The National Infrastructure Strategy: planning for a post-pandemic world
7 January 2021: The government’s long-awaited investment strategy seeks to provide a coherent long-term vision on how to upgrade the UK’s economic infrastructure.
Although overshadowed by the Spending Review, the government published the National Infrastructure Strategy in November 2020. With a tagline of “fairer, faster, greener”, this is a critical component in how the government plans to “level up” the country and improve productivity to grow the economy.
The strategy comprises some 100 pages of detail, setting out an objective for a “renaissance” of the UK with ambitious proposals to be backed up by hundreds of billions of pounds of public and private investment.
High-quality infrastructure is vital to support economic growth, increase productivity and to create jobs. In 2019, the World Economic Forum ranked UK infrastructure 11th in the world behind countries such as France, Germany and Holland. The UK fared even worse in other comparisons: 36th in the world for the quality of its road infrastructure and 79th on fibre internet connections. The strategy aims to lift the UK up the rankings and provide a long-term vision, not a constant stop-start programme of investment.
The strategy is the government’s formal response to recommendations made by the National Infrastructure Commission (NIC), which was set up to provide impartial, expert advice to the government on long-term infrastructure priorities. In 2018, the NIC published a National Infrastructure Assessment which provides the foundation for many of the measures included within the recently published strategy.
A post-pandemic economic recovery
The first chapter focuses on the economy recovering after the pandemic. Despite the damage to public finances caused by the pandemic, the government intends to maintain its plan for increased investment as set out in the March 2020 Budget, starting with £27bn for economic infrastructure for 2021-22.
The strategy suggests there may be a need for some changes in these plans to reflect a different world after the pandemic, although it considers that many of the changes in the way that people have used infrastructure during the pandemic will be temporary. To encourage better health outcomes the strategy will focus on initiatives that promote active travel and support green spaces.
Not all of the investment planned will be publicly funded and the government aims to support private sector investment via the setting up of a national infrastructure bank, which will also fill the gap left by the departure of the EU Investment Bank from the UK market. Further details are expected in the Spring Budget on 3 March 2021.
The promotion of the “levelling-up” agenda is the background for chapter two of the strategy.
Significant investment is planned in areas of the UK that have received less support in the past. The promised investment covers gigabit broadband rollout, transformation of bus and bicycle infrastructure, local authority levelling up funds, stronger flooding and coastal erosion protection, and better connectivity of the country via HS2 and an improved strategic road network.
Changing how investment decisions will be made will be brought about by revisions to the Green Book and increasing direct investment in Scotland, Wales and Northern Ireland. Business cases for investment will favour those aligning with local economic development strategies, not those simply based on a benefit/cost ratio.
The third chapter concentrates on how the infrastructure investment aligns with decarbonising the economy and reducing climate change. Offshore wind investment and a framework of charging points for electric vehicles are seen as two of the stops along the route to achieving net-zero emissions.
Over 80% of the UK’s emissions come from infrastructure sectors, so in order to meet net-zero by 2050 profound changes to infrastructure investment will be needed. To support investment in green infrastructure, the government will create new regulation and tax measures to drive competition and open up new markets.
The power system will need to be virtually carbon-free and much larger if it is to support the additional demand from electrification in transport, heating and industrial processes, so greater investment will be required. This may come through the Contracts for Difference (CfDs) scheme, which incentivises investment in renewable energy by providing developers of projects, with high upfront costs and long lifetimes, with protection from uncertain and volatile wholesale prices over the life of an asset.
Industry and transport account for the majority of domestic emissions and policy decisions – such as banning the sale of petrol/diesel vehicles or financially supporting the installation of domestic charging points – influence societal behaviour. The strategy is central to the UK’s efforts to achieve net-zero by 2050 and seeks to accelerate the deployment of existing technologies to do so, as well as advancing innovation in new technologies.
Encouraging private investment
Chapter four looks at how to encourage investment in infrastructure by the private sector. The setting up of a national investment bank to co-invest in projects and lend to local and mayoral authorities will be a key part of that support.
The government appears to have accepted several of ICAEW’s recommendations to the Infrastructure Finance Review in adopting key principles to support private investment: providing investors with long-term policy certainty, maintaining a strong and enduring system of independent economic regulation and using a range of policy tools and innovative funding mechanisms to embrace opportunities from new technologies.
The government sees pension funds as having a key role in investing in infrastructure as they invest for the long-term and have funds of between £150bn and £190bn to invest over the next ten years. Removing barriers to investing in infrastructure may help, such as consolidating smaller pension investment funds so that they may more easily invest in large-scale infrastructure projects.
Speeding up delivery and better use of data
Government has long been criticised for its lack of speed in delivering infrastructure projects. Slow decision making, duplicative planning and development regimes, and short-termism have all been identified as issues.
Chapter five identifies how the government will speed up such projects by reducing red tape and embedding good design into all infrastructure projects. This is the most challenging target within the strategy, given that critical projects can take over a decade to move from conception to reality. The snappily titled Project Speed aims to reform the delivery of infrastructure projects by accelerating investment in project expertise and delivery skills – recruiting expert leadership and improving the skills base across the country to deliver across all areas.
The strategy also looks at how decision making could be faster and more effective with better data and better use of data. The NIC’s report Data for the Public Good concluded that there is a limited understanding of how the infrastructure works as a system, which the government seeks to address by launching a new cost benchmarking hub and data platform. This should enable a cross-exchange of data between smart infrastructure, accompanied by the development of a national underground assets register.
Build, build, build
Now that the strategy has been finalised, the next step will be to provide more detailed plans on each area of infrastructure policy and to allocate resources accordingly. A series of plans are expected to be published in the coming quarter, while the Spring Budget on 3 March 2021 is likely to contain additional information on how the government can deliver on its ambitious infrastructure targets.
These announcements are likely to include new investment in infrastructure for the health and education sectors including building more hospitals and schools.
Alison Ring, director for public sector at ICAEW, commented: “ICAEW welcomes the publication of the National Infrastructure Strategy and the ambitious plans the government has set itself to transform the quality of the UK’s infrastructure. This will be essential if there is to be a sustainable economic recovery following the pandemic and if net-zero is to be achieved by 2050.
“Significant amounts of public money will be involved, and it is important that there is transparency in how the investment promised in the strategy is delivered. There must be clear analysis provided in the financial statements of departments and other public bodies involved, while the Cabinet Office should provide an easy-to-read summary of how the strategy as a whole is progressing.
“Delivering the National Infrastructure Strategy as planned will be a major achievement given the practical challenges of delivering infrastructure projects on time and to budget, with the OBR suggesting that a significant proportion of budgeted investment will never be spent. Radical change within the UK’s governmental and political systems will also be required to overcome the short-termism that has defeated previous attempts to upgrade the country’s infrastructure.”