This purpose of this paper, authored by Cathryn Ross, Group Regulatory Affairs Director at BT Group, is to draw out some changes and challenges that have commonalities across a number of regulated sectors and to prompt debate among those who may have useful levers at their disposal about how they may be addressed. All of this is in the interests of maintaining the effectiveness of regulation in UK, and our regulated sectors, to the benefit of consumers and citizens.
A regulatory expert has said that the paper is the best recent analysis that they have seen of the current (and potential future) state of economic regulation in the UK.
RISK, REWARD AND REGULATION
TIF's Procurement Working Group submitted it's response to government's Procurement Green Paper in March 2021. There are a number of changes proposed within the Green Paper that are welcome in terms of increasing transparency, and the creation of some common principles, which will undoubtedly help to simplify public procurement.
The group's main concern however, is that the Green Paper does not effectively cover major infrastructure projects. It instead brackets these together with, and focuses on, transactional procurements of varying sizes. As major infrastructure projects feature large expenditure of public money and attract public scrutiny, the failure to have them in clear focus throughout the green paper is a missed opportunity which should be corrected in further work.
TIF RESPONSE TO THE PROCUREMENT GREEN PAPER
PROCUREMENT WORKING GROUP
There is a pressing need for strategic investment in energy infrastructure to set the UK on the path to meet its upcoming carbon budgets and deliver Net Zero by 2050, but the economic impacts of Covid-19 and current market frameworks present a significant barrier. However, with a clear strategy aligned with policy employing established funding frameworks, private capital could be harnessed to help to deliver the required energy infrastructure for Net Zero and beyond.
This report suggests that providing access to development capital through a newly formed co-investment fund or Infrastructure Development Bank would help to support projects, especially those with high development costs such as Nuclear and CCUS.
INVESTMENT IN ENERGY
ENERGY WORKING GROUP
The Infrastructure Forum published its latest report ‘Designing the UK Infrastructure Bank’ in April 2021.
Government and industry cannot afford for the UK Infrastructure Bank (UKIB) to become a blunt instrument if it is to deliver net zero and level up the country. Whilst the infrastructure market remains highly liquid, the Bank could help to unlock private capital where there is market failure and to scale up new technologies.
This report, authored by Charlotte Chase, raises six key questions that Treasury will need to resolve to set the Bank up for success and says that in doing so, Treasury will have to address the tensions inherent to a Government-owned Bank operating commercially.
DESIGNING THE UK INFRASTRUCTURE BANK
The introduction of explicit carbon pricing is the recommended policy of the Climate Change Committee, the UN Intergovernmental Panel on Climate Change, and is the stated long-term UK Government policy, who have already committed to introducing a UK Emissions Trading Scheme (UK ETS), which will put a decreasing cap on allowable CO2 emissions, leading to a ‘carbon price’ for available allowances.
This paper reviews the arguments for carbon pricing, but then sets it alongside the need for infrastructure investment and Government policy, which the 10 Point Plan has gone a long way to initiate and address. It describes how a carbon tax can help deliver and fund infrastructure and in turn how infrastructure investment can lower the need for, and size of, carbon tax.
CARBON PRICING & INFRASTRUCTURE INVESTMENT
The next 18 months are set to be formative for CCS, as both the public and private sectors make key decisions on the breadth and extent of CCS investment this decade. The outcomes could range from one offshore CO2 store and projects at one Industrial Cluster, to developing three storage regions that would underpin comprehensive decarbonisation of all of the UK’s principal Industrial Clusters, together with the launch of a hydrogen economy, CCS power and Bio Energy CCS (“BECCS”). The latter outcome would require ambitious investment, and set the scene for competition, innovation and investment across the UK in projects to transition to a green economy.
This paper considers key strategic reasons for adopting a clear, ambitious, public-private approach to CCS now, to create the building blocks of a new industry.
CCS: TIME FOR AN AMBITIOUS LEAP FORWARD
The Infrastructure Forum published its latest report 'What Does Tomorrow Look Like in April 2021, which is an examination of the way that infrastructure networks can transform the UK as part of building back better.
The report highlights the opportunities provided by the post-Covid reset to give the UK the chance of a leap forward in developing its most important networks, and demonstrates that every aspect of communications technology - fibre, 5G, satellite, wireless - is central to the new future digital networks for consumers, shopping, energy and transport.
