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Delivering the Government's infrastructure commitments through major projects Contents

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2The framework for infrastructure investment

Background

4.Government major projects include infrastructure and construction, IT, transformation of Government services, and military capability. The Infrastructure and Project Authority (IPA) oversees the Government Major Project Portfolio (the GMPP) which contains 125 projects worth £448bn.5 These are the largest, most risky and most innovative of the projects, and only a fraction of the total projects run by Government. Projects on the GMPP are run by the responsible department(s) but subject to scrutiny by the IPA, and are the easiest for the public to scrutinise because of the data that the IPA publishes annually. Many substantial projects do not meet the criteria for inclusion in the GMPP and do not, therefore, have central Government oversight. There is far less information on those projects outside the GMPP.

5.Following the 2019 General Election, the Government announced large investment in infrastructure, including road, rail and broadband. The 2020 Budget promised £640bn of investment for projects across the UK which the Government stated would drive growth and “level up economic opportunity”.6 In Spring 2020 the Chancellor announced a further £5bn infrastructure investment to support economic regeneration after Coronavirus.7 When Jesse Norman, the Financial Secretary to the Treasury, gave evidence, he described the additional £5bn as “a specifically Covid-related bounce back initiative. It is a couple of billion pounds.”8

6.This investment will happen through major infrastructure projects. This Report considers how the practice of project management can support the Government to achieve its growth objectives through investment in major infrastructure.

The economic case for major infrastructure projects

7.The Committee heard that good infrastructure projects can support and enable economic growth. Tom Thackray, CBI Director of Infrastructure, told the Committee that “major projects can play a fundamental role in economic prosperity”, and that “every £1 spent on construction generates £2.92 for the wider economy”.9

8.The Government’s objective for infrastructure is to boost economic growth and level up across the country. Explaining the promise to “level up”, Lord Agnew, Minister for the Cabinet Office, told the Committee that:

some areas have done far better out of infrastructure than others. London has done particularly well, whereas other parts of England have not done so well and there is recognition of the need to try to correct that, to ensure that we govern for the whole of Britain.10

9.Jesse Norman told the Committee that “there is a desire to drive up economic growth and productivity overall but also across the country, as part of what the Prime Minister has called the levelling up agenda.”11

10.Evidence collected by the Committee demonstrated that, while there is broad agreement that levelling up is a positive aspiration, it is not always clear what levelling up means in practice. Professor Henry Overman, of the London School of Economics, told us that “it is unclear what people mean. What I would say is that every Government comes in with a version of this aspiration.”12

11.Professor Overman went on to explain that, for a levelling up policy to be successful in addressing inequality, it needs to propose an appropriate solution to a clearly defined problem.13 He explained that one sensible way to think about levelling up is to look at opportunities for people in different parts of the country, and plan policies which boost those opportunities in worst performing areas. He stated that this was better than taking a more simplistic economic measure (such as wages) and looking to bring all areas to the same point.14

12.The Committee put the question of what levelling up means in terms of infrastructure to the responsible Government ministers. Lord Agnew explained that some areas have benefitted from infrastructure more than others (citing London as an area that had benefitted particularly),15 and that the Government recognised a need to correct that. Jesse Norman explained that, in his view, infrastructure was not just about economic outcomes but also about “identity”. He stated “a place thinking of itself as special because of a piece of infrastructure, because people have invested in it locally, emotionally as well as financially—that really can drive high levels of entrepreneurship and significant social change.”16

13.The Committee heard that while infrastructure can be an enabler of economic growth it is not an end itself. Professor Overman explained that while “quite a lot of challenges [local economies] face will have nothing to do with the infrastructure they have in place,”17 “major infrastructure obviously underpins the economic performance”.18

14.As Tom Thackray explained, infrastructure projects can enable widening of labour markets and improvements in efficiency and travel, and they can facilitate competition and collaboration between different sorts of business.19 James Heath, Chief Executive of the National Infrastructure Commission, told the Committee that

