Member Article

Infrastructure plan risks losing value for money

The Government’s plan to finance infrastructure developments through the private sector runs the risk of burdening consumers with higher utilities prices, say the National Audit Office (NAO).

As the NAO publishes its report, ‘Planning for economic infrastructure’ five key risks to the Government’s national infrastructure plan have been identified.

The Government would like £310bn to be spent by 2015, and is looking for the private sector to wholly own and finance around 64% of this.

Demand forecasting problems; uncertainty over policy; cumulative impact on consumers; taxpayer exposure to losses and higher delivery costs are all identified as key risks to the plan.

The NAO recommends that government departments should subject their demand forecasts to rigorous testing for alternative realistic assumptions and Government guarantees should give financiers strong disincentives to call upon them.

Elsewhere, it is recommended the Treasury, departments and regulators work with private sector project sponsors to develop and use “should cost” models; and the Government should monitor the effectiveness of various cost reduction efforts, to establish what is most efficient.

Margaret Hodge MP, chair of the Committee of Public Accounts, said: “Economic infrastructure is essential for our society to function. It gets people from A to B and keeps shops stocked and homes heated. It lies at the heart of encouraging the growth we desperately need to boost our flagging economy and promote the UK as an attractive place to invest.

“The government expects £310 billion of investment in new infrastructure projects to be taken forward to 2015 and beyond. The Government is pinning its hopes on persuading private investment to wholly own and finance 63 per cent of this sum. However, the government’s indecision over infrastructure policy deters investors who seek certainty in exchange for long-term financial commitments.

“A shift towards relying on private investment will inevitably see consumers picking up the tab through higher energy and water bills, internet charges and train fares. Consumers will be exasperated to hear that the government has not even made the effort to assess the future impact this will have on their already hard pressed household budgets.

“The Government needs to provide certainty to encourage investors and clarity about the impact on consumers. The Treasury needs to focus much more on what could go wrong rather than simply hoping for the best.”

Rhian Kelly, CBI Director for Business Environment, said: “Investing in rail, roads, energy, waste and digital infrastructure is a no-brainer. It creates thousands of construction jobs in the short term and generates growth in the long-run.

“With government spending severely squeezed, the private sector must step up to fill the gap. The NAO is right to call for greater clarity to taxpayer and consumers but the CBI wants the government to do much more to give investors certainty and confidence - to attract finance and drive down project costs.

“Our creaking infrastructure still lags behind other countries and we cannot afford further delays in getting spades in the ground.”

This was posted in Bdaily's Members' News section by Tom Keighley .