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Infrastructure: £3bn annual injection but short-term questions remain

The Budget has revealed the government will invest an extra £3bn per year in infrastructure from 2015-16, but has given little indication on how it will start projects in the short term.

The commitment will mean £18bn of additional investment by the end of the next parliament, and would therefore be subject to whoever is in government from 2015.

Chancellor George Osborne gave little mention of infrastructure in his Budget speech, but highlighted support for the previously announced Northern line extension and Battersea redevelopment, while indicating backing for two carbon capture and storage plants.

The Budget documents provide some more information (click here for industry’s reaction to infrastructure announcements in today’s Budget)

The winners of the two CCS schemes worth £1bn are revealed as Aberdeenshire and Yorkshire. However, the investment model will not be announced until 2015.

More encouragingly, the government’s spending review in the summer is set to offer a long-term vision of capital investment.

The documents say the government will set out how capital spending will be allocated at the 2015-16 spending round. The spending round will set out long-term spending plans for the capital budget.

It also mentions investing £5.5bn as part of a capital package unveiled at autumn statement 2012 to boost crucial investment in roads, schools and housing, but gives little further detail on when and how that will hit the ground.

The goverment’s 40 priority projects are given an update, but with little in terms of new work. There was no mention of the progress of private finance 2, the replacement to PFI revealed in the autumn.

Despite previous government indications of a new roads model, there was also little in the Budget to indicate the future model.

There was a focus on infrastructure delivey, and an indication Treasury will bring in more commercial expertise into Infrastructure UK.

In terms of planning, it says it will launch a second phase of the Red Tape Challenge, and will develop further measures to streamline the process for planning judicial reviews by the summer.

Infrastructure delivery

The government will bring more commercial expertise into Infrastructure UK to help deliver infrastructure, it said today.

Lord Deighton’s review of infrastructure delivery has given some indication of work being done in central government, building on the experience of delivering the Olympic and Paralympic Games and Crossrail.

The government will “reform its approach to infrastructure delivery, including creating an enhanced central cadre of commercial specialists in Infrastructure UK who will be deployed into infrastructure projects across government”.

By summer 2013 it will establish a new Infrastructure Capacity Plans for key government departments.

It will also look to introduce further financial incentives to improve broadband, “to ensure more efficient use and management of public sector spectrum holdings to meet the government’s commitment to release 500 MHz of spectrum by 2020”.

UK Guarantees

The Treasury also highlighted possible UK Guarantee schemes, including a £40m university project, debt for a project-financed structured transaction for a gas storage facility, guaranteeing the European Investment Bank lending to a UK company developing infrastructure in order to help the EIB bring more capacity to the UK, and a 12-year guarantee for 100 per cent of the debt finance for to help a port.

CN first signalled in December that Drax Power was set for a UK Guarantee for its biomass conversion in Selby. It reiterated projects such as the Northern line extension to Battersea had qualified for the scheme.

Priority projects

The infrastructure delivery document gives updates to the 40 priority projects and says government and industry committees will continue to focus on completing these. However, there is little in terms of new work.

Top 40 priority investments include completing a programme of eight Highways Agency projects and the King’s Cross station improvements later this year.

It says chief secretary to the Treasury Danny Alexander will use the cabinet sub-committee on infrastructure and National Infrastructure Plan Strategic Engagement Forum to “push forward the National Infrastructure Plan” and the priority projects. Main points on the top 40 schemes include:

  • Closing the dialogue phase of procurement for the Mersey Gateway Bridge – with construction on track to begin in late 2013/early 2014;
  • The submission of a Development Consent Order application for the Thames Tideway Tunnel – the deepest and longest tunnel ever constructed in the capital at 15 miles long;
  • A procurement decision on Crossrail rolling stock that will mean new trains for the scheme are to be fully funded by the government so that the £14.8bn project is not delayed and services can be rolled out on time;
  • The successful completion of the 4G spectrum auction, enabling further roll-out of 4G mobile services throughout the UK, keeping the country at the forefront of mobile digital technology.

The following top 40 programmes are due to complete in 2013:

  • The Highways Agency programme in construction (pre-2010 Spending Review), including the M25 J16-23, M25 J27-30, A46 Newark to Widmerpool and the M1 J10-13; and
  • The King’s Cross station improvements, updating one of the country’s most iconic railway stations, worth more than £500m.

Infrastructure main points

  • Increasing its capital spending plans by £3bn per annum from 2015-16. This will mean £18bn additional investment by the end of the next parliament;
  • Investing more in transport infrastructure in this parliament than in the last and making public investment as a share of GDP higher on average over this parliament than spending under the previous government;
  • Supporting the £9.4bn High Level Output Specification – the largest programme of investment in the railways since Victorian times;
  • Providing UK Guarantees for major infrastructure projects such as the Northern line extension to Battersea, which will support the redevelopment of an area of central London on a similar scale to the Olympic Park, while Drax Power has been offered a Guarantee worth up to £75m for the partial conversion of its power station from coal to biomass;
  • Investing £5.5bn as part of a capital package unveiled at autumn statement 2012 to boost crucial investment in roads, schools and housing;
  • Progressing work on the top 40 priority investments, including completing a programme of eight Highways Agency projects and the King’s Cross Station improvements later this year;
  • Supporting the £14bn Crossrail project, which has completed more than two miles of tunnelling since autumn statement 2012;
  • Improving the road network, through a series of significant expansions and initiatives to reduce the time it takes to get roads worth more than £3bn built.

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