Practical Law

Nick Maltby, Consultant and PLC Public Sector consultation board member:

This blog looks at what’s been happening in the UK’s project market since my last update in September 2012. For details of the projects that have closed up to January 2013 at the time of writing, see Article, PFI/PPP in the UK: what’s new? September 2012 – January 2013. 

Everyone wants growth.  At the end of January 2013, Deputy Prime Minister, Nick Clegg commented,

“If I’m going to be self-critical, there was this reduction in capital spending when we came into the Coalition government. … But I think we’ve all realised that you actually need, in order to foster a recovery, to try and mobilise as much public and private capital into infrastructure as possible.” 

At Davos, London Mayor, Boris Johnson called for a wave of new infrastructure spending across the capital.  And last week, bringing the two politicians together, Boris asked Nick in a LBC phone in,

“how can we possibly expect government to vote for increases in infrastructure spending which we need in this city, and upgrading the Tube which we all need, when they sit in their chauffeur-driven limousines paid for by the taxpayer?”.

Set against a disappointing 0.3% fall in GDP in the last quarter of 2012, the question foremost in the minds of the infrastructure community is whether the long-awaited switch to infrastructure could be about to be unleashed in 2013 (or is the recent announcement of HS2 and the projects presaged by the Energy Bill about as good as it gets)?

So what are the elements and what further actions do we need to be shovel-ready?  The reality is that while new projects have been few, the government has been busy putting in place many of the planks needed for success:

• PF2: it may have taken a year but we now have a new project finance model, which deserves to fare well. On 5 December 2012, the Chancellor launched “A new approach to public private partnerships” and a new version of SoPC 4, the Standardisation of PF2 Contracts. While it is questionable whether the new model will be cheaper or much more flexible and it is doubtful that all projects can be procured in an arbitrary 18 months, the government has avoided reinventing the wheel entirely and provided a much needed overhaul of the basic PFI model (see Opinion, PF2: worth the wait?).
• Legislation: we have a number of significant infrastructure related pieces of legislation on the statute book or in Parliament since the coalition came to power, including:
  • the Localism Act, which provides new powers for local authorities and makes changes to the planning regime;
  • the Infrastructure (Financial Assistance) Act, which allows the government to provide financial assistance of up to £50 billion in support of infrastructure investment;
  • the Local Government Finance Act, which overhauls the system of local government finance and, from an infrastructure perspective, provides for tax increment financing powers;
  • the Enterprise and Regulatory Reform Bill, which provides for the UK Green Investment Bank;
  • the Growth and Infrastructure Bill, which is intended to make development easier; and
  • the Energy Bill, which provides for the country’s long term energy needs.
• Institutions: we have two major institutions:
  • the Green Investment Bank, which opened for business at its new headquarters in Edinburgh in November; and
  • the Major Projects Authority, which beefs up project assurance, although issues remain (as the Public Accounts Committee’s October report, “Assurance for Major Projects” notes).
• Reviews/Plans: there have been no end of plans including:
  • the National Infrastructure Plan 2010, 2011 and 2012, the last of which identifies £310 billion of projects to 2015 and beyond and an increase in infrastructure spending from £29 billion to £33 billion per annum since the coalition came into office;
  • the Plan for Growth: outlined a new approach to local growth, shifting power away from the centre to local communities, providing incentives to communities that go for growth and supporting investment in places and people to tackle the barriers to growth. The government published an update with the Autumn Statement;
  • an Infrastructure Procurement Routemap: a guidance note and application toolkit to support public and private sector infrastructure providers improve their ability to deliver their projects, published last week; and
  • No Stone Unturned, the Lord Heseltine Review last autumn set out a comprehensive economic plan to improve the UK’s ability to create wealth. The government hopes to respond in the Spring.
• Projects: we have a £1.75 billion priority schools building programme about to launch in the PF2 space and the government has just published the route of the Birmingham – Leeds/Manchester sections of HS2. Network Rail has also just published its Strategic Business Plan for the next Control Period showing over £10 billion of investment in the road network. Crossrail and a number of major rolling stock purchases are under way.

So what still needs to be done? I would make the following suggestions:

• Aviation: just like the future of the European Union, London’s new hub airport seems likely to dominate discussion until well after the next election. While the politics are awkward, the Davies Commission timetable could be brought forward so we at least have an answer by 2015.
• Local government: bed down local authorities’ TIF and other powers and make them work, even if it needs new legislation.
• Roads: the clamour for a regulated asset based model and tolling will not die away notwithstanding the Government’s commitment that tolling should only be applied to new roads or significantly enhanced roads such as the A14. While the recently announced additional £1.5bn investment in for roads announced is welcome a longer term answer to the Cook Report seems desirable.
• Rail: Expedite HS2 as Lord Adonis has suggested. While it is good that the routes have now been published, 2033 for completion of the “Y” is an age away at a time when the Chinese are building several lines a year.
• Social infrastructure: we need a program for PF2 projects beyond the PSBP. As can be seen in my projects update, apart from education, there are a handful of hospitals, a few housing projects, no more highways maintenance or street lighting projects and the waste pipeline is in decline. Give bidders something tangible to aim for.

We have most of the elements in place.  What is needed is a little (more) bravery and some cash: after all money is as cheap as it has ever been.  David Cameron could still go down as the Isembard Kingdom Brunel of 21^st Century Britain.