[infrastructure] is the means, not necessarily the end in itself. It enables and facilitates, but other things will normally need to happen in addition if you want to have a major impact. Overall, there may be cases where infrastructure investment is far more influential… particularly removal of congestion in major cities, which can act as a major constraint on growth.20

15.Where infrastructure is not the immediate challenge faced, the Committee heard that better infrastructure could have wider or indirect benefits. For example, witnesses told us that skills were the major driver of economic growth and better infrastructure can facilitate the movement of different skills around the country.21 Professor Overman explained that many disparities between areas are “caused by underlying composition to do with education and skills. We know that people who are more highly educated get a very large wage premium”22 and, while he cautioned that infrastructure alone is not an automatic fix, he went on to say that infrastructure “can have a pretty big impact on where people are going to live and the composition of local labour markets. One way to achieve levelling up will be to get those people with degrees and so on to spread themselves out more equally across the United Kingdom, and transport might play a role in that.”23

16.However, when infrastructure is not properly thought through, the benefits of investment might not be felt by the local community. Professor Overman told the Committee that ‘white elephants’ happen when projects “are not based on meeting reasonable challenges that the local or national economy face, but instead are sold as being a revolutionary, transformational project that will radically change around the fortunes of an area or of the economy as a whole.”24 He went on to say that: “[the Government needs] a clear statement of the problem that the project is trying to address, we then should be thinking about the options that would deliver on the objectives, and we should then move to a business case and a strategic case that are carefully articulated and subject to rigorous scrutiny.”25

17.Sir John Armitt, CBE, Chair of the National Infrastructure Commission (NIC), went on to say that:

we do not spend enough time on the ‘why’ because that is the difficult bit, and there are usually strong opinions that are already there as to why we should do something without properly understanding why we are planning to do it. Then the ‘what’ is what are the options and what are the ways in which we can deliver that strategic ‘why’. Then the ‘how’ is how we are going to deliver it. We love delivery because we all think we understand delivery. The ‘why’ is where we need to spend more time, and then we stand more chance of getting the right issues in place when it comes to the ‘what’ and the ‘how’.26

18.Tom Thackray further reinforced this idea of greater investment in the early stages of a project being beneficial, stating that an “upfront strategic case and business case enables the procurement and delivery phases to go much more quickly and with fewer hiccups.”27

19.The Committee learned there were examples of Government projects where the economic case for investment was not linked to the outcomes of that investment. For example, the National Audit Office (NAO) report on projects leaving the GMPP found that the “Household Energy Efficiency programme delivered against its target of improving energy efficiency in one million homes, but did not have targets or measurable goals for its wider objectives such as saving energy.”28 Gareth Davies, the Comptroller and Auditor General, gave an example in his written evidence, where he explained that the strategic case for HS2 referenced rebalancing the economy, but it was not clear whether or how the main measure of reduced journey times would improve economic outcomes. He stated, “the relationship between the strategic objectives of the programme, such as rebalancing the economy, and the largest quantified benefit in the economic case, journey times savings, was also unclear.”29

20.Lord Agnew confirmed his intention to change the culture in Whitehall, stating that he wanted “much more detailed engagement at the time of the strategic business case, so that when the idea is conceived there is proper rigour around the objectives of that project, the cost of it and the methodology that is being used.”30

Cross-Whitehall co-ordination

21.The Committee heard that infrastructure investment needs to be properly co-ordinated if it is to achieve the most benefit. Government needs to take a cross-departmental approach to enable individual projects, but also it should co-ordinate better between complementary projects, and across the wider portfolio of infrastructure investment.

