HM Treasury: Planning for economic infrastructure - Public Accounts Committee Contents


1  Shortcomings in the Treasury's current infrastructure plan

1.  Economic infrastructure includes power generation facilities, roads, railways, airports, ports and communication systems. Investment in new economic infrastructure is needed to replace ageing assets and to develop improved services. It is also at the heart of the Government's policies to promote economic growth.[2]

2.  In 2010 the Government created a new advisory unit within the Treasury—Infrastructure UK—to bring further focus to the Government's strategic approach to ensuring appropriate economic infrastructure is developed. It was tasked with producing, developing and pursuing a National Infrastructure Plan to specify the infrastructure that is needed, the barriers to achieving that investment and to mobilise resources, both public and private, to make it happen.[3]

3.  The current National Infrastructure Plan[4] is basically a list of a large number of projects rather than a clear centrally developed strategy explaining the case for which projects should be prioritised in the current challenging economic environment. The Plan reflects planned infrastructure investment identified by Infrastructure UK of £310 billion set out in a "pipeline" of over 500 projects.[5]

4.  The Treasury told us that there are 40 priority projects and programmes. However, these programmes include large numbers of projects so that in total over 200 projects are priorities.[6] We have not seen evidence that a plan for such a large volume and value of projects is credible given the current challenges in raising finance to take forward projects and the limits on the costs that can be borne by taxpayers and consumers.[7]

5.  Witnesses identified three particular areas of difficulty in planning for economic infrastructure. The first is how to plan for infrastructure of an appropriate scale to stimulate growth whilst taking account of economic uncertainties which may place limits on how much new infrastructure is required. These uncertainties include the likely demand if there is no growth and the burden that new infrastructure investment may place on consumers.[8] The rate of investment also needs to be credible taking account of previous spending patterns and the capacity to change them. The Department for Energy and Climate Change told us that it would have to raise the annual rate of investment in energy infrastructure from the £10 billion secured in 2011 if the Government was going to meet the nation's energy needs.[9]

6.  The second difficulty is that on certain projects there is often a long period before building work starts. The first diggers are not expected to start on the High Speed Rail Link 2 until 2018 and experience suggests that is an optimistic start date. Although such projects are expected to benefit economic growth in the longer term the long preparation time delays the short term imperative to stimulate economic growth through construction work.[10]

7.  The third difficulty is managing the trade-offs between alternative types of infrastructure investment. For example, the basis for prioritising road or rail investment needs to be clearly articulated. This requires balancing issues such as where demand will be greatest, the payback period (roads maintenance for example has a very fast payback period) and the need for spending on very large single projects which will reduce the amount of funds available for smaller projects.[11] Similarly, the plan needs to articulate how decisions are made on the amount of infrastructure investment in the regions as opposed to London and the South East.[12]






2   C&AG's Report, paras 2,1.2 Back

3   C&AG's Report, para 4 Back

4   HM Treasury National Infrastructure Plan: update 2012, December 2012, available athttp://www.hm-treasury.gov.uk/d/national_infrastructure_plan_051212.pdf  Back

5   Q 75, 80, 82-83  Back

6   Q78 Back

7   Qs76,80 Back

8   Qs 91-95,101-103,113,148 Back

9   Qs 110-113 Back

10   Qs146-148 Back

11   Qs149-154,164,166,169-170 Back

12   Qs 165-166,168,180 Back


 
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Prepared 29 April 2013