisfied. greatly between regions It is important to stress that businesses’ assessment of The CBI believes improving connectivity in northern regions domestic networks varies from place to place. Nationally should be a priority for the government. A series of poorly significant infrastructure projects may often be planned and linked hubs will not sufficiently exploit the potential of the financed centrally, but they will impact regions and cities private sector. Projects like the Northern Hub can make a in different ways, creating perceived winners and losers. difference here, improving rail connectivity in the North and In addition, each area has different pressures on their supporting the movement of people, goods and materials networks and different ideas for projects that can help to between northern cities. boost business growth. Dissatisfaction with domestic networks from respondents For example, respondents from businesses primarily based in the Midlands is also concerning – if the heart of the in London, which has benefited from relatively high levels country is poorly connected there is little chance of the UK of transport investment in recent years compared with other as a whole becoming sufficiently linked. The West Midlands’ regions, are particularly positive about their businesses’ strong manufacturing base relies on efficient transport domestic links – 77% say they are satisfied with these logistics, which could be undermined if links are not fit for connections, compared with an average of 61% for all purpose. Similarly, East Midlands Airport is the UK’s second regions (Exhibit 16). In addition, London respondents are largest cargo airport9 and it is crucial that domestic links to the most confident that there will be improvements in the the region support this important trade hub. UK’s transport infrastructure over the next five years. Respondents from the23% transportation and storage sector rating infrastructure connections to domestic markets as poor
  • 22 Better connected, better business CBI/KPMG infrastructure survey 2012 The standard of the road network remains a key Exhibit 16 Satisfaction with domestic concern for business infrastructure links (%) Respondents were asked to judge the extent to which various aspects of the domestic transport network have improved or deteriorated over the last five years. While there were some positive results – for example, 57% of respondents have seen improvements in tube and metro links – the state of the UK’s local roads and motorways is a real cause for concern (Exhibit 17). 44 Exhibit 17 UK roads: trends of last five years (%) Local roads 41 5 2011 30 43 22 77 4 2012 31 49 16 Motorways 18 31 34 15 61 Londo n 2011 NW & NE 2 18 33 37 10 All region s West Mids & East Mid s 2012 0 20 40 60 80 100 Improved significantly Improved slightly Stayed the same Deteriorated slightly Deteriorated significantly Almost two thirds (65%) of respondents feel the local road network has deteriorated over the last five years while less than one in 20 (4%) have seen slight improvement. Not one respondent held that local roads have ‘improved significantly’ during this time.
  • Better connected, better business CBI/KPMG infrastructure survey 2012 23Respondents from the northern regions of England wereparticularly downbeat, with 82% saying that local roads Exhibit 18 CBI calls for action to relievehave deteriorated, but 70% of companies in London hold the blockages on key routessame view. The results for the motorway network are only Throughout the UK there are worked-up plans tomarginally better, with almost half of all respondents (47%) improve some of our most important national routesreporting deterioration over the last five years against 20% and it is essential that these are carried forward as awho believe it has improved. priority.When looking at what lies behind businesses’ concerns A14: A key freight route to the port of Felixstowe andabout UK roads, congestion on the network is a standout an important commuter road in the East of England.problem. In all, 95% of respondents to the survey say they The government has announced that upgrades will beare concerned about the impact of congestion on their taken forward in a new scheme involving tolling on partbusiness. But investment in maintenance of the existing of the route. However, work is not expected to start onnetwork and new capacity are also concerns for 94% and improving the route until 2018.84% of businesses respectively. A303: An important direct line route to the South West,A failure to improve road networks is likely to damage the several parts of the road require work but successivecompetitiveness of companies based in the UK, the majority plans have been delayed or abandoned due to cost andof which rely on them on a daily basis. Road transport is the local disagreement regarding the route.predominant mode of transport in Britain, accounting for over90% of all passenger distance travelled each year as well as A1 Western Bypass: A regionally strategic link road thatfreight movement, so it is crucial that improvements both to provides vital access to Newcastle Airport. Newcastle’slocal routes and major trunk roads are prioritised (Exhibit 18)10. City Deal includes an agreement to develop a newThe CBI is currently undertaking work looking at changes to the investment programme to bring forward improvementsfunding and governance of the road network that are needed to to the third-most congested link on the nationalboost private investment and improve performance. strategic road network. A160/180: An important link road to the port of Immingham, government has confirmed funding to get development work underway, but construction will depend on the outcome of the next spending review.
