Episode 16: Inside the UK Government's 10-year Infrastructure Strategy

[Music] On June 19th of this year, the UK Government launched its 10-year infrastructure strategy. In this future-proofed insights episode, we delve into how these ambitious plans aim to transform the UK's infrastructure landscape over the next decade, addressing long-term delivery challenges, the establishment of the National Infrastructure and Service Transformation Authority, NISTA, and unlocking significant growth opportunities across the sector. Joining me, Ola Mercue, are two guests today, Rob Scopes, a partner in our infrastructure and capital projects, practice in Deloitte and care of sharpnessy, a director at Deloitte specialising in public sector and strategy. Karen and Rob, welcome to your both. Karen, I come to you first. Can you give us an overview of what's in the 10-year infrastructure strategy and what it's seeking to do? Of course, and I mean, I think what's interesting is the document is part of a 12-month process since the government came into office last year. It's really the culmination of quite a lot of financial things that have been done along the way. So the budget, for example, changed the fiscal rules and changed the government's approach to how it defines borrowing. And in the spending review last week, we heard a big focus on capital investment. So really, if you think about it like domestic economics, this is borrowing to invest and borrowing in things that make a difference and will pay back in the long term and a shift the way in borrowing from day-to-day running costs. What we've also seen, I think a lot in the last few weeks is quite a few individual announcements or different sectors. And one of the key things that the infrastructure strategy did is to bring together all of those individual announcements. So you can now see with a programme of £725 billion of investment over the 10-year period, specific projects named against specific outcomes, that 10-year time horizon is really important because this is much more than the three years that you'd see in a spending review or in the time horizon of an individual parliament. And the strategy's also really deliberately got a regional focus so you can see how expenditure falls and how the projects fall across the regions. And as I said, it's a milestone. So what comes next, I think, is as important and the strategy document is going to be underpinned by a pipeline coming through from July. And Rob, I think that pipeline point is really interesting and maybe an obvious point, but why is it so important? Thanks Owen. For a number of years, I mean, there's been years as I've been in the industry, to be honest. The industry is called for more clarity on the future pipeline. And the logic is to be more effective, more efficient, more productive, the industry will say to the government. If you can give us clarity of what's coming, it allows us to be able to plan, plan our resources, our recruitment, our investment and so on and so forth. It was interesting that some data in the infrastructure strategies, it shows since the financial crisis that our growth has been lacking behind the United States, Germany and France. And one could quite easily draw the conclusion that it's the consistency of investment institutions in that pipeline that will be underpinning that. So I thought very interesting. And building on Claire's point that she just made, it's not yet in the infrastructure strategy, but there is a commitment by July to produce, quote, an infrastructure digital portal. So what I take from that, I infer from that, is that it's going to be a dynamic pipeline, as opposed to things that's published once off. I think it will be done. And that would be new. And I think a great step forward. Claire, building on that, what's your view? Do you agree with that dynamic approach that Rob is suggesting? Yeah, I think that's got to be right, isn't it? Because one of the key phrases that comes to quite strongly in the strategy as well is just having a single version of the truth about what that pipeline is. So having something that you know is online and is always the most up to date source of truth, I think is really important and will be really helpful. I'm just picking up on some of your themes, Rob. You know, this is a 10 year strategy, but how is that different from previous strategies that have been implemented by government? So I would, there's a number of things in the arrow and I just not I applaud the document in terms of the its ambition. So a few things that I would call out. So firstly, I would say it's pretty holistic compared to what we've seen in the past. So Claire commented on the fact that it's 10 years. So we all know the infrastructure as a long life cycle compared to the political life cycle, which is very challenging. So the fact that it's 10 years, multi-parliamentary, I think is a good thing. Secondly, and we will have heard about this in separate communications, but it is writ large on the strategy is some of the enabling mechanisms. So the newly formed NISTA authority has got a number of roles and in the strategy it spells out what they are. And for people who are less familiar, NISTA is the formation of a new authority building on the previous IPA and the National Infrastructure Commission. But I think when you read the strategy, it begins to talk about a number of functions that NISTA will take, which I think will be additive and beneficial compared to the past. Three other quick things I think are interesting things compared to what we've seen in the past. There's a big spatial component. So we always hear the protectants talking about investment in the north and the south and also tying up transport and say housing and other development. So there's a spatial dimension which we've not seen before. There's a recognition about the need to account for critical capital maintenance, not just the building of new things, but the maintaining of current infrastructure, which I think is very important. And now seeing Claire will talk about this, I'm sure, about private finance, which I think we're all aware of the state, the public finances. So the public investment that's announced here, I think is a good thing, but it's necessary, but not sufficient. So the private finance half of this equation is super