CBI/KPMG infrastructure survey 2012

Better connected,
better business
CBI/KPMG infrastructure survey 2012

In partnership with

Tom Thackray Jessica Leng

Senior policy adviser Sector senior business manager
Business environment directorate Infrastructure, building & construction
CBI KPMG LLP

T: +44 (0)20 7395 8152 T: +44 (0)113 231 3948
E: tom.thackray@cbi.org.uk E: jessica.leng@kpmg.co.uk
www.cbi.org.uk www.kpmg.co.uk

About KPMG:

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September 2012

Better connected, better business CBI/KPMG infrastructure survey 2012 3

Contents

Foreword by John Cridland, CBI 4

Foreword by Richard Threlfall, KPMG 5

Overview 6

The infrastructure landscape 8

The second CBI/KPMG infrastructure survey 10

1 Infrastructure impacts business investment decisions 13

2 Weak domestic networks risk holding back growth 20

3 Quality infrastructure can help exploit growth opportunities 26

4 Action is needed to boost private investment in infrastructure 33

5 Government policy is not yet addressing key infrastructure challenges 38

References 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


Foreword Richard Threlfall

Infrastructure is the backbone of our economy. Our roads, Despite the announcement and subsequent dialogue
railways, ports, and airports connect people to jobs and around the Pensions Infrastructure Platform, an
our businesses to markets. Our power stations, gas, immediate and workable solution to investment in
water and electricity networks keep homes, offices and infrastructure, particularly greenfield projects, remains
industry working, day and night. Our communication conspicuous by its absence. However, the appointment
networks drive efficiency and global reach. Yet we take it of an Infrastructure Minister, the recently announced
all for granted. Until, that is, we find our infrastructure in UK Guarantees Scheme and the Infrastructure Bill
need of repair, absent or obsolete. are all significant steps in the right direction. Strong,
clear direction by government will undoubtedly
Increasingly there is widespread recognition of the build confidence with private sector funders that UK
investment needed in the resources and facilities that infrastructure is a worthwhile venture. Government as
our 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 tangible
acknowledged the total requirement is likely to be step change to the UK’s infrastructure investment and
nearer £500bn. delivery. Economic and regulatory uncertainty have a
compounding effect. Infrastructure is a heavyweight
Infrastructure has come a long way in the last few years. in political debate – get it right and it is a facilitator for
It is now at the forefront of the political debate. It is our growth, but do it badly and it hinders it. Better discipline
antidote to austerity. It is a key pillar of the coalition’s is needed to ensure that less time is spent deliberating
growth 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 infrastructure
ground? Will anyone look back and recognise that this in the Autumn Statement as well as the long-awaited
generation has created anything close to our Victorian outcome of the PFI review there is real opportunity to
legacy 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 the
CBI to bring to bear evidence of the views of business
on the state of our infrastructure. As John says, it is
a mixed picture. In some areas such as broadband
provision there is a real sense of strategic vision and
action. Huge investment has gone into our water Richard Threlfall
infrastructure over many years, and more recently Partner, UK Head, Infrastructure, Building and
in waste recycling. But there is so much more to do. Construction
In other areas the deficit is more stark. In energy KPMG
generation the way forward remains unclear. In
aviation we are devoid of a solution. In both cases
action is long overdue.


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.


Quality infrastructure can help Government policy is
exploit 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 providers

Action 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. ££
£££££
££££££££££
££££££££££
££££££££££££


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


Exhibit 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 2009

Sources: DfT, DECC, Environment Agency, Defra, Ofwat, HM Treasury, Ofcom , Frontier Economics


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).


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 4
Finance & 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


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


1 Infrastructure impacts business
investment decisions

The quality, reliability and cost of infrastructure are key The state and cost of UK networks have a
considerations for companies when making decisions significant bearing on investment decisions
on where and when to invest. While each infrastructure Sustained economic recovery depends on businesses
class has an impact, transport, energy and digital already active in the UK having the confidence to invest
networks 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 this
types. 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 that
to encourage high levels of business investment. But infrastructure provision has on firms’ investment choices.
weaknesses in some UK infrastructure classes pose the
risk 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 infrastructure
Key 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.


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%
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
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
12 27 47 14
Cost

Digital
43 38 14 5
29 40 24 7
Cost

0 20 40 60 80 100

Very significant Significant
Not very significant Not at all significant


Exhibit 9 Significance of quality and reliability Exhibit 10 Significance of quality
of 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 1

0 20 40 60 80 100 Quality and reliability
54 36 91
Cost
0 20 40 60 80 100

*This category covers businesses with 50 to 499 employees so there is some
overlap with SME figures

Businesses prioritise cost over
quality on energy infrastructure
Energy infrastructure also plays a significant part in
businesses’ investment decisions. For this class of
infrastructure the cost of supply is even more important than
quality and reliability, with three quarters of respondents
(74%) stating that it has a significant bearing on their
investment decisions. This is in contrast to the results for
the other infrastructure classes, where businesses tend to
prioritise quality and reliability over cost.

Energy infrastructure is particularly important to the
manufacturing sector, which contains a number of the
energy-intensive industries under increasing pressure
as a result of rising energy costs. More than four fifths
(86%) of respondents from this part of the economy say
the quality of energy supply is an important factor in their
investment choices and for 90% the cost of energy is a key
consideration (Exhibit 10).