  • 24 Better connected, better business CBI/KPMG infrastructure survey 2012 Balance of respondents +64% that believe that High Speed 2 will benefit UK private sector growth While passenger rail networks have Most respondents also see the proposed High Speed 2 improved, rail freight needs attention (HS2) rail link as having a positive impact on business Respondents were more positive about the performance of performance, with very few seeing any negative impacts. the rail network, particularly the areas that link economic A positive balance of +64% feel that HS2 would benefit hubs of activity. Nearly half of respondents (45%) have UK private sector growth. However, this is an example of seen improvements to intercity rail connections over how the benefits of an infrastructure project can be felt the last five years, versus just a quarter who feel they unevenly in different regions. For example, while a positive have deteriorated. Further investment has recently been balance of +67% of respondents with operations in the committed to upgrade key rail routes, boosting the West Midlands region think there will be a positive impact, prospects that this assessment may improve further in the only +53% of companies in the East Midlands believe there future (Exhibit 19). will be an impact on growth (Exhibit 20). But while passenger networks are seen to be improving, Exhibit 19 Additional funding for key companies have greater concerns about the ability of the rail projects a boost for business UK’s rail freight connections to meet business need. Almost Subsequent to the CBI/KPMG Infrastructure Survey two thirds (61%) of respondents that say rail freight is going live for responses, the government announced an important to their business express dissatisfaction with additional £4.2bn of funding for new rail projects. These the UK’s domestic links (Exhibit 21). This is the only form include Northern Hub projects aimed at improving rail of freight transportation for which more respondents are connectivity in the North, upgrades to the East Coast Main dissatisfied with the current situation than are satisfied. Line and a series of electrification works. Businesses welcomed this announcement which demonstrates a Exhibit 20 Positive impact of High Speed 2 real commitment to providing additional capacity to both on private sector growth (%) passenger and freight networks. 67 West Midlands 64 All regions 53 East Midlands 0 20 40 60 80 100
  • Better connected, better business CBI/KPMG infrastructure survey 2012 25Increasing capacity of rail infrastructure for freight and Interconnectivity between differentmodernising signalling and electrification could help transport modes must be improvedimprove the efficiency with which goods and materials are Nearly a third (30%) of those surveyed feel that thetransported to and from our logistical hubs at air and sea standard of interconnectivity in the UK has deterioratedports. For example, rail freight capacity from the Humber over the last five years, with only one in five (19%) reportingestuary is currently insufficient to transport containers from improvements. While ambitious major infrastructure projectsone of our largest port complexes to our towns and cities, are welcome, they must connect to existing local networks ifand there is significant potential to develop East-West trade they are to generate the best returns on investment.via rail as road transport costs increase. Frustration with weaknesses in interconnectivity seems to be highest among small and medium-sized businessesExhibit 21 Satisfaction with domestic and those that are exclusively based in the UK, as efficientrail freight connections (%) access to domestic markets is arguably more critical to their day-to-day operations (Exhibit 22). For them, the government’s upcoming transport strategy will be Satisfied 39 Non-satisfied 61 particularly significant as it will look at how policies across different transport modes are delivering national priorities. It is essential that business concerns about interconnectivity are reflected in this work. Exhibit 22 Interconnectivity of UK transport: trends in last five years (%) All firms 19 51 27 3 SMEs 16 47 32 5Note: Responses from companies that consider rail freight Medium-sized*connections to be significant to their business 16 47 32 5 Large 24 55 20 1 0 20 40 60 80 100 Improved significantly Improved slightly Stayed the same Deteriorated slightly Deteriorated significantly *This category covers businesses with 50 to 499 employees so there is some overlap with SME figures **No firms stated that interconnectivity had improved significantly
  • 26 Better connected, better business CBI/KPMG infrastructure survey 2012 3 Quality infrastructure can help exploit growth opportunities Accessing high-growth markets across the world and Businesses recognise the importance taking advantage of new opportunities provided by of international connectivity internet technology will be two of the most important As the global economy becomes more interlinked and routes to growth for UK businesses over the next traditional barriers to trade are dismantled, it is increasingly decade. Infrastructure has a crucial role in facilitating important that UK companies are well-equipped to take UK exports and supporting the development of a new advantage of international opportunities for growth. generation of web-based companies. Exporting companies are responsible for 60% of national productivity growth and more than 70% of business research Businesses across the country recognise the and development.11 Last year the CBI highlighted how re- importance of both international and digital orienting UK exports towards growing markets could lift GDP connectivity. Companies are broadly satisfied with their by £20bn by 2020.12 We need to encourage more UK firms to links to established international markets but they have export and we need high-quality international connections concerns about those to emerging economies. And to support this ambition. while they judge the UK to be a world leader on digital infrastructure, there is still a need to invest in these Businesses recognise the crucial role that infrastructure networks to maintain a competitive edge. can play in unlocking new international markets. Two thirds (65%) of respondents to this survey say that the UK’s Key findings international transport connections are crucial or significant • International transport connections are crucial or very for their future investment decisions (Exhibit 23). important for 65% of companies in the context of their investment decisions Companies that have already established themselves in • But the availability of direct flights to emerging markets outside of the UK are even more convinced of the economies is an increasing concern: 54% of companies significance of high-quality international connections – who deem direct flights to China as crucial are 93% of those active in over 50 countries see international dissatisfied with their current availability transport connections as an important consideration in their • Companies are positive about the current state of investment decisions. These businesses rely on efficient digital networks: four in five (82%) report that they global travel to link their international operations and reach have improved over the last five years and a similar a wide customer base, so it is crucial that the UK’s networks proportion (79%) believe that they will continue to can underpin this activity. improve over the next five years • But more businesses believe that mobile broadband International transport links are also highly significant networks in the UK are below average than above it for for companies in specific sectors for which access to both speed and breadth of coverage. international markets is a prerequisite for success. Despite an increasing proportion of services within UK exports, goods still account for the majority of UK exports with the largest category of these being classed under manufacturing.13 Indeed, nearly a third (30%) of respondents to our survey from the manufacturing sector view international connections as crucial to their business, with 87% of them attaching at least some significance to these transport links.