22.Sir John Armitt explained that successful initiatives to boost local areas usually involve a series of complementary investments. He highlighted the example of Salford Quays:

[there were] some underlying transport improvements alongside major business investment. A chunk of the BBC moved there, ITV moved there and Salford University moved there to create a major, world-class media cluster. Transport was part of it, but a whole series of complementary investments had to take place to really turn the dial up.31

23.More broadly, the Government’s portfolio of infrastructure investment needs to be nationally co-ordinated to ensure it is being put to best use. This Report considers improving investment outside of London and the South East later, but as Jesse Norman explained to the Committee, the Government needs to look across its portfolio so that a suite of investments can boost local economies and best serve the national economy. He stated:

London does have an enabling effect to the rest of the country and the intellectual challenge is: how do you strip out that capital city gateway function from what you might consider its appropriate share of other resources? That is the nature of the argument and it is a very complex and difficult one to address.32

24.For these complementary investments to happen, and for individual projects to achieve the widest benefit, there needs to be cross-Government co-ordination. Sir John Armitt explained to the Committee that:

the classic, of course, is between housing in MHCLG [the Ministry for Housing Communities and Local Government] and transport in [the Department for] Transport. The two things are inseparable. They have to be thought about together, but getting that done in a meaningful way is a real challenge.33

25.Most projects will involve a degree of co-ordination between departments and, as James Heath told the Committee “most infrastructure problems that you look at are really complex co-ordination challenges”.34 He raised the example of rural broadband, which involves considering the regulatory model, wayleaves, and planning law. Project X told us, in their written evidence, that “infrastructure, in the broadest sense, is crucial to economic prosperity yet we often fail to recognise the complexity of our infrastructure systems and their interconnectedness.”35

26.The National Infrastructure Commission was tasked with the job overcoming these Whitehall silos. Its National Infrastructure Assessment, published in July 2018, states that “the Commission was set up to address the lack of long-term infrastructure strategy, siloed decision making in infrastructure sectors, fragile political consensus and short termism.”36

27.Sir John Armitt told us that it was not the job of the NIC to co-ordinate infrastructure spending. He said that the Commission publishes impartial reports and that it should aim to get cross party support for sensible approaches, but co-ordination is the responsibility of the Prime Minister and the Cabinet Office.37

28.In response to this, Lord Agnew told us:

I see this in my commercial portfolio as well … [when] spending control decisions come to me in the Cabinet Office and they arrive too late. They arrive at the point at which all the main decisions have been made, so it is very hard to be a critical friend, to challenge the thinking that has gone into it, because the boat has pretty much sailed. I want to move that whole process upstream, so that we can have those conversations at a point at which decisions can be properly debated and changed if necessary.38

Long-term infrastructure planning

29.The Committee heard that the Government needs to take a more long-term view when planning infrastructure, but often this is hindered by a desire for quick outcomes within parliamentary cycles. In his written evidence to the Committee, the Comptroller and Auditor General stated that “where programmes form part of a portfolio, the need to meet short-term affordability targets can mean that programme decisions are taken at the expense of longer term value for money.”39 This was reinforced by Tom Thackray, who stated that Government is “focused on costs and benefits that are realisable within the short time, such as a parliamentary term, which does skew investment and thinking sometimes, so lengthening out that term would be useful.”40

30.Sir John Armitt told the Committee that:

these should not, in a sense, be political issues. These should be about what is for the common good of society. Infrastructure is for people, at the end of the day, to enable them to live their lives in a more fruitful way, to allow business to provide jobs, to allow business to be more successful. Part of the NIC’s role is to try to develop our ideas and get cross-party support for our ideas, not to see them fall into left/right thinking.41

31.Many of those who gave evidence to the Committee highlighted short-term politicised decision making as a barrier to achieving desired outcomes from investment.

32.Dominic Cook from Deloitte told the Committee that:

Parliamentary fixed terms tend not to be the friend of major projects. The Government seeks to enact a significant proportion of its policy through major projects e.g. Universal Credit, Crossrail and ESMCP, however, the vast majority of major projects will “outlive” a single Parliament. The inevitable political pressure to deliver and be seen to deliver could lead to not investing enough time upfront in (i) the planning and preparation phase and (ii) in creating a project team with proven major project delivery skills led by someone who has tried and tested project leadership skills. All too often project leads are appointed and they simply inherit a team, which may or may not comprise major project professionals.42

