6 Transport and energy infrastructure
76. At the time of the Autumn Statement 2013, the
Treasury announced an update to its long term infrastructure plan
for the UK. The National Infrastructure Plan, first published
in 2010 and updated annually, outlines detailed spending plans
in a number of areas including roads, railways, telecommunications
and energy. It provides a list of priority investments as well
as setting out a series of planned public and private infrastructure
projects. The National Infrastructure Plan 2013 (NIP) has updated
the total value of such investments from £309 billion in
2012 to over £375 billion, [139]
of which over £340 billion will be directed to the energy
and transport sectors.[140]
Transport spending plans
77. When we last reviewed the Government's infrastructure
plans in our Spending Round 2013 Report, we concluded that:
The Committee welcomes the creation of long term
plans for infrastructure investment. It is now crucial that the
projects are delivered in a timely and effective manner.[141]
Commenting on the National Infrastructure Plan 2013,
Nick Prior, head of infrastructure at Deloitte, said:
The additional infrastructure funding announced
by the Chief Secretary today is welcome but we need much clearer
sight of where this money will actually be spent.
The government guarantees scheme is making a
difference. This has been the most impactful announcement on infrastructure
to date. But, the reality is, little of this money will be spent
this side of 2015, so we won't see shovels in the ground on new
projects for some time.
The £25bn commitment from insurers is good
news in demonstrating the attractiveness of UK infrastructure
to investors. But they still need to see a clear pipeline of opportunities
to put their money into and this will require some upfront commitment
and ongoing funding from government. The intention is there but
the funding is still aspirational.[142]
And Jeremy Blackburn, head of UK policy at RICS,
said that:
What is still lacking is real momentum to get
these projects moving, even with the £25bn included. It has
taken three years of plans to reach a programme. Let's now get
on with this - and secure a balanced recovery across all the regions,
not just some.[143]
78. We questioned Stephen Glaister, Director of the
RAC Foundation and specialist adviser to this Committee, on the
delivery of the projects outlined in the 2013 National Infrastructure
Plan. He was concerned about the realism of the Government's plan
to invest £120 billion in transport projects over the next
decade:
The realism of the Government's plans on their
transport budgets generally is a worry over the long term [...]
If I look at the announcements that were made in the summer for
the three heads of expenditure in the spending review, for the
six years starting 2015, the Government committed to spend £22.5
billion on Network Rail, £16 billion HS2 and £15 billion
on the strategic road network. I think it is going to be very
difficult to find all that money over the years to deliver that,
especially since, on the road side, there is no charging mechanism.[144]
Mr Glaister explained that there was a history of
road projects not being delivered by government:
[...] on the road side, we have been here at
least twice before. There was the Roads for Prosperity in 1989,
which was a big roads investment programme that essentially was
not delivered because the Conservative Government of the day could
not find the money as they came to the end of their term. There
was quite a lot of roads money put into the Labour Government's
plans towards the end of their term of office, which was pulled
out in the spending review of 2010; including the cancellation
of A14 famously, but a lot of roads were pulled out at that time.[145]
Other concerns about highways spending have been
noted by Paul Fleetham, managing director of Lafarge Tarmac Contracting:
Against a backdrop of protracted delays for many
large projects, it is disappointing that the updated National
Infrastructure Plan fails to provide support for smaller schemes
such as essential highways upgrades.[146]
79. We questioned Mr Glaister on the economic merits
of High Speed 2 (HS2) and the extent to which the attention given
to this project might be resulting in other transport projects
being over looked. Mr Glaister said that HS2 "might be taking
more attention than perhaps the economic evaluations would suggest
is justified."[147]
He was particularly concerned about that lack of work assessing
the value for money of alternative transport projects:
[...] we have not had a decent discussion either
inside the Department or more generally about the relative merits
using the established scientific methods of appraisal of putting
a very large amount of capital into HS2 as against conventional
rail or national and local roads. It is HS2 being put on one side,
assumed to be there and spoken for, and it has not entered the
debate about whether you could spend that money more effectively
and indeed spend it more effectively in some other area of public
policy.[148]
Mr Glaister explained that the Treasury have "very
well-established ways of calculating value for money for different
transport investments."[149]
Mr Glaister argued that road projects with very high rates of
return were not being funded while rail projects which much lower
rates of return were. He said:
[...] there are a number of road schemes, some
of which have been funded and I think some of which have not,
with benefit cost ratios of seven, eight, nine, 10 and 11; very
much higher. On the rail side, I am not aware that the Government
publishes cost benefit ratios for rail schemes apart from HS2.[150]
80. In the interests of transparency of decision-making,
the Treasury should set out the absolute benefits and absolute
costs, and the benefit:cost ratios, for each road and rail scheme
considered by Government, whether approved or not. The calculations
should be consistent with well established Department for Transport
best practice. This practice is based on Treasury Green Book principles.