  • Better connected, better business CBI/KPMG infrastructure survey 2012 27 Exhibit 23 Significance of internationalA significant proportion of services activity is in those transport connections for investment (%)services required to support goods trade, such as transportand travel services, and respondents from this sectorare among the most convinced of the need for good Crucial 17international travel connections. Nine in ten businesses(93%) in the transport and storage sector class internationaltransport links as significant in their investment choices.Businesses see scope to improveinfrastructure links with emerging marketsRespondents to the survey gave a mixed report of theirsatisfaction with current links to key export markets (Exhibit24). Over three quarters of respondents (77%) report thatthey are satisfied with their companies’ connections with theEU, including 80% of those in the professional and financialservices sectors. This is an important result given that the EUaccounts for around half of the UK’s total global trade.However, companies’ satisfaction with their connectionsto other global markets is not as high. Two thirds (68%) of Business leaders feel there is substantial scope to improverespondents are satisfied with their UK operations’ links to transport links with high-growth emerging markets. Almostestablished markets outside of the EU. While this result is half of all respondents (47%) are not satisfied with their UKstill positive, it is perhaps concerning that almost half of all operational links to these economies. This view is consistentmedium-sized businesses (46%) are less than satisfied with for all sizes of firms, and crucially, is held by companiestheir connections to these markets. with operations in over 20 countries as well as those with no business activity outside the UK. These results also represent a drop in satisfaction levels since the 2011 survey.Manufacturing firmsseeing international 30% The low proportion of UK firms breaking into and succeeding in the high-growth markets of emerging economies is one of the key reasons behind the decline in the UK’s share of world trade over the past decade, which droppedtransport connections from 5.3% in 2000 to 4.1% in 2010.14 The survey reveals that connectivity to these markets is seen as a problemas crucial for their by a significant proportion of businesses and therefore a potential barrier to boosting exports in high-growthinvestment decisions economies (Exhibit 25).
  • 28 Better connected, better business CBI/KPMG infrastructure survey 2012 Exhibit 24 Satisfaction with links to markets (%) Businesses are concerned about the future of domestic and international air links… EU Aviation links are one of the primary means by which businesses access international markets so frequent flights 5 2011 74 20 to important trade destinations are crucial in supporting 2011 export growth. The UK does 20 times more trade with 10 2012 67 19 4 countries with which it has a direct air link and trade flows 2012 have increased more quickly with emerging markets served Non-EU developed economies by daily flight connections than those without.16 4 2011 69 25 2 Respondents to the survey were asked how important direct 2011 flights to specific destinations are to their business on a 5 2012 63 26 6 scale ranging from ‘crucial’ to ‘not important at all’ (Exhibit 2012 26). Unsurprisingly, direct flights to the UK’s largest trading Emerging Markets partners, the EU and the US, are valued by the highest proportion of companies, with around half of respondents 3 2011 56 34 7 (54% for EU and 43% for North America) judging these to be 2011 crucial or very important to their business. 3 2012 49 37 11 2012 But connections to emerging economies are also a priority 0 20 40 60 80 100 for a substantial proportion of companies – a quarter of companies (25%) value direct flights to Brazil highly and Very satisfied Somewhat satisfied around a third see benefit in flights to each of China (35%), Not particularly satisfied Not satisfied at all India (30%) and the Middle East (33%). And these flights are particularly important for individual sectors of the economy. For example, 54% of manufacturers say it is crucial or very important that they have access to direct flights to China, Exhibit 25 High-growth export opportunities while 53% of professional services firms need direct flights to the Middle East. Projected GDP growth rates for 201315 But there was a mixed response from respondents when Euro area 0.7% asked about their level of satisfaction with the availability of direct flights to these destinations. Companies that attach Brazil 4.2% the greatest significance to direct flights are highly satisfied with their availability to EU destinations (82%) and also to India 6.9% those in North America (71%) and the Middle East (74%). However, a much lower proportion of companies state that China 8.6% they are satisfied with the availability of flights to emerging economies. For instance, only 46% of companies who deem direct flights to China as crucial are satisfied with their current availability.
  • Better connected, better business CBI/KPMG infrastructure survey 2012 29Exhibit 26 Significance of direct flights to Companies that seemarkets (% crucial or very important)Russia 20 46% direct flights to China as crucial satisfied 25Brazil with their availability 30India The CBI has called for the government to show leadership 33 and take immediate decisions to deal with the UK’s aviationMiddle East capacity crunch. The government’s decision to set up an 35 independent commission to look at the issues is a step inChina the right direction but business must see a lasting solution. 43 In the short term, improvements need to be made toNorth America surface access to airports and existing capacity needs to be 54 maximised through the use of more flexible ‘mixed-mode’17EU operations at Heathrow. In the medium term a new runway is needed to serve the south of the UK. And in the longer0 20 40 60 80 100 term, all options to improve capacity should be explored, including the development of a new hub airport for London.… with lack of capacity becoming more acute Exhibit 27 Trends in aviation linksThe survey reveals concern from businesses about how Last five yearsthe UK’s aviation links have fared in recent years. More 1 22 44 27 6respondents believe that international air links have International air linksdeteriorated over the last five years than consider they have 19 41 33 7improved and similar proportions feel that links are likely to Domestic air linkscontinue to get worse over the next five years (Exhibit 27). Next five yearsThe lack of capacity at UK airports is potentially a 1 19 45 25 10contributing factor to these results, as companies realise International air linksthat there is very little scope for new routes to be added 9 53 31 7 Domestic air linkswithout new airport infrastructure being built. In London,where the lack of capacity is particularly acute, almost 0 20 40 60 80 100half of companies expect the standard of internationalair links to decline. But there is also a knock-on effect Significant improvement Slight improvement Stay the same to other regions as domestic routes get squeezed out,particularly from London Heathrow. Indeed, almost four in Slight deterioration Significant deteriorationten respondents (38%) expect deterioration in domestic airlinks over the next five years, four times the proportion thatexpect to see improvements over this period (9%).