33.The Civil Engineering Contractors Association stated “the short-termism and lack of long-term strategy … has historically undermined the delivery of major infrastructure projects in the UK”.43

34.In written evidence to the previous Committee’s inquiry, the Association For Project Management (APM) suggested that Government should “focus on ‘Responsible Project Management’ (RPM) which is the concept of managing projects with specific attention to the intended and unintended impacts of the project and its outcomes, in both the short and long term, thereby delivering economic, social and environmental impact.”44

35.Other witnesses told the Committee that projects should be depoliticised. In written evidence the Royal Institute of Chartered Surveyors (RICS) said, “projects should, if feasible, be outside immediate political decision making with a suitable national infrastructure strategy setting out priorities to be followed through irrespective of the politics.”45

36.However, witnesses also told the Committee that some infrastrucutre decisions are inherently political. In his evidence to the Committee, Lord Agnew talked about the message sent by the General Election, that greater investment was needed in the North, and stressed that decisions are also about “politics and democracy”.46

37.When asked about the role of the National Infrastructure Commission in overcoming politically-led decision making, Jesse Norman told us:

I think we have quite a good balance. It is an evolving balance, but I think we have quite a good balance because the National Infrastructure Commission, of course, publishes its own reports independently… As soon as you start to give it specific responsibility for projects, it then becomes a political entity in its own right rather than an expert entity.47

The Government’s Infrastructure Strategy

38.The Government has committed to producing an Infrastructure Strategy, which should provide an overall framework to overcome siloed decision making and short termism, but it has yet to be published. Sir John Armitt told the Committee:

the Government have said they will respond with a national infrastructure strategy. We are now two years on and are still awaiting the strategy. There are all sorts of good political reasons, but we are still waiting.48

39.In explanation, Jesse Norman said:

[the Government] had hoped to publish it some time ago, but we have been overtaken by a whole series of events, including the election, change of Chancellor and now, of course, Covid. Certainly, my hope would be that we will do it as soon as we decently can, but it does involve a lot of co-ordination and other work.49

40.The National Infrastructure Commission relates primarily to England with little evidence of attempts to coordinate it with other parts of the UK. For the purpose of effectiveness and coherence the Government needs to coordinate its infrastructure strategy with devolved administrations.

41.There is a clear desire for the infrastructure strategy to be published amongst those who provided written evidence. Project X told the Committee that:

our collective view is that a national infrastructure strategy, co-ordinated by an independent body, is crucial to aligning the long-term economic and social needs of the United Kingdom with the political aspirations of the Government.50

42.London First wrote that:

the Government should publish the National Infrastructure Strategy as soon as possible. This would show clear intent from Government, helping to unlock private sector investment, boosting growth for businesses in all sectors and sizes along the supply chain, and laying the groundwork for the next wave of major infrastructure projects that the capital and the country need.51

43.The Government has committed to the largest investment in infrastructure in decades, which it believes has the potential to support a fairer and more equitable national economy. However, there is also great potential to waste this money on “white elephant” projects if it is not invested wisely. Evidence the Committee gathered suggests that there is uncertainty as to what the Government means by levelling up, and how its large infrastructure spending commitments will contribute to levelling up. There is a clear risk that money will be spent on projects which might boost employment in the very short term, but will not lead to longer-term change in economic outcomes for the poorest parts of the country.

44.The overall framework for this investment should be provided by the National Infrastructure Strategy, but this is significantly delayed and has yet to be published. The Government is keen to spend money quickly as part of the Coronavirus “bounce back” but it needs to publish the overall infrastructure strategy to ensure that money is spent in a co-ordinated and effective way.

45.The Government should publish its infrastructure strategy as soon as possible, and certainly before it starts spending large amounts of money on infrastructure. The plan must clearly link the Government’s objectives for the economy and the planed infrastructure investment. It should either include an assessment of regional or local needs, or clear principles for Departments assessing need in areas in which they are investing.

