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 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

  1. 1. Better connected, better businessCBI/KPMG infrastructure survey 2012 In partnership with
  2. 2. 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
  3. 3. 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. 4. 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
  5. 5. 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. 6. 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.
  7. 7. 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. 8. 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
  9. 9. 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. 10. 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).
  11. 11. 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. 12. 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
  13. 13. 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. 14. 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
  15. 15. 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. 16. 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
  17. 17. 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. 18. 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.
  19. 19. 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. 20. 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.
  21. 21. 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. 22. 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.
  23. 23. 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. 24. 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
  25. 25. 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. 26. 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.
  27. 27. 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).

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