  • 30 Better connected, better business CBI/KPMG infrastructure survey 2012 The UK is ahead of the game Exhibit 28 Importance of faster and more on digital infrastructure reliable web access to business growth (%) Improving digital connectivity will be crucial for UK companies to be competitive in the future. Faster and more reliable digital communications bring firms closer to their Fixed-line broadband suppliers and customers, enable them to take advantage of growth opportunities offered by new technologies and Not at all boost entrepreneurialism by reducing the cost of setting up important 2 new ventures online. Four out of the top five brands of 2012 Somewhat Crucial 39 are from the technology sector according to the Brandz important 20 annual study.18 Businesses are well aware of the critical importance of this infrastructure: over 80% of those surveyed acknowledge that its quality and reliability has a significant impact on their investment decisions (Exhibit 8, Chapter 1). In addition, respondents see faster, broader and more reliable web access as critical to their future business success. Four fifths of respondents (78%) say that improved web access through Important 39 fixed-line broadband infrastructure is crucial or very important to their businesses’ growth, with a similar proportion (76%) pointing to the importance of mobile networks (Exhibit 28). Mobile brodband While services sectors may be expected to attach high Not at all importance to this form of infrastructure – and 87% of ICT, important 3 financial and professional services firms deem it crucial or Somewhat Crucial 35 very important – around three quarters of manufacturing important 21 and construction companies also see improved web access as central to their business development. In addition, SMEs are the most likely to prioritise improvements to web access, with 84% saying improvements to fixed-line connectivity are a priority and 80% saying the same for mobile broadband (Exhibit 29). Very important 41
  • Better connected, better business CBI/KPMG infrastructure survey 2012 31Exhibit 29 Importance of faster and Exhibit 30 UK digital networks: trendsmore reliable web access to business in last and next five years (%)growth (% crucial or very important) Last five years 84 SMEs 22 60 15 3 80 0 20 40 60 80 100 Medium-sized* 77 Significant improvement Slight improvement Stay the same Large Slight deterioration Significant deterioration0 20 40 60 80 100 Next five years (confidence in improvements)Note: This category covers businesses with 50 to 499 20 59 17 4employees so there is some overlap with SME figures 0 20 40 60 80 100Survey respondents were also very positive about Very confident Somewhat confidentimprovements that have been made to digital networks Not particularly confident Not at all confidentin recent years and are confident that this trend is setto continue in the near future(Exhibit 30). Over 80% ofcompanies feel that networks are in a better state than five Assessing the UK’s digital infrastructure against that of otheryears ago and a similar proportion (79%) are confident that countries, the results are similarly positive (Exhibit 31).this trend will continue over the next five. Four in ten respondents (40%) feel that the UK’s networks outshine those in other parts of the world, with only aroundThis is a positive result, indicating that the UK delivery a quarter (27%) believing they compare unfavourably. Whilestrategy for digital infrastructure is working well. On this is by no means a landslide, it is encouraging that morebroadband in particular, CBI members have emphasised companies generally believe the UK is on the right track. Intheir support for the government’s strategy which sees the addition, over half of companies (54%) with operations inprivate sector delivering new infrastructure where the returns over 50 countries feel that the UK’s digital infrastructure ison investment are apparent, with joint investment funding ahead of international benchmarks, versus just 11% whoprojects in places where the business case is less strong. believe it compares poorly. Companies reporting82% improvements in digital infrastructure over the last five years
  • 32 Better connected, better business CBI/KPMG infrastructure survey 2012 Exhibit 31 UK digital infrastructure compared internationally (%) Furthermore, respondents are far less positive about the state of mobile networks than they are for fixed- Below average 27 line connectivity. For both coverage and speed, more respondents feel that mobile broadband in the UK is Above average 40 below average than above it, by balances of -8% and -16% respectively. There is also evidence to suggest that specific sectors that rely heavily on digital infrastructure feel there is scope to improve these networks to enhance their business prospects. For instance, 41% of companies in the ICT and Average 33 retail sectors feel that the UK’s mobile networks are below average on breadth and reliability of coverage and over half feel they are below average on speed of access. Improvements to mobile networks could make a huge But investment is needed to maintain difference to these firms and the proposed 4G spectrum our competitive position auction is a key development that will help to put 98% of Businesses have high ambitions for the continued the UK population within range of 4G signal.19 Bidding is set development of digital networks to ensure that the UK to begin early in 2013 and having been delayed twice, it is retains its competitive position and believe that continued essential that Ofcom sticks to this timetable. investment is needed to ensure this is achieved. While the survey paints a positive picture of the state of digital infrastructure in general, it also suggests key areas in which Exhibit 32 Assessment of breadth and reliability it could be improved (Exhibit 32). and speed of UK broadband networks (%) For example, respondents were asked to assess the UK’s Breadth and reliability fixed-line and mobile broadband networks on both breadth 3 31 49 14 3 Fixed-line and reliability of coverage and speed of access. A third 1 20 50 20 9 (34%) of companies feel that the UK’s fixed line networks Mobile are above average in terms of breadth and reliability, with only 17% feeling they are below, but for speed, almost as Speed many respondents feel that UK networks are below average 2 24 50 21 3 (24%) as above it (26%). Fixed-line 1 17 48 25 9 Mobile 0 20 40 60 80 100 Significantly above average Slightly above average Average Slightly below average Significantly below average