important. Yeah, I agree, Rob. Claire, can you expand on that? The document goes into some detail on the private financing of these programs and the infrastructure sector. What were your reflections on that as you read it? The first thing, the fact that there is a whole chapter on this topic, I think is really important because that just sends a strong signal to the industry and the investment community. This is something that the government takes seriously and is looking to grow. So that market signaling, I think, is really important. And the chapter itself recognizes that there's just a really wide range of different ways in which government works with the private sector and gets that investment in and acknowledges what those routes are, I think, which is helpful and how those apply in different circumstances. There's obviously been a growth in the importance and the growing use of what we call financial transactions. So that's government using loans, taking equity stakes, giving guarantees. And all of that allows the money to go further and means that government's going to be getting its money back over time and taking that back in for reinvestment. And there's a new set of institutions lined up to support that and meaning that the expertise is in the right place to develop that further. There's then a reference to PPP's public private partnerships, talking about those being considered in projects and sectors where there's a revenue stream and where the risk transfers appropriate and value for money for taxpayers can be achieved. So all in all, I think it's a very similar sort of position to some of the some of the thinking we've been doing over the last year or so, just just recognizing that different funding mechanisms work for different scenarios and actually really thinking closely about what are the characteristics of a project, what's the operating environment that it's in and how is it best funded given those project circumstances? And Rob, taking a holistic view of that document, transport would traditionally play a huge role in development of infrastructure in the UK. Is that still the case in this instance? Thanks, Owen. Let me tell you a little bit about what's in it for transport. And then let me say a little bit more about the relative positioning of transport vis-a-vis some of the other investment sectors. So firstly, on transport, always a key contributor to economic growth as we know. And the strategy covers some things that are, I think, of national interest and of regional interest. So picking up on each in term, nationally, there's a piece in here about what they call, you know, and they are saying this is defined term now, mega projects, which they define as investments that are over 10 billion and over 10 years. And they call that HS2 and the lessons they're off, they begin to talk about very bespoke arrangements about the governance of those going forward, learning the lessons of some of the difficulties the HS2 project has had. But additionally, while we're in the transport, I mentioned East West Rail and its interrelationship with the Oxford Cambridge Arc, Transpennon, really upgrade the Liverpool to Manchester, a leg of the Northern Powerhouse Rail are all featured in there. And recently, it was trailed before, wasn't it, the 15.6 billion for urban mass transit schemes, schemes such as the scheme of West Yorkshire and the number of other areas are writ large. So I think there's an interesting balance of national and regional. There was one bit that I thought I was unaware of that I found interesting. They talked about the connection with regional devolution. So they talked about the combination of five current mayoral authorities with those in Greater Manchester and West Midlands and that would now effectively mean 40% of the UK now covered by mayoral political structures, which I thought was an interesting sort of shift I guess and what we've seen in the past. Stepping back, you asked about the position of transport compared to other sectors. The other thing that I found interesting in this is the tilt towards energy and the environment. Energy is now, I think I calculated it's been that over 40% of the forward looking pipeline in the most recent pipelines that have been published. So I would say over the last 10 years at my career, this strategy has been. Top number one in the league table has been transport in terms of the spending league tables that that is now moving towards energy, which I think is an interesting shift given all the things that we see in terms of net zero and so on and so forth. And just building on that, I think there's it's really interesting that again we've talked about this being a 10 year document. It's also sort of tackling I think some of those things which are very long term and really quite difficult to make investment in. So again we heard a real focus on nuclear a week or so ago in the run up to the strategy and that's a key theme there. And some of those big investments in whether it's energy or utilities don't necessarily make an immediate difference to people's daily lives. They're very long term and I think it's not always the easiest thing to choose to invest limited resources in. So I think there's a real focus on those long term key things to sort of take forward what we need to do in utilities. And I think when you sort of link those through then to spatial planning, you can see a lot of what needs to be in place to support both the sort of economic growth and the housing development and the strategy really really focuses on. And the strategy doesn't just look at energy, it's got a much wider view about environmental investment. There's a big section about nature really takes into account the role of green and blue infrastructure and how that actually makes places more attractive to live and work. And gets under the bonnet a bit and looks about demand for water and waste and what we need to do to address those. So it's taking a holistic view and sustainability, not only focusing on energy. The other things that then I think come through quite strongly in various sections of the strategy is just really that retrofit. They talk about warm homes and the scale of investment in that. And also talks about environmental improvement in public buildings. And again, for those of us who are interested in how things