How will the Government deliver on infrastructure now? Does Reeves’ speech point way to new private finance plans?

THERE IS growing speculation that the new Government could be heading towards some kind of new private sector funding framework as a solution to both the shortage of available public funds for the infrastructure investment to which it is highly committed, and to address perceived inefficiencies in the way public bodies plan and deliver projects and services. Transport is a potential key area to apply this thinking.

In an almost throwaway line at the end of her speech the Chancellor looked ahead to her October budget and major financial statement saying “So we will use the Spending Review to prioritise specific areas of capital investment that leverage in billions more in private investment.

Industry bodies have already expressed concerns at the impacts of cuts in publicly- funded investment projects, and pointed to weaknesses in decision- making and funding, highlighting two new highly critical reports on transport by the National Audit Office as part of a raft of nine value for money reviews all just published, including on HS2 and the DfT’s support to Local Roads- interestingly all published by NAO the week before Reeves announcements, and mentioned by her – albeit very briefly – in her speech. There was also another NAO Lessons Learned Insight report on making public money work harder.

NAO said “At the start of a new Parliament we want to draw attention to the substantial body of learning contained in the NAO’s work. This includes evidence of what works, as well as the root causes of failure. We have distilled some of the most important messages from our work on value for money and brought them together in this short publication. We focused on those elements of public spending where we see most scope for improvement in efficiency and effectiveness. These are relevant to all parts of government and are intended to help maximise new programmes’ chances of success and avoid the repetition of past problems.”

Of the two transport-related NAO reports one concerns the planning and finances of HS2, and the impacts of last year’s abandonment of the northern legs by then Prime Minister Rishi Sunak, the escalating cost issues with the original southern line from London to Birmingham, and how it can now be delivered into Euston from Old Oak Common at the southern end, and connected to services heading onward to Manchester and beyond via the West Coast Main Line.

The other NAO report addresses whether the DfT is ensuring value for money through its funding provision for local road maintenance, and whether it is effectively fulfilling its role in supporting local authorities to deliver it through using its data and information to inform its funding decisions, and supporting local authorities effectively through providing guidance on asset maintenance.

NAO concludes that despite their importance, the condition of local roads is declining and the backlog to return them to a good state of repair is increasing. It says DfT has provided between £1.1 and £1.6 billion of capital funding each year to local authorities and has set out plans for additional funding through to 2034. “Given the fiscal constraints, it is essential that DfT secures maximum value from the funding it has available,” says NAO.

“However, at present DfT does not have a good enough understanding of the condition of local roads, and does not use the limited data it does have to allocate its funding as effectively as possible. It does not know whether the funds it allocates are delivering improvements in road condition, and has not updated its guidance to local authorities, to share good practice and help them make the most of their limited funds, for some years.”

Observers suggest that the issues explored by NAO could dovetail with Reeves’ drive for value for money, and Government preparations for new ways of involving the private sector in transport activity. A Government spending squeeze and quest for efficiency and productivity could be taken as a prompt for new ways of securing both ongoing activities and new schemes.

The absence of any mention of the controversial Lower Thames Crossing in the Chancellor’s statement - a potential source of a massive £10bn expenditure saving and a scheme demonstrably poor Benefit Cost Ratio – may indicate that rather than cancellation of the very costly scheme is being lined up as a privately financed project. That said, we do not yet know the recommendations of the Planning Inspectorate following the DCO Examination which are currently with the DfT to review and advise the SoS, who will then need to seek Treasury approval based on the Full Business Case.

Many highway schemes currently in gestation are likely to be halted in response to the funding envelope for RIS4 which has yet to be agreed, and the new DfT review of all projects ordered by the Chancellor. It is generally the case that the private sector is not keen to become involved in projects that have yet to receive planning consent, and the risk that involves.

The annual accounts just published by HS2 Ltd meanwhile show that the decision last October by the previous Government to cancel the Manchester to Birmingham leg and rescope the plans for trains to get to Euston, resulted in the writing off of more than £2bn of rail work.

“This could have been spent supporting thousands of jobs and billions of pounds of GVAs in turn bringing significant tax revenues back into the Treasury,” commented Railway Industry Association Chief Executive Darren Caplan.

