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Treasury must show investors the fruits of UK infrastructure, say contractors

The government must show investors what returns they can make on UK infrastructure if it is to stand any chance of generating the billions of pounds it is targeting, leading contractors said this week.

Chief executives of Balfour Beatty and Bam Nuttall spoke as the Public Accounts Committee, a group of MPs that scrutinises government spending, slammed the Treasury over a lack of certainty, a vague National Infrastructure Plan with a “broad” list of 40 priority projects, and a lack of investor transparency.

The committee, led by Margaret Hodge, said it was “not convinced” that NIP proposals were credible in the current climate or that they presented a “rigorous plan with clear priorities for action”.

A NIP update was published in December 2012, with more than 500 prospective projects and new economic infrastructure expected to cost £310 billion.

Balfour Beatty chief executive Andrew McNaughton hailed the NIP as a “great thing”.

But he told Construction News that a similar debate was happening in the US where “one of the hard things to get public authorities to understand” is that to get private investment in infrastructure, it has to come with a guaranteed return for investors.

Bam Nuttall chief executive Steve Fox said: “The fundamental issue is, you can access private investment when the private investor can see how they are going to generate a revenue stream that’s going to recover their capital investment and provide some profit.”

Mr Fox said UK Guarantees can help to close out finance, but said “it doesn’t ultimately solve how you make some money out of it”.

Vinci chief executive John Stanion said the problem remains how quickly finance can be raised for projects on the NIP, and pointed to a “slow resolution of the energy policy, an absence of road investment completely and the end of Building Schools for the Future”.

Skanska executive vice-president and head of infrastructure Bill Hocking added the NIP “is of course a great step forward [as] we had nothing before”, but called for “more activity”.

Morgan Sindall head of London and aviation Peter Jacobs highlighted £2bn of annual spending in aviation, but said there is now a “crisis” in airport capacity.

“A decision is crucial over London’s aviation strategy. We’ve got to keep it in the forefront and the aviation strategy is crucial to that.”

Chancellor George Osborne told Construction News last month that his strategy is long-term investment in infrastructure that will move away from a “feast to famine” approach.

Commercial secretary to the Treasury Paul Deighton has also stressed that his focus is on the “phasing” of the top 40 priority infrastructure projects and moving from a list of projects to “more of a programme”, while giving construction and the financial markets the clarity they need.

Confederation of British Industry director-general John Cridland said this week the government needs to “pick three or four big infrastructure projects that demonstrate to investors what we can achieve”.

But a Treasury spokesperson rejected the Public Accounts Committee report, saying: “Planning and delivering vital long-term infrastructure is a central economic priority.

“That’s why we launched the first ever NIP, setting out a strategic approach that monitors the performance of our key infrastructure sectors and identifies the projects needed to build an economy fit for the future.

There were also further reports of potential overseas investment in UK infrastructure this week, with the UAE joining the likes of Qatar and China. None have carried though any significant investment as of yet.

National Association of Pension Funds chief executive Joanne Segars told a Treasury committee last month that their investment would be motivated by the right returns for pension fund members “not whether the National Infrastructure Plan gets built”.

Public Accounts Committee on UK infrastructure

  • On the National Infrastructure Plan: “We are not convinced that a plan requiring £310bn of investment in infrastructure is credible given the current economic climate, the cutbacks in public finances and the difficulty in raising private finance for projects on acceptable terms.”
  • On uncertainty about government policy: “Investors will be reluctant to invest in projects until government policy is clear and consistent… The Treasury should work with departments to ensure the consideration of policy proposals takes into account their potential impact on infrastructure investment and that unexpected changes are minimised to provide greater certainty to investors over government plans.”
  • On investor transparency: “Most economic infrastructure investment takes place in a private sector market where investor returns are often supported by government and households bear the costs of infrastructure in their bills. In return, investors should provide sufficient information to show that their returns are reasonable and that any government support is justified. The Treasury should require investors to supply the information needed to facilitate this transparency and should reserve the right to audit such information.”

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