One of its key recommendations is that task forces modelled on the Vaccine Task Force led by Kate Bingham could take over slow-moving infrastructure projects to unblock progress.
WHAT DOES TOMORROW LOOK LIKE?
A TIF STAFF REPORT
Infrastructure Boards work much like boards in any other sector. However, the challenges facing the infrastructure sector and its key characteristics are sufficiently different to other sectors of the economy as to justify a specific set of high-level governance principles and practices.
This report suggests that even a relatively light-touch adoption of some common principles and practices of governance across the sector could yield benefits
The report provides a set of recommendations for boards across the infrastructure sector, regardless of whether their organisations are public or private sector, or whether they manage assets in operation, construction, early-stage development, or a combination of these.
INFRASTRUCTURE GOVERNANCE: THE GERRARD REPORT
GOVERNANCE WORKING GROUP
Why is major investment in Carbon Capture and Storage (CCS) recommended by the Intergovernmental Panel on Climate Change (IPCC) and the UK’s Committee on Climate Change (CCC) as “a necessity, not an option”?
This paper by industry expert Paul Davies, summarises the need for CCS investment as an important part of the UK achieving ‘Net Zero’ by 2050.
The strategic case for substantial investment is considered further in an associated paper; “CCS – time for an ambitious leap forward”.
CCS: A NECESSITY NOT AN OPTION
HM Treasury’s Green Book needs updating to capture a better assessment of the social value of infrastructure projects
In terms of attempting to measure the economic benefits and social costs of projects, things have moved on since the Green Book was designed. We recommend that government establishes an expert working group to design a clearly written, up to date model to assist those putting forward proposals.
The report sets out six ways to improve the Green Book approach and shows how the Social Value Act could be amended to require public procurers to introduce the new approach.
SOCIAL VALUE: MOVING ON FROM THE GREEN BOOK
PROCUREMENT WORKING GROUP
During the build up to the General Election, the main parties’ manifestos included wide and varied tax proposals, but little focused tax policy targeted at the UK infrastructure sector. This is in the context of forthcoming announcements on UK infrastructure strategy, including the National Infrastructure Strategy, Energy White Paper, 2025 target for full-fibre coverage and 2050 target for reaching Net-Zero. It will be essential that tax incentives are aligned with these objectives, and to any future delivery models, to support private sector investment.
The forums Taxation Working Group therefore provided a submission considering areas of the UK tax system that limit investment in infrastructure, developing proposals to improve the current tax environment.
PROPOSALS AHEAD OF BUDGET 2020
TAXATION WORKING GROUP
The Infrastructure Forum's RAB Working Group submitted a response to the BEIS Consultation on the RAB Model for Nuclear. The Working Group, comprised of experts in infrastructure finance with particular knowledge of the RAB model, UK regulatory framework and delivery of greenfield projects, considered questions posed by the consultation on the structuring of the model as well as broader Critical Success Factors necessary for setting up an investable nuclear RAB.
RAB MODEL FOR NEW NUCLEAR
RAB WORKING GROUP
The report - an initial response to HM Treasury's Infrastructure Finance Review - says that Government should use already-announced measures to boost private finance in infrastructure and keep investment flowing over the next two years. It warns investors are in “hold and retreat mode” because of political uncertainty and regulatory pressure on utility returns. There is a risk that while the Government ponders the eventual future framework for private investment in infrastructure, investors themselves will turn to other markets. Government could mobilise some £135bn in private capital using existing arrangements including, the UK Guarantees Scheme, Statutory Loans, pensions investment, a Third Country Agreement with EIB, the Regulated Asset Base Model, Community Contracts and the Department for Transport's Market-Led Proposals scheme.
REBUILDING PARTNERSHIPS IN INFRASTRUCTURE INVESTMENT
GRAHAM MATHER CBE & CHARLOTTE CHASE
The Infrastructure Forum submitted its response to HM Treasury's Infrastructure Finance Review on Wednesday 19 June 2019. The Forum set up a Working Group, chaired by Paul Smith and Jon Dames, Partners at CMS, charged with responding to this consultation comprised of infrastructure finance experts from across the industry.
The Working Group has considered the questions posed by the consultation and has drawn on the significant body of work published by The Infrastructure Forum to date on this subject, on the basis of which it has made a series of recommendations to rebuild public trust in the private financing of infrastructure and develop a new framework for financing infrastructure.