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



But relative weaknesses in the
UK’s infrastructure mean we risk Exhibit 12 The World Economic Forum
losing out on investment rankings for overall quality of infrastructure
Given the significance that most businesses attach to
Rank Country
infrastructure, it is crucial that the UK’s networks match up
well with those of other countries. As markets become more
1 Switzerland
global, businesses have greater choice about where to base
their operations. Those economies that can offer the most
2 Singapore
attractive business environment – including a high standard
of infrastructure – will thrive.
3 Finland

But businesses believe the UK’s networks are falling behind
4 Hong Kong SAR
those of some of our closest competitors, posing a threat
to this country’s attractiveness as a place to invest. Relative
5 France
weaknesses in transport and energy networks are a particular
cause for concern.
6 United Arab Emirates

The World Economic Forum ranks the UK 24th for the overall
7 Iceland
quality of its infrastructure behind 13 European countries,
as well as a number of other advanced economies (Exhibit
8 Austria
12).4 To check the views from businesses, we asked
companies to assess how the quality, reliability and value
9 Germany
for money of the UK’s economic infrastructure compare with
other specific locations. The results show that although our
10 Netherlands
infrastructure compares favourably with that of emerging
economies, it lags behind EU countries and other developed
24 United Kingdom
nations according to the majority of respondents (Exhibit
13).


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.


Exhibit 14 UK infrastructure These results underline how highly companies prioritise
compared 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 announcing
1 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. Once
5 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 manufacturing
1 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 of
1 16 65 14 3 rising energy costs on future investment in their UK operations.
2011 The government needs to develop a positive response as we
2 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
2012

0 20 40 60 80 100

Significantly above average Above average Average

Below average Significantly below average


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.


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 the

23% transportation and storage
sector rating infrastructure
connections to domestic
markets as poor


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.


Respondents from the northern regions of England were
particularly downbeat, with 82% saying that local roads Exhibit 18 CBI calls for action to relieve
have deteriorated, but 70% of companies in London hold the blockages on key routes
same view. The results for the motorway network are only Throughout the UK there are worked-up plans to
marginally better, with almost half of all respondents (47%) improve some of our most important national routes
reporting deterioration over the last five years against 20% and it is essential that these are carried forward as a
who believe it has improved. priority.

When looking at what lies behind businesses’ concerns A14: A key freight route to the port of Felixstowe and
about 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 be
are concerned about the impact of congestion on their taken forward in a new scheme involving tolling on part
business. But investment in maintenance of the existing of the route. However, work is not expected to start on
network 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 successive
competitiveness of companies based in the UK, the majority plans have been delayed or abandoned due to cost and
of 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 over
90% of all passenger distance travelled each year as well as A1 Western Bypass: A regionally strategic link road that
freight movement, so it is crucial that improvements both to provides vital access to Newcastle Airport. Newcastle’s
local routes and major trunk roads are prioritised (Exhibit 18)10. City Deal includes an agreement to develop a new
The CBI is currently undertaking work looking at changes to the investment programme to bring forward improvements
funding and governance of the road network that are needed to to the third-most congested link on the national
boost 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.


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


Increasing capacity of rail infrastructure for freight and Interconnectivity between different
modernising signalling and electrification could help transport modes must be improved
improve the efficiency with which goods and materials are Nearly a third (30%) of those surveyed feel that the
transported to and from our logistical hubs at air and sea standard of interconnectivity in the UK has deteriorated
ports. For example, rail freight capacity from the Humber over the last five years, with only one in five (19%) reporting
estuary is currently insufficient to transport containers from improvements. While ambitious major infrastructure projects
one of our largest port complexes to our towns and cities, are welcome, they must connect to existing local networks if
and 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 businesses
Exhibit 21 Satisfaction with domestic and those that are exclusively based in the UK, as efficient
rail 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 5
Note: 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


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.


Exhibit 23 Significance of international
A significant proportion of services activity is in those transport connections for investment (%)
services required to support goods trade, such as transport
and travel services, and respondents from this sector
are among the most convinced of the need for good
Crucial 17
international travel connections. Nine in ten businesses
(93%) in the transport and storage sector class international
transport links as significant in their investment choices.

Businesses see scope to improve
infrastructure links with emerging markets
Respondents to the survey gave a mixed report of their
satisfaction with current links to key export markets (Exhibit
24). Over three quarters of respondents (77%) report that
they are satisfied with their companies’ connections with the
EU, including 80% of those in the professional and financial
services sectors. This is an important result given that the EU
accounts for around half of the UK’s total global trade.

However, companies’ satisfaction with their connections
to other global markets is not as high. Two thirds (68%) of Business leaders feel there is substantial scope to improve
respondents are satisfied with their UK operations’ links to transport links with high-growth emerging markets. Almost
established markets outside of the EU. While this result is half of all respondents (47%) are not satisfied with their UK
still positive, it is perhaps concerning that almost half of all operational links to these economies. This view is consistent
medium-sized businesses (46%) are less than satisfied with for all sizes of firms, and crucially, is held by companies
their 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 firms
seeing 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 dropped
transport connections from 5.3% in 2000 to 4.1% in 2010.14 The survey reveals
that connectivity to these markets is seen as a problem
as crucial for their by a significant proportion of businesses and therefore
a potential barrier to boosting exports in high-growth
investment decisions economies (Exhibit 25).

CBI/KPMG infrastructure survey 2012

CBI/KPMG infrastructure survey 2012

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