  • Better connected, better business CBI/KPMG infrastructure survey 2012 334 Action is needed to boost private investment in infrastructureWith less public money available to spend on The UK remains an attractive placeinfrastructure it is essential that new projects can attract to invest in infrastructure…finance from a wide range of private sector sources. Of UK infrastructure has a solid base on which to build whenthe £250bn of infrastructure investment that is needed it comes to attracting investment from the private sector.by 2015 and beyond, two thirds will have to come from Public-private partnership models have been used to deliverthe private sector20 and government must ensure that a large amount of economic and social infrastructure,the conditions are right to encourage this to happen. particularly before the financial crisis, and the UK is still a world leader in this form of investment.21 In addition, theThe UK has historically led the way in attracting private UK has a stable political and institutional environmentfinance and is still regarded as an attractive destination which fosters confidence from global investors. Through itsfor investment. However, other countries are now National Infrastructure Plan, the government has startedrising in prominence and it is essential that barriers to to set out a pipeline of activity around which investorsinfrastructure delivery in the UK, such as the planning can base their strategies – a high priority for companiessystem, are tackled. responding to our 2011 survey.22Key findings The survey results show that the UK remains an attractive• The UK is rated highly as a destination for infrastructure place for infrastructure investment, more so than many of investment compared with other economies: 43% believe our international competitors (Exhibit 33). Respondents the UK compares favourably with other EU states were generally positive when asked whether they thought• But companies rate China and the US as better the UK compared favourably or unfavourably to a range of destinations for investment than the UK other countries. For example, 43% of respondents state• Almost all businesses (97%) see the planning system that the UK compares favourably with other EU states as as a barrier to infrastructure delivery. While 45% of a destination for investment versus 36% who think it is companies believe recent policies to improve it will less attractive. The results also show that for the majority have a positive impact, even more (48%) believe they of businesses, the UK is a more attractive destination for will have no impact investment than Russia, India and the Middle East.• Attracting funding for projects from a broader range of private investors is a necessity in the eyes of business – a positive balance of +76% believe this would have a significant impact on overall investment levels.
  • 34 Better connected, better business CBI/KPMG infrastructure survey 2012 …but certain international destinations Exhibit 33 How the UK compares as a are seen as more attractive to investors place to invest in infrastructure (%) But the survey also helps to pinpoint parts of the world Russia that businesses deem to be more conducive to private 37 41 9 11 2 investment in infrastructure. For example, marginally India more respondents felt that both North America and China 21 30 8 26 15 represented a more attractive investment proposition than China the UK (by a balance of -4% in both cases). 16 29 6 24 25 Brazil Like the UK, the US and Canada have a strong tradition of 11 44 10 22 13 private investment in infrastructure and have developed a Middle East large and diverse investor base including a number of large 10 40 17 19 14 pension funds. And China’s attraction for investors is almost Other Asia certainly connected to the sheer volume of opportunities 8 40 10 31 11 that have been created in a country that has planned to EU invest over $1 trillion in urban infrastructure between 2010 3 40 21 27 9 and 2015.23 North America 2 36 20 32 10 However, the results serve as a warning that other countries are creating conditions for infrastructure 0 20 40 60 80 100 investment that could rival or surpass the UK’s and there is a danger that the competitive advantage we have held Much more favourably Slightly less favourably in this area may slip away unless a concerted effort is Slightly more favourably Much less favourably made to reduce barriers to investment. No difference The planning system is a consistent barrier to infrastructure delivery The planning system is a key part of infrastructure delivery, essential in determining where infrastructure is located and ensuring the impacts of it are taken into account. Businesses recognise the need for clear planning rules, which help to ensure that infrastructure is of sufficient quality to improve efficiency and boost growth. However, too often the planning system is seen as a barrier to development rather than an enabler of it (Exhibit 34). A startling 97% of respondents to this survey believe the planning system to be an obstacle to infrastructure delivery, a proportion that has barely changed from the 2011 results. This verdict is consistent across all sectors, but construction companies are particularly forceful in their views, with 99% of respondents from this sector believing planning is getting in the way of efficient infrastructure delivery.
