Panel:
Paul Jarvis, editor, Partnerships Bulletin (chair)
Stuart McMillan, partner, Burges Salmon
Julia Prescot, co-founder, Meridiam, and deputy chair, National Infrastructure Commission
Darryl Murphy, managing director and head of infrastructure debt, Aviva Investors
While aiming for generally the same targets, one thing is clear: there is urgency to the new UK government’s plans; a marked change from the previous few years.
“There is enthusiasm,” Julia Prescot, Meridiam co-founder and deputy chair of the National Infrastructure Commission (NIC), told delegates at the ‘Labour’s First 100 Days’ event, pointing to “a lot of pro-infrastructure activity” already undertaken by the new government - notably planning reform and policies in solar, energy, and offshore wind.
“It promises a lot,” added Darryl Murphy, managing director and head of infrastructure debt at Aviva Investors, although he admitted that a variety of political issues have not made it the greatest 100 days. “The point is about delivery and how things go forward.”
“The mood music is very good,” agreed Stuart McMillan, partner at Burges Salmon, which hosted the event in partnership with Partnerships Bulletin. “Clearly, infrastructure is at the forefront of what the government has in mind, but there’s still a lot to think about, a lot of questions, and some controversy in the market.”
While enthusiasm is there, the details are hard to see. With the budget still around the corner, many in the industry are instead waiting for the 10-year infrastructure strategy due to be published alongside the Spending Review in spring 2025 as the foundation to build their plans on.
“Pace has to be baked in,” Prescott said. “There must be a focus on partnership: there has to be an issue around pace rather than perfection, and we also have to prioritise.”
In this sense, it comes down to a balancing of two approaches: the big picture and the details. Can the new Labour government square the circle of acting with pace, while avoiding previous mistakes? Can it produce a big pipeline, with the detail needed to attract investment?
One of the big questions here is whether the work to make big structural changes can be done in a way that facilitates speed in the market. Held on the day that Chief Secretary to the Treasury Darren Jones reconfirmed the plans to join the NIC with the Infrastructure & Projects Authority into the new NISTA entity, the event saw plenty of discussion around how the government can bring together different organisations to drive the growth it craves.
While Murphy expressed concerns that the move would reduce the NIC’s ‘independence’ and therefore dilute its efficacy, Prescot argued the change would give the body’s reports more influence within government.
“The idea of having flow through from one to the other is going to help the delivery of core infrastructure,” she said. “The one thing that is very clear in the new structure, is that it will be at the centre of government,” she continued, adding that it will have the “oversight and connectivity” through various departments to “make sure that flow from initial strategy into pipeline and into projects is actually taking place. We haven't seen that longer term flow in the past.”
The result could be a “very detailed” pipeline, including sectors, timelines, models and other key details. A tantalising thought for any investor.
The discussion also considered what the new National Wealth Fund might look like, and how it would interact with other entities, such as the UK Infrastructure Bank (UKIB) and Great British Energy. Some of that uncertainty has since been cleared up, with the UKIB being rebranded and expanded to become the National Wealth Fund.
Murphy pre-empted this, suggesting a focus on streamlining the various government bodies could be beneficial: “The more we declutter this the better. If we want to go at pace we need to have a much leaner chain of command.”
Additionally, one of the government’s bolder moves in the upcoming Budget is anticipated to be a change in the fiscal rules, separating the assets and liabilities on the government’s balance sheet to allow for greater borrowing headroom.
The feasibility of the move is broadly accepted, with economists reportedly calm about its impact on the markets.
But while the projected £20bn may not be poured into new infrastructure, much of it may end up plugging known gaps in the budgets already. The panel was generally enthusiastic about this potential and suggested that it could provide the accelerating impetus to chart a new pathway forward.
“It’s a statement of intent to me,” said McMillan, urging a strong emphasis on prioritisation of future projects.
Similarly, Prescot was bullish on the private infrastructure role in combination with this bolstered balance sheet: “Even if this is the change, we’re still going to be focusing very heavily on that private side investment.”
All of these new structures point to a more active government in the market - but it’s not just in pipeline generation that its help is needed. It’s also at the other end of the lifecycle.
The familiar question of handback and expiry looms over the industry, with Murphy adding that if this particular nut is not cracked then it will show that risk transfer was an “illusion”, warning that it will puncture future investment prospects.
So far, the IPA has opted to create rulebooks and guidelines for managing the process, but with the rump of projects coming over the horizon, Murphy urged the government to play a bigger role in “brokering” the situation, hoping for some kind of standardisation to the process.
“We have to try and create a template that works, and they need to be the central driving force,” he said.
Only if that conundrum is tackled can the industry realistically expect to see the government move towards new PPP approaches with enthusiasm. However, the panel also considered what models could be used to replace the likes of PFI and PF2.
The panel was uncomfortable with rumours that the government might look to use the regulated asset base (RAB) to support a private finance solution for the Lower Thames Crossing, pointing out that roads are not ‘regulated’ so the architecture needed to create an effective system could outweigh the benefits.
A number of reports have recently highlighted the Welsh government’s Mutual Investment Model (MIM) as a shining light that could be taken up by the Westminster government to deliver its ambitions - particularly on social infrastructure.
“Community engagement is the big swing factor,” said Murphy. “If there is any glimpse of a model, that is the way to go. The great open goal is community engagement in the project.”
Prescot was quick to highlight the benefits that MIM has already shown on projects in Wales, particularly in the education space, where Meridiam has been the development partner alongside the Welsh government.
However, Prescot and Murphy agreed that it may be better to see the different models as “a continuum” along the PPP line and that different approaches can be taken depending on the project and its circumstances.
“We’ve got to be as flexible as we can, with a focus on delivery, rather than necessarily going down into siloes and having firmly defined contracts and models,” Prescot said. “There are investable opportunities, they might not come with a bow and ribbon but there are investable opportunities.”
There was less agreement, however, on whether the supply chain - and in particular contractors - would be willing to return to the PPP market, having previously been burned, especially on fixed-price contracts. Murphy warned that this would be a potential stumbling block for any programme being planned by the government, while Prescot suggested international experience showed that this could be dealt with.
As the government moves beyond its first 100 days and towards a Budget, followed by a Spending Review and 10-year investment plan in the spring, there is still much that needs to be worked out. However, the event clearly showed that there is an infrastructure community waiting to support an infrastructure programme: a show of hands at the end of the session revealed over half of delegates remain optimistic about the market’s future under the new government.
This content was originally published by Partnerships Bulletin.