INFRASTRUCTURE FINANCE REVIEW
INFRASTRUCTURE FINANCE WORKING GROUP
Lack of visibility of public sector projects is driving many of the unsustainable behaviours that led to the collapse of major government outsourcer Carillion in January 2018 and has left other major contractors in a fragile state. David Ferroussat, Development Procurement Director at Heathrow Airport Limited, chaired the cross-sector Working Group of The Infrastructure Forum responsible for the report which has found that less than 8% of projects and programmes included in the Infrastructure and Project Authority’s National Infrastructure and Construction Pipeline are sufficiently certain for contractors to invest to deliver them.
The key recommendations set out by the Infrastructure Forum seek to create the right environment for investment to overcome these challenges.
SUSTAINABLE PROCUREMENT: A VISION FOR UK INFRASTRUCTURE
PROCUREMENT WORKING GROUP
The UK should endeavour to remain a member of the European Investment Bank after Brexit given the significance of the value added by EIB finance to the UK infrastructure market. The report's preparation included detailed discussions with a cross section of UK users of EIB finance. It proposes a number of arrangements which would allow the UK continued access to EIB finance; however, in the event that these options were not to prove possible in the negotiations, the report has identified a number of domestic alternatives.
THE FUTURE OF THE EIB IN THE UK
EIB WORKING GROUP
Britain’s infrastructure pipeline should be re-examined to see which projects could be accelerated or refinanced with long-term capital. The report recommends that to rescue the private finance initiative “future models need to adopt governance arrangements that build confidence that while privately owned, the company in question can be relied upon to deliver on its social objectives and invest on a long term sustainable basis” says the report.
ALTERNATIVE MODELS FOR FUNDING AND FINANCING INFRASTRUCTURE
A new type of Regulated Infrastructure Investment can attract billions of pounds of global investment into the UK’s infrastructure. A group of experts from the private and public sectors, has identified numerous sectors as being suitable for this investment boost, including rail, telecoms, carbon capture and storage, nuclear power generation and electric vehicle charge points.The scale of infrastructure challenges facing the UK calls for innovative solutions. The industry sees this new investment model as being the right solution, in the right place, at the right time.
The report highlights that the Regulated Infrastructure Investment model provides a structure through which delivery risks can be shared between investors, contractors, developers, consumers and the taxpayer to incentivise efficient delivery of the investment at the best overall value for money
REGULATED INFRASTRUCTURE INVESTMENT
RAB WORKING GROUP
The NIC is examining the existing regulatory framework in the UK for the telecoms, water and energy sectors, and whether changes might be necessary to foster innovation and investment in the long-term.
TIF's response emphasises the importance of a clearer, longer-term, strategic approach to regulation in the UK in order to encourage investment and innovation.
It proposes that regulators' independence should be strengthened and that the NIC should have an increased role in coordinating a more strategic framework which would align the National Infrastructure Strategy and the work of the economic regulators in the medium and longer term.
NIC STUDY ON THE FUTURE OF REGULATION
THE INFRASTRUCTURE FORUM
The House of Lords EU Committee published its report on Brexit: The European Investment Bank on Thursday 31 January 2019.
The Infrastructure Forum submitted evidence to the Committee on its Inquiry in September 2018, based on the report by the EIB Working Group published in January 2018 - The Future of the European Investment Bank in the UK.
We are delighted to see that our evidence has proven helpful to the Committee's Inquiry and has been given significant weight in their conclusions.
The Infrastructure Forum will be paying close attention to the Government's response to this report and will continue to support the UK maintaining a strong relationship with the EIB post-Brexit.
EVIDENCE TO THE HOUSE OF LORDS EU COMMITTEE ON THE EIB
EIB WORKING GROUP
The report, by industry expert Paul Davies, sets out proposals to rebuild trust and develop a partnership approach for the future deployment of private finance for infrastructure projects in the UK.
The approaches argued for – including pathways to establishing Trusted Infrastructure Companies – are relevant to sectors including roads, rail franchising and construction, nuclear, electricity storage and distribution, and would also be relevant at the local authority level and in health and accommodation sectors.
The private and public sectors must work together to overhaul their relationship by developing long-term, more trusted partnerships.
PRIVATE FINANCE: PRESS RESET