MPs publish report on planning for economic infrastructure

• Report: HM Treasury: Planning for economic infrastructure (HTML)
• Report: HM Treasury: Planning for economic infrastructure (PDF)
• Public Accounts Committee

The Rt Hon Margaret Hodge MP, Chair of the Committee of Public Accounts, today said:

“Investment in infrastructure is crucial for stimulating economic growth. However, the Treasury’s Infrastructure Plan is simply a long list of projects requiring huge amounts of money, not a real plan with a strategic vision and clear priorities.

“The Treasury maintains that it has prioritized 40 projects and programmes, but in reality the list details more than 200 individual projects said to be ‘priorities’.

“Most of the £310 billion of investment needed will come from the private sector, with households shouldering the cost through higher energy bills and fares. Family budgets are already badly squeezed and inevitably those on the lowest incomes will be hit hardest.

"The Government needs to urgently assess the impact on consumers and how this can be contained.

“Given the difficulty in raising private finance, the government may have to use taxpayers’ money to attract investors through direct grants, guaranteed incomes or agreeing to bear certain risks.

“Although the level of government support required is not yet clear, it will be either consumers or taxpayers who will have to pay up, and so openness about the impact of government decisions is essential.

“Investors must also accept proper transparency over their costs and rewards in delivering infrastructure projects to show that their returns are reasonable and that any government support they receive is justified.

“Many infrastructure projects impact on energy supply and are therefore particularly time critical. It is likely that the UK will have to buy ever more energy from overseas and at a higher price due to the failure to secure investment, partly a result of deferring decisions until after the Energy Bill.

“All governments change their plans but uncertainty over future government policy can make investors very nervous. This can lead to additional costs if they require a higher return to reflect the risk.

“The Government must ensure that there is sufficient certainty to secure the necessary private sector investment in a climate where the competition for capital is internationally competitive.”

Margaret Hodge was speaking as the Committee published its 42nd Report of this Session which, on the basis of evidence from participants in the infrastructure sector, the Treasury, the Department for Transport and the Department for Energy and Climate Change, examined planning for economic infrastructure.

Infrastructure UK, an advisory unit within the Treasury, was established in 2010 with a remit to specify what economic infrastructure is needed in the UK, to identify the key barriers to achieving that investment and to mobilise systems and resources, both public and private to make it happen. The first National Infrastructure Plan was published in 2010.

The latest update of the plan, published in December 2012, comprised over 500 prospective programmes and projects for new economic infrastructure expected to cost £310 billion. Some 64% of this amount is expected to be spent on infrastructure that will be wholly owned and financed by the private sector. Consumers will bear most of the cost of this new infrastructure through bills for utilities and other services.

Investment in economic infrastructure is needed to replace ageing assets, improve public services and stimulate economic growth. Many of the investment proposals impact on energy supply and are therefore particularly time critical. We believe that this will lead to higher costs which will be borne by consumers. We are particularly concerned at the impact of higher energy bills on those with low incomes.

However, we are not convinced that the current proposals represent a rigorous plan with clear priorities for action or with a clear programme for delivery.

The Treasury has identified 40 key projects and programmes. However, many of the programmes are broad categories and in total they include more than 200 individual projects. This does not suggest a properly targeted and prioritised infrastructure plan.

The Treasury will need to work more forcefully with departments, regulators, contractors and investors to agree the priorities for the projects that will be undertaken and the ways in which the costs both for consumers, through bills, and taxpayers, through various forms of support, will be identified and contained. This needs to be addressed urgently.

The Government also needs to ensure that the legislative and regulatory framework provides sufficient certainty to secure the necessary private sector investment in a climate where the competition for capital is internationally competitive.

In this regard the statutory framework provided by the Energy Bill is coming rather late in the day when the energy crunch is fast approaching.  It is likely that the UK will buy ever more energy from overseas and at a higher price due to the failure to secure investment.

Most of the economic infrastructure investment required will be in the private sector using investment supported by government with households bearing the costs through higher bills or fares. In these circumstances greater transparency is needed over investors’ costs, risks and rewards and more information is required on the long term costs falling on consumers in a form that will allow them to judge how they might respond.

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