are funded, where it's looking about an improving energy performance in public buildings takes a whole life view of costs and benefits, not just thinking about grant funding of upfront costs. So there's a lot in there from a range of perspectives, I think. And Rob, the strategy itself covers quite a lot. What are some of the key challenges you anticipate in its practical implementation? And maybe what are some of the success criteria that government needs to consider? So let me pick out three things. Number one, we've trialed throughout this part, the important role for NISTA. So I would give the government a pretty good report card in the concept of what NISTA can be, its interaction with the strategy and how it can offer support to the various departments and the industry in delivering. But it needs to get off to a good start. So it's a new organisation. So seeing how that NISTA begins and begins to impose and help the industry, I think is a key success factor. That's number one. Number two, which is probably a very hard ask, certainly is some political follow-through on the rhetoric that's in here. The language is very good in here. Things that we would recognise as an industry, infrastructure requires long-term, consistent decision making. I mean, perhaps less focus on short-term announcements that we all have suffered from in the past. So we'll have to see whether the government follows up and it's consistent with the rhetoric that was within the document. And thirdly, it talks about an update every two years. So I would presume that that will be done by NISTA, there will be a series of KPIs, so it will be interesting to see what those KPIs are and how the government and the industry start before against those. That's the tilt that I saw. I mean, there might be some specific things you might want to pull out in terms of private finance, the PFI and so on and so forth, interested in your views. Well, in the same way, I think it was really good to see the strategy focusing on condition of existing assets. It's also good to see a real call out just for the activity that's underway on all those existing PFI contracts and the role of NISTA in providing support and the focus on contract management of those over the sort of remaining 15 years of significant life that we've got on those contracts. And Claire, as we come to a close, what are some of the key takeaways that you have taken personally from the document? So I suppose something that I would then like to see going forward is recognizing that this document is very much a technical document for people like us and people in the industry, just remembering what the consumer facing narrative is and just, you know, the, as I said, there's some tough decisions that we need to keep making as a society around the things that we choose to invest in and actually telling the stories about how this investment makes a big difference to people's daily lives is really important. I was reflecting, I was talking to one of our Australian colleagues about the regulated asset-based funding model, which is used to get finance particularly into the utility sector. And I get very excited about the technicalities about how that works. And it was just really interesting her reflection back to me was actually, this has become a way in which you can create a direct link between consumers and their utility bills and future infrastructure. And we don't think about some of the technical things in that way. So actually thinking more about the people's focus of this, I think is really important for me going forward. And Rob's in final reflections. So I quite like the idea of giving the government a report card. So Claire and I and some colleagues before the infrastructure stress she was released thought about five things that we would like to see in the strategy. So let me report on the government's progress, I guess, in that regard. So number one was creating a burning platform and trying to raise the level of ambition for UK infrastructure. And I would give them a good score here. I think strategy's a holistic document. Is thorough. It looks to be interconnected and so on and so forth. So I feel on number one, pretty good. And we said would be to publish a clear and prioritized project pipeline. And as you heard earlier, that is intended to be released in July. So I would say the intent is good. Let's see what comes out in July. And if it is a dynamic pipeline, I think that would be a step forward as I mentioned previously. Third, we said in the era of data that we are in, having using data to inform where NIST to seeks to intervene in a positive way, we would hope we think should be enhanced in the in the current marketplace. So again, that's something, let's see how NIST gets on. So that's sort of in a bay in. Fourthly, so identify a clear set of success measures. As I said, I think that will come out in two years time when we see what what KPIs come on these two year frequencies of NIST review in the strategy. Fifthly and finally, a focus set of centrally enabled change in enablers. So as opposed to just providing a static strategy, something about some things enablers that will embed the strategy and make it come to life. And if it play, the creation of NIST in the role that has been described, I think would be something that I would be positive on the report card. I think we all know, can Claire's talked about it, lengthen this podcast, getting the harnessing private finance would be another, and I think that is, you know, been written about, but not yet progressed. So I think on that on that half, still some words to do. So I suppose in summary, I would say, you know, a really good start in terms of what's there, but it is important to follow up on some of those other key success factors that Claire and I and team have thought about, but very much a good start. I think that's a really positive place to leave it. I thank you both to Rob and Claire for your rapid digestion and overview of the UK government's 10 year infrastructure strategy. listeners can find a full strategy document on the UK government website and for further insights into the Lloyd's work in infrastructure and public sector strategy. Please visit our website and keep an eye out for updates from Rob and Claire. on the topic. So until next time, thank you all for listening.