Delivering the infrastructure for long-term growth

George Osborne’s 2012 Budget has followed much of the course set out in the 2011 Autumn Statement.

The critical importance of the National Infrastructure Plan (NIP) for UK development was reinforced, together with the importance of private finance to its success. The progress made with 12 pension funds helps give confidence that the enablers behind the NIP have not been forgotten.

With his focus squarely on reducing the nation’s debt and reinforcing the country’s reserves, the chancellor appears determined to ensure that the UK retains its AAA credit rating. This message is good for the country’s global competiveness as it presents itself as a safe haven for investment when compared to our competitor countries, especially elsewhere in Europe.

The budget contained a number of longer-term strategic moves to support growth, including continued investment in science and aerospace, data backbones and greater penetration of broadband across the country. When combined with the investment incentives for TV, animation and other technology industries, the Chancellor is establishing the UK as a “wired in” country and an internationally recognised creative hub.

He declared his support for an increase in airport capacity in the south east - meaning we should expect to see more debate surrounding the proposed Thames estuary airports. He expressed his determination to secure our energy security through incentives with the aim to squeeze every last drop out of the North Sea oil and gas reserves. While he did express encouragement for investment in renewables, his support was clearly tempered with his statement that “environmentally sustainable would have to be fiscally sustainable too”.

In our view, the budget adopts the relatively neutral stance to be expected from a chancellor constrained by public debt, although there were encouraging signs in the various policies announced for stimulating business, including the reduced corporation tax and investment in new industries.

What still remains to be determined is how the NIP will be delivered in practice, especially at a time when investors have many alternative markets across the world. This places even greater importance on the PPP reforms still to unfold over the coming months as well as maintaining that AAA credit rating.

With the prime minister’s earlier announcement that a feasibility study to explore alternative ownership and financing models for a new national roads strategy is being undertaken, it was good to see that the Government is leveraging the lessons learned from the privatisation of the water industry - a cause we too have welcomed.

The universal impact of transport means that the Government will not be permitted the luxury of studying its options quietly, making it even more vital that it looks at the business and procurement models used in the water industry. That sector has been faced with the perennial challenge of delivering a service whose quality and efficiency is measured against externally-imposed indicators while simultaneously minimising expenditure and meeting customer service expectations.

Private-sector investment in the roads network is undoubtedly coming, so developing procurement models based on framework agreements - much as the water industry has done - will be vital for driving value, encouraging the contractor community to innovate and offer expertise, and delivering a good quality service within closely monitored budgets.

The recently announced procurement pilots by the Cabinet Office present an ideal opportunity to progress new ownership models. The central control that Departments such as the Highways Agency are able to adopt will allow progress to be more easily driven.  

John Hicks is head of government & public sector at Davis Langdon