46.The Government must be clear on what it means by “levelling up” if it is to plan projects which lead to “levelling up” and measure progress against them. The Committee expects that the infrastructure strategy will be clear on what levelling up means in practice, how infrastructure investment will contribute to levelling up, and what data we can use to measure the success of the levelling up initiative over time. This Committee will examine the infrastructure strategy when it is published and put further questions to ministers.

47.Previous infrastructure strategies have not led to coherent and co-ordinated infrastructure spending. A scattergun approach to infrastructure investment might result in expensive infrastructure that does not benefit a local area either because it is not supported by complementary services (for example new houses without transport links); or it is not nationally co-ordinated and directed to areas of greatest need. The National Infrastructure Commission was created to overcome silos, and while the Committee welcomes the NIC’s commitment to overcoming political barriers through its impartial reporting, it is not clear it has the power to really break through politicised and decentralised decision making, which sits within Central Government. The Committee welcomes Lord Agnew’s commitment to early involvement in decision making.

48.The Cabinet Office needs to take a more active lead on co-ordinating infrastructure investment in line with a national infrastructure strategy. It should be involved in the early stages of project development and lead on co-ordinating the national infrastructure effort. The Committee would like to see evidence of this work in the IPA’s annual reports and it will raise with the Permanent Secretary at the Cabinet Office and Head of the IPA at regular scrutiny sessions.

49.It is clear from the evidence submitted to this inquiry that Government infrastructure projects are progressed before due consideration is given to how they will address local needs. This practice increases the risk of infrastructure not addressing local needs, and therefore not supporting economic growth.

50.Government should prioritise understanding local needs. Fully populated local needs assessments should be published when projects are announced to demonstrate the purpose of such projects. The IPA should require these assessments as part of the documentation for projects in the Government Major Projects Portfolio (GMPP) and it should also check that departments are publishing the assessments as part of its role as the Government centre of expertise in project management. The Committee will scrutinise this in future evidence sessions.

51.The Government must also reconsider what infrastructure will be needed in coming years, reflecting on the experience of Coronavirus. For example, if more jobs will move to home working, whether this might create a greater need for faster broadband rather than new roads. This post-Covid view of infrastructure should be reported to this Committee for further scrutiny.

Levelling up through national investment

52.Witnesses told the Committee that historically, large cities (notably London) had received higher investment in infrastructure than other areas of the country. Lord Agnew stated:

it has been too easy, over the last 20 years, to put stuff into London because on some metrics the returns look better. We have paid a big price for that because London has become an incubus that has sucked energy from the rest of the country and—as someone who is a provincial person at heart—I object to that and I want to see a reversing of that. I want to see the energy harnessed in those communities to bring wealth and job creation in those places, not those people having to come to London.52

53.Many argue that cities generate returns on investment that benefit the country as whole because they act as gateways. Jesse Norman explained that:

the intellectual challenge is: how do you strip out that capital city gateway function from what you might consider its appropriate share of other resources? That is the nature of the argument and it is a very complex and difficult one to address.53

54.Individual projects go through approval processes to assess the economic case for investment and understand whether it will benefit the country. Large projects, which exceed delegated spending limits,54 must go through the Treasury Approval Process (TAP). The TAP states that “all spending proposals must be developed and presented in accordance with the [Treasury] Green Book five-case model”. The Treasury Green Book five-case model considers the strategic, commercial, economic, financial and management dimensions of proposed investment. The economic dimension asks

what is the net value to society (the social value) of the intervention compared to continuing with Business as Usual? What are the risks and their costs, and how are they best managed? Which option reflects the optimal net value to society?55

55.The method of assessing the economic impact of investment outlined in the Green Book has been criticised for inadvertently privileging investment in areas where the economy is stronger and there is a higher concentration of people. The Comptroller and Auditor General explained that:

it’s essentially how Governments over a long time (not just the current Government) have used models to build up their estimates of financial benefits of projects. The way those models are operated favours heavily built up areas with very good communications and access to very large job markets. London, being the magnet for investment and economic activity, more easily scores points on that than a less developed part of our national economy.56