  • Better connected, better business CBI/KPMG infrastructure survey 2012 35Exhibit 34 Planning as a barrier to Exhibit 35 Impact of recent policyinfrastructure delivery (%) reforms on the planning system (%) 69 29 2 Negative imp act 72011 76 21 32012 Positive impact 450 20 40 60 80 100 A significant barrier A slight barrier Not a barrier While this business assessment of the planning system isdamning, it is a view that the government acknowledges and No impact 48has tried to rectify. Successive administrations have movedto make changes to the planning regime for both nationallysignificant and local projects, with the Planning Act bringing inthe fast track system for the former and the National PlanningPolicy Framework setting out new principles for the latter. Government must take action to attract more private investmentRespondents were asked what impact they thought these As outlined in the CBI’s recent report, An offer theychanges might have on the planning system (Exhibit 35). shouldn’t refuse, pension funds are attracted to theAlthough 45% of companies believe there will be a positive long-term stable returns of infrastructure assets, whichimpact, a similar proportion believe there will be no effect. closely match their liabilities.25 However, the risk profileAlthough the CBI has previously welcomed many of the reforms of infrastructure projects can often make them unfeasibleit is clear that their impact will only be substantial if they are as an investment proposition. It is therefore incumbentimplemented well. It is therefore essential that government on government to mitigate some of this risk to draw intakes a lead role in driving culture change in all parts of the investment from these funds and other private sectorplanning system to ensure it is capable of delivering the sources (Exhibit 36).projects set out in the National Infrastructure Plan.
  • 36 Better connected, better business CBI/KPMG infrastructure survey 2012 Exhibit 36: Government guarantees seek to In addition, reducing the regulatory burden on companies boost private investment in infrastructure delivering infrastructure could have a meaningful impact Through its new UK Guarantees Scheme, the government on investment (demonstrated in a balance of +67%) as has taken action to try and boost private investment in financiers become more convinced that projects will not infrastructure. The initiative will see government underwrite be sidelined by delays and complexity. This is a particular up to £40bn of infrastructure investment for projects that priority for infrastructure providers – over half of whom have been put on hold following financing difficulties. As (54%) believe this would have a very significant impact. such, it will use its own balance sheet to boost the credit rating of projects and bring in new private money. Exhibit 37 Actions to boost This policy announcement came after the survey closed infrastructure investment (%) for responses and its effectiveness is yet to be tested, but businesses will be encouraged that government has recognised the need to stimulate investment and is willing 25 to use strong balance sheet to good effect. Improving private sector contract management 37 Mitigating construction risk With this in mind, we asked respondents to this survey to 38 assess how significant certain broad changes could be in Reducing the cost of debt boosting private sector investment in infrastructure (Exhibit 59 37). After tackling delays and costs in the planning system Improving public sector contract management (82%), businesses feel that attracting a broader range of 67 investors to infrastructure is the key change that needs to Reducing regulatory burden take place. A positive balance of +76% feel that this would 76 have a significant impact in boosting overall investment. Attracting a broader range of investors The results also show support for action to mitigate 82 construction risk, which is often cited as a key reason why Tackling delays and costs in the planning system some private investors – particularly UK pension funds – 0 20 40 60 80 100 have not invested in greenfield infrastructure substantially to date. A positive balance of +37% of respondents overall feel that mitigating construction risk would have an impact, with Note: Figures based on balance of ‘significant’rating a much higher proportion of companies in the construction responses minus ‘not significant’ sector itself seeing the benefit of this action.
  • Better connected, better business CBI/KPMG infrastructure survey 2012 37The positive result on finding new sources of investment can Exhibit 38 Primary means of paying for roadalso be seen in respondents’ views about improvements to improvements over the next five years (%)the road networks, which have almost exclusively been paidfor through Government capital expenditure in the UK up until Increases in fuel/road tax 6now (Exhibit 38). While 46% of companies think this should Distance|continue to be the case, a similar proportion feel that road charging 9tolls, congestion charging or distance charging should be Government capital expenditure 46used primarily to fund improvements over the next five years. CongestionIn addition, businesses in parts of the country that have charging 14taken steps to implement user-pays models tend to be morepositive about using these approaches in the future. Forinstance, 57% of London-based companies believe that theyshould be used primarily to pay for road improvements overthe next five years. Road tolls 25These results suggest that companies are open to fundinga greater proportion of road improvements throughuser-charging than has historically been the case. Giventhe current fiscal conditions, and the pressing need todeliver improvements to road networks it is essential thatgovernment explores these options in greater detail, whileensuring that heavy users of the network are not put at acompetitive disadvantage.
  • 38 Better connected, better business CBI/KPMG infrastructure survey 2012 5 Government policy is not yet addressing key infrastructure challenges Businesses are concerned that key infrastructure Businesses expect key areas of infrastructure assets will deteriorate over the coming years as difficult to deteriorate over the next five years economic conditions make it harder to draw public and The UK faces some major challenges in the coming years private investment towards important new projects. as its population grows at the fourth fastest rate in Europe, At the same time, UK infrastructure sectors face some it continues the transition towards a low carbon economy key challenges that must be addressed to ensure that and businesses look to adapt to a fast-changing commercial networks are supporting businesses and communities and technological environment. It is essential that we have effectively. But companies are not convinced that modern and efficient infrastructure networks that can help government policies will make much impact on companies and communities meet these challenges. investment.While CBI members have seen merit in a number of recent announcements, a lack of action on We asked survey respondents to set out how confident they the ground is undermining business confidence. are that the overall quality and affordability of infrastructure assets will improve over the next five years. While Key findings businesses are confident that digital infrastructure networks • Far more firms lack confidence in transport networks will continue to be improved, they are less convinced that improving over the next five years than believe they will there will be sufficient investment in other infrastructure improve, giving a negative balance of -46% areas to prevent their relative decline. • Two thirds of businesses also believe that energy (67%) and water (69%) infrastructure will not improve over the same period • Just a third of companies (35%) believe that government policies on infrastructure will have a positive impact on investment, a proportion that is 10 percentage points lower than last year’s result • But almost half of infrastructure providers (48%) believe the government’s policies will lead to increases in investment.
