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National Audit Office raises series of concerns on economic infrastructure

Uncertainty over government policy might lead contractors to abandon projects in the UK, a new report from the National Audit Office has found.

The Planning for economic infrastructure report by the comptroller and auditor general has set out five key risks to the value for money of projects included in the government’s national infrastructure plan.

The report states that the full impact of spending on economic infrastructure in the years ahead is unclear and that while there is information on individual sectors, no overall assessment has been undertaken by government.

National Audit Office head Amyas Morse said: “Economic infrastructure keeps the country running. Demand for infrastructure is set to increase, fuelled by population growth, technological progress, climate change and congestion.

“But there is a lot at stake in taking forward the National Infrastructure Plan in an environment of straitened resources, with real risks to value for money and uncertainty about the sustainability of piling costs on to consumers.

“I have made a number of recommendations which look to the Treasury, departments and regulators to provide greater clarity on the costs which taxpayers and consumers will bear.

“Work is already in hand to drive down the costs of delivering new infrastructure and this should continue.”

Five key risks:

Inaccurate identification of the need for infrastructure For example, forecasters may overestimate demand, in which case benefits are lower than expected and poor value for money is the result.

Policy uncertainty This could result in project sponsors, lenders and contractors deferring or abandoning UK projects in favour of opportunities elsewhere. Financing charges for projects may rise as investors and lenders perceive policy uncertainty as a risk.

Failure to assess the cumulative impact on consumers of funding infrastructure through user charges This increases the risk of financial hardship for consumers, or the need for unplanned taxpayer support. This is an issue which the National Audit Office will return to in examining how departments and regulators deploy their resources to secure consumer interests.

Taxpayer exposure to losses This will happen if the government guarantees to bear or share project risks – for example cost overruns – and that risk subsequently materialises.

Delivery costs are higher than they should be UK infrastructure costs have historically been higher than overseas. This could result in high costs for taxpayers and consumers and fewer projects going ahead than planned.

The Treasury is developing a procurement route map bringing together components of good procurement for major projects and programmes.

The route map, which is supported by best practice guidance, will be for use by public and private sector clients and their supply chains. A major focus of the route map is reducing the cost of delivering infrastructure projects.

CN understands the document is due to be released on Monday 28 January.

The NAO report states that the Treasury and departments “may need to refine their prioritisation of infrastructure programmes and projects”.

It says: “Limits on affordability and availability of finance may mean government must either act to address those constraints or target its efforts more narrowly on projects of the highest priority.

“The Treasury’s monitoring of the National Infrastructure Plan should identify any particular constraints on overall affordability and financeability that may require action.”

It also recommends that the Treasury and departments should “monitor the effectiveness of their various cost reduction efforts to establish what works best”.

A Treasury spokesperson said: “As the NAO recognises, investing in economic infrastructure is vital to ensuring Britain can compete in the global race.

“The government has set out an ambitious infrastructure strategy, for the first time making clear what we need and how much it will cost, and has brought in former Olympics CEO Lord Deighton to deliver it.

“We’re on track to reduce the cost of infrastructure delivery by £2-3 billion, which will save consumers money, as well as making services more affordable across sectors including energy and rail.

“We’re sweeping away red tape and developing new finance initiatives such as UK Guarantees, which will support up to £40bn-worth growth boosting projects.

“UK infrastructure investment since 2010 has risen by an average of £4bn a year to £33bn, boosting growth, creating jobs and supporting businesses and homeowners alike.”

Reaction: CBI

CBI director for business environment Rhian Kelly 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.”

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