National Infrastructure Strategy — positive direction of travel with further detail to follow
The National Infrastructure Strategy outlines long-term infrastructure goals and commitments, which is of course welcome at this time.
The National Infrastructure Strategy (“NIS”) which formally sets out the government’s plans to transform UK infrastructure was published on 25 November 2020 in response to the first-ever National Infrastructure Assessment (produced by the independent National Infrastructure Commission in July 2018).
Experts from within our multi-disciplinary Infrastructure & Major Projects group take a closer look at the detail.
The NIS focuses on the following primary objectives:
- Economic recovery;
- Levelling up;
- Response to climate change;
- Private sector investment support; and
- Building faster, better, and greener.
The NIS has generally been positively received, though further detail will need to follow on various aspects. One of the primary claims the government makes is that the NIS marks an end to the years of policy uncertainty and stop-start funding of infrastructure programmes.
The lack of long-term planning by the government has been a persistent complaint of the infrastructure industry for many years, making it difficult for organisations to take long-term investment decisions and leading to damaging skills gaps.
The commitments to a visible pipeline of infrastructure investment and to increasing regulatory certainty are to be welcomed but, as always, the government will be judged by action and not words. In that respect, it is to be hoped that the fact it has taken the government 2½ years to produce its response to the National Infrastructure Assessment is not a harbinger of things to come.
The government hopes infrastructure investment will help the economy recover from the detrimental impact of the COVID-19 pandemic, by maintaining jobs in the short term and creating sustainable growth in the long term.
Many of the funding commitments within the NIS have previously been announced but it is nevertheless welcome to see them detailed as part of a comprehensive strategy. Having already brought forward £8.6 billion of capital investment in infrastructure over the summer, the government has stated that investment in economic infrastructure will be £27 billion in 2021-22.
With the aim of strengthening and levelling up the United Kingdom (and with one eye on Brexit), the NIS outlines a number of key proposals, notably:
- £4 billion cross-departmental Levelling Up Fund, that will invest in local infrastructure in England and attract funding for Scotland, Wales and Northern Ireland.
- Commitment to creating regional powerhouses.
- Transport links for the regions and nations of the UK (via HS2, £27 billion investment in strategic roads, and a Union Connectivity Review).
- Increase the government’s ability to invest directly in Scotland, Wales and Northern Ireland through the UK Internal Market Bill.
- Appraisal of projects against policy objectives through the Green Book Review – a major and welcome change.
- Expanding devolution within England, including implementing the long-awaited devolution deal in West Yorkshire.
- £5 billion to support UK-wide broadband roll-out, implementation of a Shared Rural Network and £250 million to ensure secure digital networks.
- Relocating civil servants out of London and the South East.
The Levelling Up agenda has been a prominent feature of government rhetoric since the 2019 election, and the NIS is no exception. While announcements of various funding streams for different initiatives will take the headlines, it is the subtler structural changes that have the potential to make the most difference in the long term. In particular, changes to the Treasury’s Green Book may, depending on how they are implemented, level the playing field for projects in the regions that are seeking financial support from the government in competition with the South East. The Green Book is the manual used by the Treasury to determine whether projects represent value for money. A cost-benefit analysis is at the heart of Green Book appraisals, and on this measure projects in the South East generally score more highly than equivalent schemes elsewhere because they deliver demonstrably better economic returns. This methodology has long been a bone of contention for local government outside the South East and is arguably one of the reasons the Greater London area has benefitted from a disproportionate amount of public capital spending over many years. A move to an approach that looks at a wider set of benefits, including non-economic benefits, may help redress the balance.
Another challenge for public bodies when seeking to deliver infrastructure is how to best capture increases in property values that result from the investment. The National Infrastructure Assessment included recommendations that would have facilitated land value capture and hence made investment in infrastructure more viable for local authorities. But the government’s “Response to the National Infrastructure Assessment” (published alongside the NIS), while endorsing the principle of giving local authorities further powers to enable land value capture, rejects the NIA’s specific recommendations on business rate supplements and council tax levies. Instead, it appears the government will rely upon the “Infrastructure Levy” separately proposed within the Planning White Paper which is intended to replace both section 106 planning obligations and the Community Infrastructure Levy. Considerable detail is awaited in respect of the proposed Infrastructure Levy and its introduction is far from imminent. There is also some scepticism within industry as to how effective this will be at capturing land value in view of the issues experienced with the Community Infrastructure Levy.
Response to climate change
The NIS is closely linked to the government’s recent 10-point plan for a ‘Green Industrial Revolution’, and acknowledges that infrastructure investment will be of paramount importance to deliver net zero emissions by 2050. The government wants to ensure key industrial areas are at the heart of the transition to net zero, and to promote low-carbon infrastructure through the following key measures:
- Investment in offshore wind, including £160m for modern ports and the share of energy generated from renewable sources.
- £525 million to bring forward large scale nuclear energy.
- £1 billion to support the establishment of carbon capture and storage to capture 10 megatons of CO2 per year by 2030.
- Investment in hydrogen production for heating, seasonal storage for renewable power and transport.
- £1.3 billion in charging infrastructure for electric vehicles looking ahead to 2030.
