Government ‘faces £8bn bill’ unless inflation is tamed

The government may be unable to pay for large airport, flood prevention and rail projects if it does not give the industry more information about what it wants to build and when, the Institution of Civil Engineers has warned.

The ICE’s 2008 State of the Nation report into capacity and skills estimates that construction inflation is running £1.8bn above government estimates. If this rate continues, the ICE predicts that public infrastructure projects in the pipeline will cost an extra £8bn by 2015.

The influential report calls for a commission to be established to oversee large-scale infrastructure projects, led jointly by industry and government. It says this would give greater certainty over future workload, and allow firms to allocate their resources and investment more rationally, thereby bringing down inflation.

Keith Miller, chief executive of Keith Miller Consulting and director of the ICE steering group that wrote the report, said: “Big infrastructure projects could face delays or even cancellations if we continue in the same vein.”

One of the reasons cited for the steep rise in inflation is that publicly funded projects often compete with each other for resources. To ameliorate this, the ICE says an independent body should oversee the co-ordination of infrastructure schemes and issue regular progress reports.

The report suggests using the Northern Ireland Strategic Investment Board (SIB) as a model for the UK commission. The SIB acts as a middleman between the government and industry on public infrastructure projects. It has so far delivered a £600m schools modernisation scheme, a £100m motorway improvement project and a drinking water programme that has saved the government an estimated £154m.

Major projects could be cancelled if we continue in the same vein

Keith Miller, Ice Steering Group

Miller praised the Northern Irish model for its transparency, and suggested that a British body could be joint funded by the public and private sectors.

He said: “This is an opportunity to give stability to the industry. We need a more confident industry to attract and retain people. Universities will be able to address training once they see the demand is there.”

The report emphasises the effect that skills shortages, and the corresponding rise in salaries, have had on inflation. It estimates that 12,300 additional professionals will be needed every year until 2011.

It notes that almost 30% of UK students are from overseas, and that companies are increasingly employing engineers from outside the UK. Miller said: “We can’t continue with these stop-gap measures. And we should also ask ourselves if we should be stripping developing nations of their good people.”

The ICE also calls for a more diverse workforce. Women make up only 10% of construction jobs – and 7.6% of the ICE’s membership.

The call coincides with the Education Bill, which is passing through parliament and will make it a legal obligation to promote careers in construction and engineering equally to schoolchildren of both sexes.