  • Better connected, better business CBI/KPMG infrastructure survey 2012 39Businesses predict further decline There are also signs that some regions are concernedin transport infrastructure that they might be losing out relative to other parts of theOf all the infrastructure classes, transport is the area of country. For example, fewer than 15% of companies from thegreatest concern to business. Only 27% of respondents feel South West and the North East regions are confident thatconfident that transport infrastructure overall will improve transport infrastructure will improve over the next five years,in the next five years while 73% are not confident, giving compared with 38% of companies based in London.a negative balance of -46% (Exhibit 39). This highlightsanxiety about the level of investment and lack of political As has already been highlighted, deterioration of local andleadership that is currently affecting our roads, rail and major roads and the standard of domestic and internationalaviation links and the impact that this might have on aviation links are at the forefront of businesses concerns;business operations in the near future. yet a substantial proportion of companies believe that these transport modes will deteriorate over the next five years. Investment is needed to reduce bottlenecks in the road network and boost aviation capacity, and this puts an onus on government to set out a direction of travel in both cases.Exhibit 39 Confidence UK passenger transport will improve in next five yearsTube/metro networks +35Intercity rail +20Interc onnectivity of transpo rt networks +6Commuter rail +2International air links -14Motorway network -23Domestic air links -29Local road net works -4 2Overall transpor t infrastruc ture -46 -50 -40 -30 -20 -10 0 +10 +20 +30 +40Note: Figures based on balance of ‘confident’rating responses minus ‘not confident’
  • 40 Better connected, better business CBI/KPMG infrastructure survey 2012 The majority of companies expect energy networks to deteriorate Exhibit 41 Still work to do on With a target of cutting carbon emissions to 34% below Electricity Market Reform (EMR) 1990 levels by 2020 and £200bn of investment in energy The government is in the midst of making substantial infrastructure needed over the same period, urgent action is policy changes to the electricity market aiming to support required to deliver improvements to our energy networks. But a secure, low-carbon and affordable energy supply for two thirds of companies surveyed (67%) are not confident the future. A new Energy Bill will put in place measures that energy infrastructure will improve over the next five years aiming to attract investment to replace current generating (Exhibit 40), and a quarter (25%) of manufacturing firms are capacity and update the grid to cope with rising demand not at all confident that improvements will materialise. for electricity. Gas and electricity companies themselves are evenly split as The Energy Bill is expected to come before Parliament to whether networks will improve or deteriorate in the near in November, with the primary measure being a feed-in future. This is a blow given that the government is currently tariff with contracts for difference (CfD). The CfDs should undertaking ambitious reforms to the UK’s electricity market enable investors to forecast their returns more readily by with the aim of driving greater investment in low-carbon guaranteeing a set price for electricity generated from low technologies. While key specific details of these changes carbon sources. The CBI supports the introduction of CfDs have yet to be decided (Exhibit 41), it is clear that government and has been calling for some of the technical details to has work to do to convince businesses it can deliver the be resolved to ensure companies will invest on the back of clear market signals that can help them to channel their them. The Bill will also introduce a capacity mechanism to investment.25 provide security of electricity supply by ensuring sufficient reliable capacity is available. The details of this are still to Exhibit 40 Confidence UK energy infrastructure be confirmed, with the CBI calling for it to minimise costs, will improve in next five years (%) maximise existing assets and avoid creating stranded assets. The Energy Bill must create an environment where businesses have the confidence to invest.
  • Better connected, better business CBI/KPMG infrastructure survey 2012 41Businesses are concerned about Business users of infrastructure are yet to bethe future water supply convinced by government investment policiesTwo unusually dry winters brought water usage into sharp Almost two and a half years into the current parliament,focus for both businesses and consumers as the UK entered companies are unconvinced that policies aimed at boostinga drought in early 2012. A wet spring relieved the immediate investment in infrastructure will have a positive effectpressure of water scarcity, but groundwater levels remain (Exhibit 43). Our survey asked respondents to assess whatbelow normal, and businesses are well aware that there are impact they expected coalition policies on infrastructurepotential knock-on effects to their operations. to have over the next five years. While a third of companies (35%) believe there will be a positive impact, over two fifthsThis context may help to explain why a clear majority of (42%) think the effect of policies will be negative and almostbusinesses are not confident that water infrastructure will a quarter (23%) believe there will be no impact.improve over the next five years (Exhibit 42). More than twothirds of all respondents (69%) feel that these networks are Exhibit 43 Expected impact of coalitionlikely to deteriorate, and over 80% of firms in the gas and policies on infrastructure investment (%)electricity sector expect the same outcome.Of companies surveyed from the water and waste sector, 43 24 33over two thirds (68%) are confident that water infrastructure 2011will improve. While this is too small a sample to draw a 35 23 42clear-cut conclusion, it is positive that a majority of those 2012responsible for providing water to companies and households 0 20 40 60 80 100are sure that they can cope with unpredictability in the watersupply. However, they face a challenge to convince the wider Positive No impact Negative business community of this.Exhibit 42 Confidence UK water infrastructurewill improve in next five years (%)