- Funding to enable heat decarbonisation and help plant 30,000 hectares of trees a year in the UK.
- Ensuring that by the early 2030s all 1.7m new heating systems are capable of being net zero.
- Investing £5.2 billion by 2027 to counter the increased risk of flooding and coastal erosion resulting from climate change.
The NIS places a significant focus on de-carbonising heat, industry, buildings and transport, where carbon emissions have not reduced to the same extent that they have in the power sector. This can be seen in the government’s commitment to hydrogen and carbon capture and storage (which could be used in different forms to reduce carbon emissions across all of those sectors) and its desire to roll out electric vehicle charging infrastructure at scale. In terms of power, the NIS indicates
Offshore wind is set to be the government’s renewable generation technology of choice, though we await the Energy White Paper to set out in detail the government’s energy policy. The NIS also demonstrates the government’s ongoing commitment to large scale nuclear to achieve net zero, perhaps at the expense of onshore renewables which some critics argue could deliver far better value for money if deployed at scale together with increased energy storage on the grid. However, onshore wind and solar have been boosted by the recent decision to allow them to compete in the next round of Contracts for Difference.
The key question is how these projects will be funded and ultimately paid for? The establishment of a new National Infrastructure Bank is certainly welcome and may help channel private capital in the right direction to fund clean energy projects. The greatest need is for early-stage development capital to fund and deploy new and innovative technologies. It will be interesting to see whether the new National Infrastructure Bank can address this issue and bridge the gap between early-stage projects and private sector funding.
The NIS provides a solid framework for future policy, investment and regulatory decisions to be made to ensure that we can achieve net zero by 2050. That said, it is light on the detail behind each of the objectives that are set out in the report. This is to be set out in separate strategy documents to be published in 2021, including the long-awaited Energy White Paper, Hydrogen Strategy and Heat and Buildings Strategy. We will have to wait for these to be able to see how the government intends to deliver the stable regulatory, policy, financial and investment environment needed to attract investors and deploy capital into these projects.
Private sector investment support
To deal with financing for infrastructure projects in the UK, a new National Infrastructure Bank (“the Bank”) has been established and will come into operation in spring 2021. The bank, to be based in the North of England, will co-invest with private sector investors — for which billions of pounds of private investment will be mobilised by the aforementioned 10-point plan. The Bank will also be able to lend to local and mayoral authorities. The establishment of the Bank fulfils one of the key recommendations of the National Infrastructure Assessment and will help plug the gap resulting from the UK withdrawing from the European Investment Bank. The government is aiming to have the Bank up and running in the first half of next year, and we can expect further details in the spring Budget. The mandate of the Bank and the level of funding available will be key.
The NIS also states that the government will produce an overarching policy paper on economic regulation in 2021, which will consider regulator duties, the injection of more competition into strategic investments and the benefits of a cross-sectoral Strategic Policy Statement.
The government has indicated it will continue to develop new & existing revenue support models, such as Regulated Asset Base (“RAB”) which has been used for complex infrastructure projects and will consider its replicability for energy projects such as nuclear and carbon capture storage. The government will consider finance for nuclear construction (alongside considering the RAB model) provided there is value for money. The government has invited proposals from the market but has ruled out the re-introduction of both the private finance initiative model and PFI2.
In the interim, the government has urged local authorities to take steps to preserve construction jobs in their areas by progressing funded projects.
Building faster, better, and greener
To speed up delivery the government has said it will tackle ‘complex planning processes, slow decision-making, and low productivity in the construction sector’. The government established “Project Speed” in the summer to review every part of the infrastructure project life cycle and identify where improvements could be made, applying learnings across a number of case study projects to test and iterate a comprehensive package of reforms. This included reducing the planned construction timeline for the A66 project by a purported 50%, from ten years down to five years.
The government has stated that exiting the EU provides opportunities to design planning and procurement regimes that are tailored to the UK, putting outcomes ahead of process whilst protecting the environment and the nation’s biodiversity. We look at the proposals below in turn from a Planning, Construction and Procurement perspective.
Planning & infrastructure consents
From a planning and consenting perspective, the consenting process to be followed for an infrastructure project depends on the scale and type of infrastructure being promoted. Nationally significant infrastructure projects (“NSIPs”) typically require a Development Consent Order (“DCO”). The NIS rightly acknowledges that the NSIPs regime is well-respected and has a strong track record of delivering robust consents since its creation in 2008, but suggests it is currently not being implemented as effectively as possible, leading to slower delivery times and more uncertainty. Project Speed has apparently identified risks to the timeliness of ministerial decision making, inefficiencies in the ways in which different public bodies interact with the regime, and scope for improvement including through the adoption of digital working practices.
Through the establishment of a National Infrastructure Planning Reform Programme, the NIS seeks to expedite the operation of the DCO/NSIP regime, cutting the timescales for some projects by up to 50%. The reform programme will also coordinate reviews of National Policy Statements (“NPS”) across departments. The latter is vitally important and must be the priority for the government as clear policy and a stable regulatory environment is critical to maximizing private investment. Various NPSs, particularly those relating to energy, are now looking out of date and need to be reviewed, not least due to recent legal challenges linked to climate change as detailed in our previous update note.
