By Lawrence Slade, CEO, GIIA
With the not-so-small matters of Brexit and Covid-19 to deal with, it is perhaps not surprising it has taken time for the Government to lay out how it will turn the Prime Minister’s promise of a once-in-a-generation infrastructure revolution into reality.
But much like the proverbial London bus, three important announcements have come in a matter of a few weeks and more are expected. The Prime Minister’s ten-point plan for a green industrial revolution, the Spending Review and the National Infrastructure Strategy have given us a glimpse of how Government wants to use infrastructure investment to put the UK on course to reach net zero emissions by 2050, strengthen economic resilience and create thousands of new green jobs.
This is, however, just a start. There are substantial financial and technological challenges ahead. Success will rely on a coordinated approach that drives investment and innovation across the economy and allows the private and public sectors to work together at pace.
As Government acknowledges in its new National Infrastructure Strategy, unlocking sufficient private investment will be essential given the scale of the task ahead. At a moment where the Government’s balance sheet is stretched, a recent report from PwC, commissioned by Global Infrastructure Investor Association (GIIA), estimated that we would need to spend around £40bn each year, for ten years, to reach the net zero goal in the UK. That’s twice the current rate of investment. Mobilising capital on such a scale will put a premium on using the competitive dynamic of the private market to ensure projects are well managed and delivered efficiently. We will need to double down on the ingenuity of the private sector to come up with new solutions to age old problems.
Key to driving greater levels of investment in infrastructure is certainty – on what Government is seeking to achieve and on where it wants the market to focus. One way Government can provide this certainty is by translating its high-level vision into more detailed sectoral strategies. Government is aware this is needed and is expected to make major announcements in the weeks and months to come, including the Energy White Paper, Transport Decarbonisation Plan and Heat and Buildings Strategy. It is critical that these set out in more granular terms how Government plans to drive forward key technologies, such as clean hydrogen to carbon capture, utilisation and storage.
In addition, Government needs to set out how it will draw private investment into major, new infrastructure projects. The UK has a history of finding innovative ways to bring together the public and private sectors to deliver best value for the taxpayer and consumer. The Government is already taking action. The newly announced UK National Infrastructure Bank should provide a mechanism to attract capital to projects that would otherwise not go ahead, “crowding in” private investment to emerging technologies alongside direct support from the taxpayer.
But the jury is still out as to whether the combination of the Regulated Asset Base model, Contracts for Difference and the new Bank will provide sufficient tools in the toolbox for Government to leverage the private capital necessary to deliver on its infrastructure pipeline. Despite pioneering the Public Private Partnership (PPP) model, copied and utilised to great success around the world, HM Treasury remains reluctant to revisit the Private Finance Initiative. GIIA will shortly be bringing forward a report based on global best practice that sets out how the right infrastructure financing mechanisms can promote greater levels of competition, harnessing the efficiency and innovation of the private sector and building a stronger evidence base to ensure we learn lessons and consistently improve delivery over time.
But even if Government takes the steps necessary to increase certainty, it will also need to re-establish the historical strengths of the economic regulatory regime that has unlocked much of the country’s infrastructure investment over the last 30 years. A focus on short-term outcomes, often at expense of long-term policy objectives such as climate change, has undermined the UK’s reputation as the pre-eminent destination for international investment.
Government is taking steps in the right direction. It has established a new Office for Investment in chaired by Lord Grimstone, Minister for Investment – a welcome addition that will help bridge the gap between Government and the investment community – and it has signalled a willingness to update the regulatory regime for a new age.
The UK’s approach to regulation has been copied across the world for good reason: it has driven high levels of investment and substantial improvements in efficiency service quality. Yet it faces new challenges from net zero, rising customer expectations and digitisation. An update is overdue.
We can build on strong foundations. GIIA’s recent report, ‘The Future of Regulation’, identifies four core principles which should frame strategic, financial and structural updates to the regulatory framework. These include a clearer division of roles and responsibilities between Government and regulators, a greater focus on intergenerational equity, strong incentives for innovation over the long-term and the streamlining of regulation to reduce both the burden on companies and costs for consumers.
There is no time to lose. We need to make rapid progress over the next decade, and the UK is in a global race for capital. The coming year will be pivotal to unlock the investment needed for the UK to build back better.