Public Accounts Committee queries "credibility" of UK's infrastructure policy

In their latest report, MPs on the House of Commons' Public Accounts Committee (PAC) criticised the Treasury's National Infrastructure Plan (NIP). Committee chair Margaret Hodge said that the NIP was "simply a long list of projects requiring huge amounts of money, not a real plan with a strategic vision and clear priorities".

First published in 2010, the NIP sets out priorities for investment as designated by Treasury unit Infrastructure UK. The projects included in the latest update, published alongside the Autumn Statement in December 2012, are expected to cost £310 billion. However, the PAC said that around 64% of this amount would be spent on infrastructure that would be "wholly owned and financed by the private sector", with the cost borne by consumers.

"Most of the £310bn of investment needed will come from the private sector, with households shouldering the cost through higher energy bills and fares," Hodge said. "Family budgets are already badly squeezed and inevitably those on the lowest incomes will be hit hardest."

"Given the difficulty in raising private finance, the Government may have to use taxpayers' money to attract investors through direct grants, guaranteed incomes or agreeing to bear certain risks. Although the level of Government support is not yet clear, it will be either consumers or taxpayers who will have to pay up, and so openness about the impact of Government decisions is essential," she said.

Hodge added that "proper transparency" should also apply to investors, who should be open about their costs and rewards.

Infrastructure law expert Jonathan Hart of Pinsent Masons, the law firm behind Out-Law.com, said that the PAC's comments "echoed" concerns voiced by the construction industry about the "on-going lack of visibility around a pipeline of infrastructure work and strategic funding and investment".

"Announcements at the time of the Budget did not really provide any clearer indication of this – despite the announcements of departmental savings being used to fund new projects," he said. "There is an ongoing waiting game being played around what the future may hold for project financing of deals using the PF2; the future investment through privatisation and tolling in relation to the roads and highways sector."

"The PAC emphasises the criticality of public-private projects such as HS2, smart metering and broadband; but as the NIP has always made clear, much of the future driver for infrastructure development will need to come from private to private projects," he said.

PF2 is the Government's proposed replacement to its controversial private finance initiative (PFI) scheme, used to enable the private funding of public infrastructure projects. Among other changes, PF2 will see the Government take on the role of a project shareholder holding a maximum stake of 49%. This will allow the public sector to recover a share of the profits made by projects in the same way as private sector investors.

In March's Budget, the Chancellor of the Exchequer allocated an additional £3bn each year from 2015-16 from cuts to government departmental budgets to capital spending. At the time, Kate Orviss of Pinsent Masons criticised him for a "complete lack of clarity" on how that money would be spent and for taking no immediate action to stop the "drain" of investors and contractors looking for opportunities overseas.

In its report, the PAC said that the many of the Government's investment proposals were "particularly time critical", particularly those which impacted on energy supply. It called on the Treasury to do more to prioritise projects and programmes. Although the Treasury claimed to have identified "40 key projects and programmes", in reality many of these were so broad that they included more than 200 individual projects, the PAC said.

"It is likely that the UK will have to buy ever more energy from overseas and at a higher price due to the failure to secure investment, partly a result of deferring decisions until after the Energy Bill," said Margaret Hodge, chair of the PAC.

"All governments change their plans but uncertainty over future government policy can make investors very nervous. This can lead to additional costs if they require a higher return to reflect the risk. The Government must ensure that there is sufficient certainty to secure the necessary private sector investment in a climate where the competition for capital is internationally competitive," she said.

Infrastructure law expert Jonathan Hart said that the Treasury's UK Guarantee scheme could make a "major contribution" to increasing certainty for investors. Last week, the Government announced that power company Drax has obtained the first of these guarantees to assist it in obtaining the necessary private finance for its coal-to-biomass conversion project.

"There has to be hope that future announcements of similar project support can help speed up the pace of change," Hart said.