The Olympics supremo talks to CN about finding ways to entice finance into infrastructure and overseeing schemes such as UK Guarantees and PF2.
The commercial secretary to the Treasury Lord Deighton has stressed to CN the critical role of construction to economic growth, and reassured the industry that “every single thing we are doing is engineered towards getting projects moving”.
The former London 2012 boss was recruited by the government to find ways to entice billions of pounds into UK infrastructure and told investors yesterday he is focused on the “phasing” of the top 40 priority infrastructure projects, on moving from a list of projects to “more of a programme” and on giving construction and the financial markets the clarity they need.
But he conceded that “getting traction on the ground in some projects is proving incredibly challenging”.
“We absolutely get just how critical the construction industry is to the health of the UK economy”
More detail on the government’s 40 priority schemes is expected at chancellor George Osborne’s Budget on Wednesday, along with extra information on the UK Guarantees scheme to get more projects moving, and additional schemes within the £330bn National Infrastructure Pipeline.
Reports yesterday suggested that major infrastructure projects are expected to be handed to an independent body to try to reduce political risk, following the advice of Lord Deighton and Olympic Delivery Authority chairman Sir John Armitt.
Lord Deighton confirmed he will be reporting back at the Budget on his Whitehall review, looking at the capability across government departments to deliver infrastructure projects effectively, which also involves a potential “rebalancing” to switch focus from policy to delivery expertise.
“We want the UK to be the best place in the world to invest in infrastructure. That’s our unashamed objective”
Asked whether the industry can expect projects coming to market sooner, Lord Deighton said: “Every single thing we are doing is engineered towards getting things moving along, whether [that’s] resolving policy issues – for example, in energy – or specific deals, working things through on the nuclear programme, sorting through planning issues or sorting out specific planning issues.
“The only way to get deals moving faster is to attack on all fronts with urgency, and that’s what this government is doing.”
Lord Deighton backs UK road tolling
The former chief executive of the London Organising Committee of the Olympic and Paralympic Games (LOCOG) is the latest high-profile government member to indicate a move to a more privatised UK roads system that will open the door to tolling.
He joins the likes of David Cameron and George Osborne. “Roads is a part of the infrastructure which is still effectively taxpayer funded,” he told IPFA’s infrastructure finance forum.
“If you think about everything else [in infrastructure], we are generally moving toward a user-pay environment and user-pay generally means it’s financed by the capital markets; it isn’t constrained by government constraints.
“So for me, the right thing to do with roads over time is to move to a model which will [free] them from the ‘stop go’ that has plagued them, and put them on the same footing that will permit them to have a consistent flow of finance available.
“That in the medium to long term seems the right way to address those kinds of issue.”
But Lord Deighton said there remains a shorter-term funding problem for highways. “In the short term we just need to find ways to commit government money in a longer term and more consistent way so we can build roads knowing what tomorrow looks like,” he said.
“Those are some of the things I’m trying to work out with the Highways Agency and the Treasury, to come up with a way of doing that.”
He stressed the importance of construction for economic growth. “We absolutely get just how critical the construction industry is to the health of the UK economy and how that extends to the multiplier effect right through the supply chain, and the fact that the construction supply chain is so strongly domestically orientated, which keeps all the benefit within the UK economy.”
Lord Deighton highlighted the link between “building the right infrastructure” and economic growth and said construction is the “perfect package” for any government.
“We have got a lot of projects to do in the next 10 to 15 years; everybody in government is focused on getting deals moving, there’s no question,” he said.
“Getting traction on the ground in some projects is proving incredibly challenging”
Lord Deighton also told CN that government is “open to creative ways” of applying government backing to kick-start projects via its UK Guarantees scheme, such as using them to entice British pension fund investment into the asset class – something the National Association of Pension Funds had suggested before the Treasury select committee last week.
“We are extremely open to all creative ways of applying our Guarantees scheme to kick-start projects that have one thing missing, which the government can take care of.”
And he said the government “would not rule out” applying UK Guarantees to nuclear. “I would not rule it out in any of our big projects,” he added.