  • 42 Better connected, better business CBI/KPMG infrastructure survey 2012 Analysing these results against those from the 2011 survey In addition, the fact that only a third of construction firms shows that a lower proportion of companies are convinced believe that government policies are likely to have a positive that policies will have a positive impact compared with effect is a blow considering this sector’s growth and jobs 12 months ago. This decline in confidence may well be potential. The CBI has recently set out the substantial growth linked to a lack of action on the ground seen by businesses boost construction companies could create if there were a over recent years and the overall struggle for growth in steady pipeline of work available.28 This does not always the UK economy. CBI members have been positive about have to be big-ticket infrastructure projects; essential repair the principles behind many of the initiatives that the and maintenance work to existing networks can help boost government has launched, but are frustrated that more economic activity across all regions. However, our survey projects are not being taking forward. The latest GDP growth results suggest that current government policies are not figures – showing that construction output dropped by 5.2% sufficiently focused on bringing forward investment in any of between the first and second quarters of 2012 – reinforce these schemes. this point. In addition, there is a sense from businesses that the Exhibit 44 Infrastructure provider views government is ducking key decisions on the future of our on expected impact of coalition policies infrastructure networks and is yet to set out sufficient detail on infrastructure investment(%) in some policy areas.26 Similarly, although a Draft Energy 54 25 21 Bill was brought forward in the latest Queen’s Speech, we 2011 are still some way from having a detailed picture of how the 48 10 42 electricity market will look in the future.27 2012 But infrastructure providers are slightly 0 20 40 60 80 100 more positive about the policy landscape Positive No impact Negative It is worth noting that infrastructure providers are more positive about the prospects for infrastructure investment stemming from government policy (Exhibit 44). Almost half of these respondents (48%) feel that coalition policies will have a positive impact on investment, with almost one in ten believing that the impact would be very positive. But while it is somewhat heartening that companies that are closest to projects have greater confidence than the average, it is concerning that the proportion of infrastructure providers that thought the effect of government policies would be negative is at the same level as the broader business assessment (42%).
  • Better connected, better business CBI/KPMG infrastructure survey 2012 43References PPP Expertise Centre, March 2012.1 Going for growth 2010: Country notes: UK, OECD, 2011. 22 Making the right connections: CBI/KPMG Infrastructure2 Making the right connections: CBI/KPMG Infrastructure Survey 2011, CBI, September 2011 – Firms were askedSurvey 2011, CBI, September 2011 to list their priority actions needed to boost investment.3 United Kingdom National Accounts: The Blue Book, Office Setting a clear overall strategy was the action highlightedof National Statistics, July 2011 as important by the greatest number of companies4 Global Competitiveness Report 2011-2012, World 23 Increasing trends towards PPPs in emerging markets, MEconomic Forum, 2011 Juhel at the IFC Global Airport PPP Seminar, February 20115 Referring to those active in over 20 countries outside the 24 An offer they shouldn’t refuse, CBI, May 2012UK 25 The colour of growth, CBI, July 20126 National Infrastructure Plan 2011, HM Treasury, November 26 Foundations laid for future growth of aviation as2011 government unveils long-term strategy, Department for7 Protecting the UK’s foundations: a blueprint for energy- Transport press release, July 2012intensive industries, CBI, August 2011 27 ‘Clock is ticking’ – CBI responds to Draft Energy Bill, CBI8 The Eddington Transport Study, Sir Rod Eddington for HM press release, May 2012Treasury, December 2006 28 Bridging the Gap: Backing the construction sector to9 UK Airport Statistics 2011, UK Civil Aviation Authority, generate jobs, CBI, 20122012, http://www.caa.co.uk/default.aspx?catid=80&pagetype=88&pageid=3&sglid=3.10 Creating successful local economies, The LEP Network,201211 Your export opportunity: Our insight, UK Trade andInvestment, 201112 Winning overseas: boosting business exportperformance, CBI, 201113 UK trade performance across markets and sectors,Department for Business Innovation and Skills, February201214 Winning overseas: boosting business exportperformance, CBI, 201115 The global outlook in summary, World Bank, 2012 http://web.worldbank.org/external/default/main?theSitePK=659149&pagePK=2470434&contentMDK=20370107&menuPK=659160&piPK=247042916 Connecting for growth: the role of the UK’s hub airport ineconomic recovery, Frontier Economics, September 201117 ‘Mixed-mode’ involves more flexible use of runways, withoperation of both runways for take-off and landing at thesame time18 Top 100 most valuable global brands 2012, Brandz, May201219 Proposals to extend 4G mobile coverage, Ofcom pressrelease, July 201220 National Infrastructure Plan 2011, HM Treasury,November 201121 Review of the European PPP market in 2011, European
  • For enquiries about this report or a copy in large text format, please contact: Tas Bhanji Senior campaigns adviser Infrastructure group T: +44 (0)20 7395 8198September 2012© Copyright CBI 2012The content may not be copied, The CBIdistributed, reported ordealt with in whole or in part The CBI helps create and sustain the conditions in which businesses in the UK can compete and prosper for the benefit of all.Printed by Duncanprint on Revive 75 Silk, We are the premier lobbying organisation forcontaining 75% recovered fibre and 25% UK business on national and international issues.virgin fibre certified by the FSC®. Duncanprint We work with the UK government, internationalis certified to ISO 14001 and registered to legislators and policymakers to helpEMAS environmental management systems UK businesses compete effectively.Product code: BUS_BUS_319 www.cbi.org.uk