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Treasury investigates 'potentially high' cost of civil engineering projects

Chancellor Alistair Darling has commissioned an investigation into the cost of civil engineering works for major infrastructure projects, building on “existing evidence” of “potentially high costs” of UK schemes compared with the rest of Europe.

Conclusions and recommendations from the investigation will be published by the end of 2010.

The Association for Consultancy and Engineering said it would work with government on its investigation. “The ACE has argued that there are efficiency savings to be made through reform of procurement processes, and ACE will work with the government to ensure that value for money is maximised in all public projects,” it said.

The investigation will be one of the first tasks of Infrastructure UK, the Treasury body set up in December last year drive increased investment in UK infrastructure. Its roles were outlined by Darling today in the Budget and are set out in a Treasury paper “Strategy for national infrastructure”.

The strategy reveals that demand for infrastructure investment is likely to be between £40bn to £50bn a year until 2030, and that Infrastructure UK will get take on a management role of a £2bn Green Investment Bank (GIB) to help deliver this investment.

The GIB will focus on low carbon transport and energy, focusing initially on offshore wind. Infrastructure UK will also develop a National Infrastructure Framework which will identify the critical interdependencies and long term needs of the UK’s vital infrastructure.

The government will start by investing up to £1bn from the sale of infrastructure-related assets including the Channel Tunnel Rail Link and will seek to match this with at least £1bn of private sector investment. Infrastructure UK will be responsible for managing the establishment of the GIB and will publish a consultation on its establishment in the summer.

The ICE said the GIB was a “good start”.

“We have been calling for new thinking on how to unlock the long term sources of funding needed to finance infrastructure for some time. However, as Infrastructure UK has acknowledged, the UK will need to invest £40-50bn per annum in infrastructure, so with a starting fund of only £2bn clearly there is some way to go,” said ICE director general Tom Foulkes.

“It is vital therefore, that when Government says that this funding is just a start – it means it - and that it continues to work with industry to increase the volume of investment. This must take into account the need for investment across a whole range of sectors including water, waste and flood defences.

“The development of a National Infrastructure Framework is a very welcome step – decisions on the UK’s infrastructure development cannot be made in isolation – they must be based on the long term needs identified across the sectors. We are keen to play an active role in the Framework and work with Infrastructure UK on how this new bank can deliver a sustainable funding solution for future infrastructure.”

ACE chief executive also welcomed the bank. “ACE has been exploring policy options to encourage investment into infrastructure. We have supported the idea of an infrastructure bank, the use of a regulatory asset base, green bonds and innovative financing. The government’s announcement of a green investment bank certainly responds to our calls and we very much welcome its establishment.”

Infrastructure UK will also work with key stakeholders within government departments and the private sector to identify where changes in policies and regulation are required to encourage investment in infrastructure in the UK.

The Green Infrastructure Bank

The GIB will be mandated to invest in the low-carbon sector and will consider new energy and transport projects in particular, where the equity gap is likely to be most critical. Because of the timing of the investment decisions, it is likely that the GIB will focus initially on offshore wind. The GIB will also consider the case for investing in other infrastructure as appropriate and as the need for investment arises.

The strategy also outlined that there will be a focus on relevant supply chains for infrastructure sectors and any interventions that might be necessary to ensure delivery. An action plan will be published by spring 2011.

The ACE welcomed this move. “The ACE has argued that there needs to be a coordinated, long term approach to developing the UK’s infrastructure networks. Today’s announcement could potentially set the UK on a path toward a future of low carbon infrastructure, and ACE will provide what assistance it can to Infrastructure UK.”

The National Infrastructure Framework

Infrastructure UK will develop a National Infrastructure Framework, alongside the process for the next Spending Review, so that effective decisions on prioritisation and timing can be made in the context of a long-term, cross-sectoral view of infrastructure needs.

The National Infrastructure Framework will be published by the end of 2010 and will contain:
- a vision of the qualities and role that the UK’s infrastructure should aim to develop and sustain over the next 50 years;
- the outcomes the UK will seek through both public and private sector infrastructure development and investment over the next 10 years;
- a portfolio of potential public and private infrastructure investment that will deliver those outcomes; and
- the priority policy interventions for government that will take forward the necessary development of, and investment in, that portfolio.

The Government will consider whether and how to give longer-term certainty to public spending on infrastructure to support the aims of the National Infrastructure Framework.

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