The former chief operating officer of Goldman Sachs in Europe spoke to CN after addressing project financiers and bankers at the International Project Finance Association’s inaugural infrastructure finance forum.
Lord Deighton said the government and Infrastrucutre UK is working on refining the National Infrastructure Plan. “We will lay out sector by sector what the important projects are,” he said.
“The next thing we want to do is to be able to lay out even more clearly the phasing of those [top 40], because some of them are effectively 5-10 years out, some of them are projects for today.
“For us to make that pipeline as transparent as possible in terms of amounts, timing, whether we are looking at a private financing or public financing – all those bits of information, we should be able to display within our plan.
“Part of what I’m trying to do with the team is get much, much clearer on the detail of that, so we move from a list of projects to something that’s much more like a programme.”
“We need to rebalance Whitehall a little bit to make sure we have got the people whose expertise is delivering projects”
As the head of LOCOG, Lord Deighton was responsible for preparing and staging the London 2012 Games, overseeing a workforce of around 100,000 contractor roles and procurement of £700m-worth of contracts to help deliver the hugely successful Games.
His first task with Treasury has been a Whitehall review into infrastructure delivery, which he launched in January.
Lord Deighton said after “paddling around” in the industry for the past three months, he sees project flow rather than finance as the challenge, which is centred around getting schemes “into the shape that’s acceptable to the financing markets”.
“One of the first things I did was a capability review across the major departments in government that are responsible for some of this infrastructure – the Department of Energy and Climate Change, the Department of Transport – really just making sure that the people that work in those departments have the right set of delivery and commercial skills to run projects so they can get delivered,” he told the forum.
“Generally speaking in Whitehall the heroes are the policy gurus; they’re not the people who deliver a project. We need to rebalance Whitehall a little bit to make sure we have got the people whose expertise is delivering projects…so that we can push things through.”
“The next thing we want to do is to be able to lay out even more clearly the phasing of those [top 40 infra projects]”
Lord Deighton confessed he was unaware of the National Infrastructure Plan when he was asked to join the government.
But he said “there’s no alternative” to project finance in funding UK infrastructure, pointing out that 85 per cent of the NIP, made up mostly of energy schemes and then transport, “needs to be found in the private sector”.
He noted that projects in the UK are still more expensive than elsewhere in the world, adding his team is working with industry to get that cost down, particularly at the “upfront period”.
Another challenge is regulation and getting the balance right between delivering infrastructure and planning rules.
Highlighting that the UK has an “enormous” amount of infrastructure financing to do, he told investors at the infrastructure finance forum “we need your help”.
“Every single thing we are doing is engineered towards getting things moving along”
He added that economic infrastructure was “absolutely critical as the foundation upon which the rest of the economy operates” and to compete on a global level.
But conceding there have been delays in the £2bn Priority Schools Building Programme and Defra’s cancellation of waste PFI schemes, he said getting projects on the ground would be tough.
“The perennial problem in government is the gap between initiative, policy announcements and delivery, and that’s exacerbated in infrastructure – partly because you can’t turn infrastructure on and off like a tap.”
He added: “We want the UK to be the best place in the world to invest in infrastructure. That’s our unashamed objective.”
Mr Osborne stressed the importance of construction and infrastructure to CN just last month.
Lord Deighton on:
PFI: “Our initial PFI scheme produced a huge number of very successful projects, which are currently up and operating.
“It had some flaws in it…in terms of the cost and time it took to procure in some cases, which we have fixed in the second derogation of the scheme [PF2].”
Pension funds and the Pension Infrastructure Platform: “We hope that [PIP] will be the beginning of the redistribution of their asset allocation with a bigger portion in infrastructure assets, which so obviously match their requirement that you would think that’s a problem that we could solve, so we’re very hopeful about that.”
UK Guarantees: “It’s a highly flexible scheme where we really will apply the government’s credit to help get these schemes off the ground… on the assumption that the capital markets are still a bit dislocated. And it’s an appropriate role for government to step in and help make transactions happen.”