UK infrastructure policy summit

We co-hosted with City & Financial, the 2016 UK Infrastructure Policy Summit on 07 July 2016. We were honoured to have as our speakers and panellists some of the UK’s infrastructure leaders from the National Infrastructure Commission, the Infrastructure and Projects Authority, Thames Water, Greater London Authority, Crossrail 2, The Housing & Finance Institute, Homes & Communities Agency, Highways England, Municipal Bonds Agency and the leading Infrastructure Funds active in the UK market.

The key messages and themes in a post-Brexit environment which emerged from the Summit were:

• The underlying reasons for infrastructure investment and need for Government support haven’t changed. There is current uncertainty but the UK has a great and ever-improving track record with projects implemented such as HS1, Olympics, Crossrail, Terminal 5 and a lot of highly talented people with experience.

The National Infrastructure Commission (NIC) has been established:

• to provide greater stability for infrastructure strategy and planning
• to operate at the juncture for cyclical change in how the UK plans infrastructure investment and development
• to focus on the long term, and
• to determine how priorities can best be met, making best use of existing infrastructure and joining things up nationwide.

The NIC’s assessment will look across all main sectors and at the interactions between different segments of infrastructure and will assess how networks work together. They are looking first at need, then they will set strategic priorities and then determine priorities for specific projects. Demographics, technology needs, environmental issues and the Government legislative programme will be taken into account in setting priorities and identifying gaps for capital investment. They will take an evidence based approach.

The NIC is currently consulting on process and methodology and invites views. There are proposals on their website as to how industry will be involved. The NIC Report will be published in 2017 followed by full public consultation. The Final Report will be published in 2018.

Alongside the strategic assessment, the NIC are taking forward shorter term projects and have published three reports on London transport needs, transport needs for the North and power and energy storage.

They are now embarking on the next round of projects which include the next generation of technology projects and the infrastructure needs of the Oxford-Milton Keynes-Cambridge transport corridor.

They will focus on how can they use infrastructure to address housing pressures.

Their remit also includes holding Government to account for delivering infrastructure and they stress their independence from Government to enable this duty to be delivered.

The NIC has not been asked to consider Hinkley but they do consider there is a major challenge in the energy system and that undoubtedly an answer to this is a mix of new generation and storage measures.

There is a fiscal limit. The NIC is looking at how to get the most out of the fiscal limit, examining this across the whole life cycle.

The Infrastructure and Projects Authority (IPA) has been formed from the Major Projects Authority (MPA) and Infrastructure UK (IUK); it sits in the Cabinet Office and aims to remain independent.

The IPA deals with a wide range of projects across Government not just infrastructure, including defence, IT and transformation type projects that seek to change the way Government interacts with civil society.

The IPA complements the NIC. The NIC looks after the long term. The IPA focusses on early intervention in projects at the front end. It aims to ensure Government is supporting the delivery of projects cost effectively, and to give the market the confidence to be able to deliver infrastructure.

The Delivery Plan sets out the deal pipeline. There is a growing remit to include social infrastructure and to address connectivity between different sectors. Energy and transport are the biggest sectors.

The infrastructure cost review will consider why the UK infrastructure costs are more expensive compared to other countries. Reasons put forward include:

• We have an inefficient construction industry which is not productive enough. UK construction companies haven't invested in the future which drives costs up.
• We go to enormous lengths to satisfy all the stakeholders and this makes the delivery very expensive. Other countries have a different approach. We need to challenge our approach and whether in all cases we need to take the most expensive option.

There are challenges going forward:

• we have good access to skills with the international market participating in our projects but Brexit may negatively affect this
• affordability - we'll be going into a more fiscally constrained market
• challenge around cost to consumers reaching the limits of what they are willing to accept
• cost of capital, we are used to a low interest rate environment but rates may go up, and
• keeping pace with technology.

The panel on governance structures for the infrastructure sector commented:

• All major projects are political.
• The actual delivery of infrastructure in the last five years in UK has gone 98% according to plan. This is a good track record.
• Projects that are delivered successfully do so because there is a political champion. It is more difficult to bring forward major projects where there is no political champion. UK projects need powerful sponsors.
• Many Continental Europeans work in the construction sector. This is a risk as very skilled people will be put off by the political climate and tone and we may see a drain of the workforce out of the UK.
• It is expected that 50% of the plan will come from private sector funding. There are significant concerns that global investors won't be as enthused to invest in the UK post-Brexit and there is evidence that where funding is available it is more expensive than before the Brexit vote. Sterling issues are also indicative of the risks.
• The key concern of the UK investment industry - pension funds and insurers - is that there is not sufficient engagement to get them involved in infrastructure for example on how finance and funding of projects can involve them. There is a potential downturn in international investment and so a potential need to get more investment from institutional investors. Seek to get funds and insurers more integrated into the thinking process and assessments of infrastructure. We are at an uncertain stage. Infrastructure development now needs all parties to come forward.
• Multi-laterals will bring in some funding. Equity markets will commit.
• It is thought that national road pricing will come in. Fuel duty will continue to fall. More use of private finance is likely.
• Regarding Brexit - in the short term there is a mismatch between what the Government is saying and what it is doing. The decision on the runway delayed, as is the decision on community levy. Department for Transport (DfT) say infrastructure is more important at this time but the pipeline is slow.
• It was felt by some that the voice of the engineering community and the infrastructure sector has been lost and the NIC must play a role here to fix the disconnect between the centre and other parts of the UK. There is a need to get further down into communities, to be more community based and to encourage more community consultation to improve people's lives.

Thames Tideway Tunnel had a compelling vision for the Project owned by everyone - this is a key building block to making the delivery of the project successful. Projects that create jobs and improve health and safety are powerful. An important feature of this project was that it got ready a fully functioning company so the investors only needed to provide money. They looked at the optimal balance for risk allocation and they looked at commercial and regulatory structures. They created a “golden thread” from development to delivery using evaluation criteria, procurement processes and contracts. They proved that procurement processes don't have to be long and arduous in the right environment. They also found that only teams can get big projects done. They had to be pragmatic and use bits from a variety of frameworks, regulatory principles etc and they moulded together a solution that worked. Whether the funding structure is a template for future investments is doubtful but the pragmatic way in which government responded to a situation where, due to the structure of the privatised water industry, nothing could have happened without their intervention, is encouraging evidence of the government’s creativity and pragmatism.

Crossrail 2 is a key project for London. Growth creates transport challenges. The south west part of London is most congested. There is a need too for more accessible services for an aging and growing population. Challenges can't be resolved by only improving existing infrastructure as there are limits to this. If there are improvements on national rail lines, for example, this will increase pressure at key stations. London faces a housing shortage. 500,000 homes need to be built. There is land but transport links to these areas are non existent so this needs to be improved to help the housing situation. Only integrated plans can maximise growth. Crossrail 2 is a key project to help these objectives.