“The report is a reminder to the new Government that these losses can only be recouped if plans to deliver crucial north-south rail capacity in the decade ahead are developed and the specific HS2 connection between Old Oak Common to Euston is confirmed in the coming weeks. Otherwise what should have been a world-class national rail infrastructure asset will simply become a high-quality Acton to Aston line.”

“We support the need for a strategic review of transport schemes, and urge the government to make sure that the spending review takes account of the crucial role rail investment plays in supporting jobs, local growth, connectivity and decarbonisation within and between the UK’s nations and regions. As the National Infrastructure Commission recently noted, a lack of rail capacity is at risk of holding back growth in key cities.”

Jonathan Edwards, EMEA Market Development Leader at global professional engineering services company GHD said: “The Labour government, has a commitment to ‘get Britain building’, supercharge transport infrastructure, and prioritise rail connectivity across northern England. Previous pledges were light on detail and the feasibility of swiftly turning political vision into action, but what was clear was that public finances would not allow every programme and project to continue.

“By selecting which projects not to support, the Chancellor is making it clearer where Labour intends to focus government investment, and the industry will now have to react. These announcements may be necessary for a new government and a consequence of realignment based on political direction for the UK. However, infrastructure projects and the public and private sectors that deliver them most desperately need long-term certainty and commitment. Without long-term thinking and commitment, investment cannot be sought, skills cannot be developed, and projects cannot be effectively and sustainably planned or delivered.”

Global engineering consultancies not surprisingly lobby hard for big infrastructure projects as they often have built up thousands of highway engineers and other professional services, and restructuring is painful whilst the international stock markets where they are floated demand consistent returns on their investment.

Andrew Baldwin, Head of Policy and Public Affairs at the Association for Project Management (APM) said: “Reports that major infrastructure and transport projects were approved with no access to funding is concerning; that project scopes have been unrealistic from the outset is even more alarming. In effect, these projects were doomed to failure from their inception. This is not how you deliver successful projects. As highlighted in APM’s manifesto, ‘Respond, Reinvent, Reform’, the approach to how projects are delivered in the UK must be reformed through joining up thinking across government. Processes need to be streamlined with projects fully costed and the funds in place before signing off.

“We are supportive of plans to conduct reviews, as it is important they are judged on the long term benefit they provide to society, and not just on short term costs, however un-funded they might be. We must learn from past projects and utilise the findings from independent reviews, such as those from the National Audit Office (NAO), when assessing future project business cases to ensure they are realistic.

“The planned new Office for Value for Money (OVM) will scrutinise projects before they are funded, but as part of that we must insure we have the right people with the right skills working on projects in government, with qualifications in project management as a core requirement for each team. “With announced cuts to spending on outside consultants, it is now essential that the Government plugs the skills gap across departments. To do that, we need to reform our approach. Project reforms are needed and must be designed to create the right conditions for project success, because when projects succeed, society benefits.”

Rain Newton-Smith, CBI Chief Executive, said: “the Government cannot afford to take a backwards step in its central mission to deliver the long-term sustainable growth the country needs. The big choices and bold moves laid out in the King’s Speech are an important first step, now we need a relentless focus on delivering those priorities and breaking down critical barriers to investment. A continued focus on investment in capital and infrastructure, not only helps crowd-in private finance, but boosts productivity and growth over the longer term. Given the catalytic impact on business investment and confidence, the government cannot afford to take a short-term view on vital infrastructure projects.

“Business stands ready to be a key delivery partner with the government in its mission for growth. By working with business, the new government can deploy the capability and capacity of industry to deliver the connected transitions across net zero, the digital economy, and the future of work needed to put the economy on a pathway to sustainable growth.”

It is a sentiment likely to be shared by Juergen Maier, the former Siemens UK boss, and now the government’s go-to industry guru. Maier is about to report on his review of infrastructure and urban transport investment, which could be key in shaping the way the government hopes to deliver the investment it so keenly wants to drive economic growth but is finding it hard to afford.

Peter Stonham is the Editorial Director of TAPAS Network

This article was first published in LTT magazine, LTT897, 1 August 2024.