December 4, 2013 1:55 pm

UK government revives infrastructure drive

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The only Magnox station still in use is in Wylfa in Anglesey©Getty

The only Magnox station still in use is in Wylfa in Anglesey

The government has renewed its pledge to put UK infrastructure at the heart of the economy, with a £375bn pipeline of public and private sector projects in energy, transport, and communications to be partly funded by asset sales and pledges from the insurance industry.

A new nuclear power plant at Wylfa on the Welsh island of Anglesey and £50m for a new railway station at Gatwick were among a bonanza of eye-catching proposals announced in the coalition’s fourth national infrastructure plan on Wednesday.

But with infrastructure spending falling 13 per cent last year, Danny Alexander, chief secretary to the Treasury, faced a tough task convincing critics that this was more than just a “wishlist”, with most of the projects due to start after the election in 2016. More than a quarter of the £375bn is to be provided with public money and the rest from the private sector.

Richard Abadie, infrastructure partner at PwC, noted that “actual commitments following the last government announcement were less than a tenth of what was headlined”. Nick Prior, head of infrastructure at Deloitte, agreed: “The intention is there but the funding is still aspirational,” he said.

Mr Alexander tried to assuage concerns by pointing to a pledge from six insurers to invest £25bn in UK infrastructure projects over the next five years. Legal and General, Prudential, Aviva, Standard Life, Friends Life and Scottish Widows have signed up to an agreement, although it emerged during the press briefing that some of the £25bn pledged would go towards housing rather than projects outlined in the national infrastructure plan.

Nigel Wilson, chief executive of Legal & General, said: “It won’t entirely dovetail with the national infrastructure plan. Obviously we have our own ideas . . . It will include housing, for example.”

A previous pledge to attract £20bn of institutional investment in infrastructure from pension funds via the pension infrastructure platform has so far attracted just £1bn, none of which has yet been delivered.

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Nov 2011: George Osborne, the UK chancellor, is courting pension funds and the Chinese to invest in the upgrade of the UK’s creaking infrastructure. Lex debates the wisdom of such private investment.

Patrick Twist, infrastructure partner at Pinsent Masons, said that pension funds were unlikely to accept the risk of investing in infrastructure without some form of government guarantee.

“In the absence of that guarantee it will be surprising if a great deal of the proposed £25bn is actually invested in economic infrastructure rather than housing and social infrastructure,” he said.

According to Financial Times analysis, progress has been patchy on a top 40 priority list of road, energy and telecoms projects outlined in 2011. Projects behind schedule include new nuclear, the Thames “super-sewer”, a pilot for carbon capture and storage and gas power stations.

On a trade visit to China, David Cameron, the prime minister, also conceded that the process of infrastructure development in the UK was “frustrating’”. He said “important” systems of accountability in the UK meant projects took longer than in the fast-developing Asian superpower.

Nevertheless, there was some progress on Wednesday when the government announced it would put billions of pounds of public money behind a nuclear power plant in Wales as well as the A14 highway, where it has abandoned plans to introduce road tolls. The government said it would provide Japan’s Hitachi and its subsidiary Horizon Nuclear Power on Wednesday morning with a guarantee that would finance the new atomic reactor in North Wales, which should supply 3m homes.

In the absence of [a government] guarantee it will be surprising if a great deal of the proposed £25bn is actually invested in economic infrastructure rather than housing and social infrastructure

- Patrick Twist, Pinsent Masons

As part of the announcement, the coalition doubled its target for the disposal of state assets to £20bn over the next six years. This includes the sale of its 40 per cent stake in Eurostar, which could potentially net the Treasury hundreds of millions of pounds. Other sales include a large student loan book and some property sites owned by London & Continental Railways, the state-owned rail company.

Chris Leslie, shadow chief secretary to the Treasury, said there was “precious little delivery” of infrastructure, despite the launch of more proposals on Wednesday.

“We’re quite used to Danny Alexander every six months or so putting out another press release – it’s what he does best – saying ‘well, we’re going to do these wonderful things’. And he’s got this habit of thinking that, just because he announces something, it will actually translate into delivery on the ground.

“And it’s not just Labour raising an eyebrow about their incompetent ability to deliver infrastructure; business organisations – the CBI and others – are tearing their hair out at the lack of action on infrastructure, which is so necessary for the fundamental building blocks of a sustainable, long-term economic recovery that is built to last.

Katja Hall, CBI chief policy director, said while it was encouraging to see more detail on the timescales and financing of national infrastructure projects, “this still feels like a very long and hopeful Christmas list, rather than a true set of priorities. While this plan may look good on paper, now we urgently need to see action on the ground.”

Mat Riley, head of infrastructure at consultant EC Harris, said the revised plan was “again, strong on headlines but unclear on delivery”. He added that “politicians are in denial” and that much of the cost will ultimately be passed on to consumers.

Additional reporting by Mark Odell

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