HS2 AND CONTINGENCY COSTS
81. According to the Department for Transport's report
The Strategic Case for HS2, the total funding envelope
for the HS2 project is £50 billion. This consists of £15.6
billion for Phase One, £12.5 billion for Phase Two, £7.5bn
for rolling stock and a £14.4 billion contingency fund (all
in 2011 prices, excluding VAT).[151]
82. We questioned Mr Glaister on the rationale of
the £14 billion contingency fund for HS2. Mr Glaister wouldn't
be drawn on whether the exact figure was correct but stressed
the importance of taking a consistent approach for all infrastructure
projects:
The Treasury insists on putting them in because
it feels it has had its fingers burnt in the past where an inadequate
contingency has been included. Whether it is an appropriate amount
or not is hard for me to say. What I would say is it is important
that, if the Treasury is going to insist on there being a contingency
and there is a case for a certain amount, it is done consistently
across the piece because if you are going to put in £14 billion
for HS2, you need to make sure you put in a proportionate amount
in other schemes so they can compare across the piece.[152]
Mr Glaister was concerned about the way contingency
funds were calculated and the risk of creating perverse incentives:
I think the professionals in this field are uncomfortable
with the way the Treasury insists on these rather mechanistic
levels of contingency in the schemes because they feel they produce
perverse incentives. Obviously there is a tendency to think if
you have a budget that includes a contingency then you are going
to end up spending it. What you should be doing is good, effective
costing and binding yourself to effective costs.[153]
83. The Treasury should ensure that contingency
funds are used only for contingencies, and do not become a safety
margin to accommodate poor planning.
UK energy policy
84. As part of our inquiry on the 2013 Autumn Statement
we also examined Government's energy policy, particularly focusing
on the strategy for decarbonising the economy and the impact this
was having on energy infrastructure investment. We asked Peter
Atherton, Equity Research, Liberum Capital, whether he believed
that the Government had a coherent energy policy. Mr Atherton
told the Committee that the UK's underlying energy policy of decarbonising
the economy had been "very consistent,"[154]
but that the strategy for delivering this policy had vacillated
over time:
We agreed in 2003, as the EU, to go down the
path of decarbonising our economies [...] Originally we had some
market interventions like the European carbon trading scheme.
When the Coalition came in they decided that those interventions
that Labour had put into place were not sufficient to deliver
the targets. They had a review and out of that has followed electricity
market reform and now the current Energy Bill. What you have seen
is the number of interventions and the scale of those interventions
have increased over time, but the policy goal that was agreed
in 2003 at the European level and put into UK law in 2008 in the
Climate Change Act has not changed at all.[155]
85. When questioned on whether the Government had
an implementation strategy which was both plausible and deliverable
Mr Atherton said that the strategy is "extremely unlikely
to be delivered."[156]
This was because the Government "grossly underestimated the
economic, financial and engineering challenges of decarbonising
a sector like power as quickly as [the Government] are proposing
to decarbonise it."[157]
86. Mr Atherton said that by trying to reach the
carbon reduction targets the Government signed up to in 2003,
energy investment deals were being distorted. He was very critical
about the commercial contract agreed in October 2013 between the
Government and EDF Energy for the development of the Hinkley Point
C nuclear power station:
Nobody in their right mind would sign an agreement
with EDF to fund the economics of an £8 billion reactor that
it is going to take them nine years to build [...] and the only
reason you are doing it is to deliver the 2030 target. Without
the 2030 target you wouldn't do that in any universe I can think
of.[158]
He went on to say:
The inherent complexity and contradictions within
the strategy to deliver the goal are coming out, I am afraid.
We are seeing that now in the public debate around affordability.
I am afraid the affordability crisis that we are seeing in energy
policy at the moment in the UK was entirely predictable [...][159]
When asked what the economic cost of the Government's
energy policy was likely to be, Mr Atherton estimated that that
the net cost of decarbonisation, excluding the investment that
would have to occur regardless such as replacing existing infrastructure,
would be "in the region of £200 billion-£230 billion."[160]
Mr Atherton argued that the Government could either "deal
with the issues and the reasons why costs are rising", or
it would "have to convince the British public that this is
the price worth paying."[161]
139 HM Treasury, National Infrastructure Plan 2013,
December 2013, p8 Back
140
HM Treasury, National Infrastructure Plan 2013, December 2013,
p8 Back
141
Treasury Committee, Third Report of Session 2013-14, Spending Round 2013,
HC575, para 70, p37 Back
142
www.deloitte.com, Deloitte comments on National Infrastructure Plan update,
December 2013 Back
143
Construction News, Reaction: National Infrastructure Plan 2013,4
December 2013 Back
144
Q343 Back
145
Q343 Back
146
Construction News, Reaction: National Infrastructure Plan 2013,4
December 2013 Back
147
Q327 Back
148
Q327 Back
149
Q344 Back
150
Q345 Back
151
Department for Transport, The Strategic Case for HS2, October
2013, p 36 &139 Back
152
Q349 Back
153
Q349 Back
154
Q329 Back
155
Q329 Back
156
Q330 Back
157
Q331 Back
158
Q352 Back
159
Q331 Back
160
Q337 Back
161
Q335 Back
|