Whilst it can undoubtedly be improved, the DCO process generally works well for the majority of projects in our experience. Whilst not quick, it is reasonably predictable in terms of timescales and outcome once the DCO application has been submitted and is a vast improvement on the previous consenting regime for major infrastructure projects. Indeed, for the largest NSIPs (such as nuclear power stations) the process can feel condensed and hearings often do not get into the level of detail you would expect at a traditional planning inquiry. The bulk of the time in the process is spent at the pre-application stage in terms of design and environmental assessment. In this regard, there are no doubt improvements that can be made, including in ensuring effective engagement by statutory consultees at an early stage and that those bodies have the necessary resources and expertise to do so. The creation of clear up to date policy will also provide increased certainty for promotors and decision-makers. The major delays in recent times have often been with the Secretary of State’s own decision-making following receipt of a report from the Examining Authority.
Non-NSIP projects, such as highway schemes promoted by local highway authorities, are typically promoted under traditional planning applications to local planning authorities, often backed by separate compulsory purchase orders and side roads orders. Our experience of promoting many highway schemes is that the planning process is usually not too burdensome as major highway schemes often have good existing policy support, though a clear benefit of the DCO process is that multiple consents (including compulsory purchase powers) can be obtained at the same time. Major reforms to the traditional planning process were proposed within the Planning White Paper and we await further detail following that.
Two proposed reforms in the NIS that may well have the greatest impact from a consents perspective include:
- A new system of environmental assessment – said to be focused on outcomes rather than process and ensuring environmental considerations are embedded early in decisions. We will need to await the detail on this. Whilst the current EIA regime is arguably process heavy, after much litigation in the early years following the introduction of the EIA Directive, generally, it is now a well understood and settled process in the UK.
- Strategic approaches to Habitats and species — including district-level licensing for species and strategic habitat mitigation and compensation schemes. These both have considerable merit from the point of view of promotors. In particular, if the government’s plans for a significant increase in offshore renewables are to be realized, then a strategic solution for protected marine habitats will be vital.
From a construction perspective, there is a push to transform and modernise what is currently considered to be an underperforming sector. There is little detail about how the government will achieve this stated objective. The publication of a “Construction Playbook” (due imminently) is promised to set out policies and principles which will set out “best practice” for public sector projects. For the moment there is a stated desire to use the public sector’s weight as a major purchaser to transform procurement by:
- Setting clear outcome-based contract specifications to incentivise the industry to innovate.
- Setting-out clear project pipelines to ensure greater certainty of demand to allow the construction industry to invest in itself.
- Standardising components, designs and interfaces to facilitate the adoption of Modern Methods of Construction.
- Supporting the adoption of the Information Management Framework to draw further upon digital technologies.
- Moving towards a more collaborative approach to commercial relationships and contract management.
The government also promises ‘radical reform’ of the procurement rules, to get rid of the ‘unnecessary bureaucracy and confusion for suppliers’ caused by the existing EU-imposed system. There is little detail, however, only reference to a Green Paper (i.e. a stimulus for discussion) in an undefined timescale.
While there is of course a constant need to periodically review rules and regulations to ensure they remain fit for purpose as the world moves on, we query whether reform of the procurement regime is a priority. It is not a recommendation coming out of the National Infrastructure Assessment, nor is it a change that industry is currently calling for with any conviction. No one would object to the government’s aspiration for a ‘simpler, fairer and more effective regime’, but without more detail, these are just meaningless words. Reform could certainly result in a simpler regime, but would it also be fairer? Contractors may well be attracted by the promise of a streamlined system, but what of the government’s desire to deter ‘spurious’ challenges? After all, one person’s spurious challenge is another’s genuine grievance.
It was always likely that the procurement regime would come under review at some point after Brexit, but despite the government’s bold language, whether it will result in revolution or evolution remains to be seen.
The NIS outlines long-term infrastructure goals and commitments, which is of course welcome at this time. The independent National Infrastructure Commission should rightly receive much credit for its work to date.
As a direction of travel, the NIS is undoubtedly positive. However, many will eagerly await further detail and consider the publication of the NIS as the first step of many. Indeed, the NIS will be followed in the next 3-12 months by the publication of the Construction Playbook, Energy White Paper, English Devolution and Local Recovery White Paper, a refreshed Industrial Strategy, Union Connectivity Review, Integrated Rail Plan and an updated National Infrastructure and Construction Pipeline.
We will continue to monitor the proposed legal reforms and policy developments with interest. In particular, a more strategic approach to habitat mitigation and compensation is likely to be of benefit to the delivery of infrastructure in or close to the marine environment. With so much for the government to do, we would wish to see the publication of clear up to date policy and investment (including in resources and skills for public bodies) prioritised over significant reform of the settled DCO and procurement regimes.
For further information, please contact a member of our Infrastructure & Major Projects Group:
Lee Gordon, Planning & Infrastructure Consents
Stephen Johns, Infrastructure, Projects & Finance
Levent Gurdenli, Energy & Commercial
Jim Jordan, Energy & Construction