56.This criticism of the Green Book is not universally accepted. Tom Thackray said:

businesses that deal in the infrastructure delivery space feel there is significant flexibility within the Green Book already that would enable more factors outside of economic return to be factored into the project appraisal process. By entering into a process of reforming the Green Book or defining another set of criteria, you might delay or confuse matters further, which is not what we need right now.57

57.The Government has committed to updating the Green Book. In his March 2020 Budget speech, Chancellor Rishi Sunak MP stated “to make sure economic decision making reflects the economic geography of the country, we’re reviewing the Treasury’s Green Book”.58 This update is yet to happen, and when asked, the Financial Secretary to the Treasury was unable to update the Committee on progress. He said he had “sympathy” for the concern that business case approvals skew towards areas “of existing higher development” because they could demonstrate higher returns, but he gave the caveat that “there is less evidence than one might think that projects are being discriminated against because they do not have the returns, as it were, already building on existing economic activity.”59

58.The Committee also heard that infrastructure should not be appraised just in terms of economic benefits. Sir John Armitt said that:

the simple answer is cost-benefit analysis by itself should not be the be all and end all of these decisions. We have a duty to think about the social impacts. They are not quite as easy to measure, but that does not mean we should run away from them.60

59.The Committee heard evidence that investment in major cities, including London, has more immediate economic benefit than investing in areas where there is currently slower economic growth.

60.If the Government wants to invest in areas of slower economic growth, including the North, regions and rural areas, it needs to be clear on the objectives of that investment, and set a framework for departments to appraise that investment so that it can pass the TAP hurdles. That might mean accepting lower overall returns for wider benefits, including local regeneration and levelling up.

61.HM Treasury should update the Green Book as promised, in particular to reflect these wider Government objectives. There is a pressing need to publish this update so that new infrastructure investment can be appraised in line with its guidelines. The Committee would like it to be published no later than September so that post-Covid spending can be appraised using the updated guidelines.

Local control and devolving decision making

62.The Committee also considered whether local areas should have more control over infrastructure decision making. Tom Thackray said:

from where the CBI stands, we believe in the power of local areas taking control of their vision for the local economy. We think the situation with Greater Manchester is a good example of what can be done when the local enterprise partnership, combined authority, business community and citizens are aligned around that vision, and that has yielded more powers, more funding from the centre than other areas have managed to agree.61

63.However, the Committee also heard that local areas might struggle with large infrastructure projects. The Association for Consultancy and Engineering (ACE) told the previous Committee that “local Government structures do not have the ability or capacity to take on, let alone deliver, any sort of major projects in their entirety”. ACE stated that “there may be a role for local authorities and devolved Governments to take on part of a major project if it has been divided into sub-projects” but they are hindered by a shortage of skills and went on to say that “providing greater fiscal autonomy to UK metro regions would go some way to improving the outcome of major projects”.62

64.The Committee also heard concerns about the way funding is devolved. Tom Thackray said:

a major gripe of businesses, particularly outside London, is that when funding and powers are devolved to local areas, it is done on a short term basis with small pots of money and highly prescriptive criteria around them that make it very difficult to join up those funds and to leverage in money from the private sector as well. The capability of local infrastructure delivery is somewhat stymied by the way that money has been devolved in the past.63

He went on to say that “one of the problems that has surfaced [is the] the rules of the game for devolution; what other local areas have to do to qualify for similar powers and funding has not adequately been set out by the centre”.64

65.It is clear from the evidence received that locally-led infrastructure investment can- in some instances—respond better to local needs and contexts. But there are concerns about local capability and short-term funding mechanisms.

66.If the Government is serious about its levelling up agenda, it should consider how it takes into account local needs when determining infrastructure projects. The Committee would like the Cabinet Office to respond to this report outlining whether it intends to deploy the new infrastructure funding through a mix of centralised and devolved approaches and, if so, how. If the Government wants infrastructure to be delivered by local structures through devolved funds, it needs to be clear about who is accountable for the outcomes of that spending.

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