James Heath speech to CBI Infrastructure Board
5 Mar 2021 02:49 PM
The Commission’s chief executive spoke to members of the Confederation of British Industry’s Infrastructure Board today, offering reflections on the government’s National Infrastructure Strategy, the Commission’s priorities for 2021 as set out in our Annual Monitoring Report, and to look ahead to some of the long term infrastructure challenges that the Commission is likely to tackle in its second National Infrastructure Assessment.
“Our remit at the NIC is to advise government on major economic infrastructure challenges. We do this by:
- Taking a long term, 20 to 30-year view, of the country’s infrastructure needs and the pathways to address them
- By basing our independent policy recommendations on rigorous analysis
- And by taking a cross-sector approach to infrastructure planning.
We think infrastructure policy is a necessary part of answering many of the big policy questions we face today:
- How do we build a sustainable, market-led economic recovery from the impact of Covid-19?
- How do we level-up the UK’s economic geography and improve productivity?
- And, how do we achieve net zero greenhouse gas emissions by 2050?
For infrastructure policy to be able to help address these challenges, you need to have a plan. The plan must have a long term perspective. It must set clear goals and strategies to achieve them. The plan must have a firm funding commitment. It must demonstrate a genuine commitment to change. And the plan must be robust to different scenarios and to uncertainty.
The government’s National Infrastructure Strategy sketches out a plan that begins to meet these tests. It sets out ambitious, measurable goals on low carbon energy, on waste, on broadband roll-out, and on reducing water leakage. The Strategy is a significant step forward.
There is now quite a lot of alignment between government and the Commission on many areas of infrastructure policy. The Infrastructure Strategy fully or partially endorses most of the recommendations we made in our first National Infrastructure Assessment and since. Many of the big ideas in the Infrastructure Strategy are informed by our work:
- the decision to bring forward the date for the phasing out of petrol cars and vans to 2030
- the decision to set up a new UK infrastructure bank to catalyse private sector investment
- the focus on decarbonising heat, placing a strategic bet on hydrogen and the move to a ‘one by one’ policy on nuclear power
- and, the emphasis on improving infrastructure decision-making through better use of cost and performance data, ex post evaluations and embedding good design principles.
In terms of funding, government is set to invest around £27 billion on economic infrastructure in 2021/22. This is equivalent to just under 1.2 per cent of GDP, which is the upper end of the Commission’s fiscal remit. The Spending Review also included multi-year capital funding commitments for flood defences, broadband roll-out, roads and rail. Taken together, this investment represents a decent down payment on a longer-term fiscal commitment to economic infrastructure.
Clearly taxpayer funded investment is only part of the picture. As important, are the regulatory models and mechanisms that we put in place to support private sector investment in infrastructure – which will be essential for the transition to net zero and for the roll-out of gigabit broadband.
There are some missing pieces of the jigsaw in the Infrastructure Strategy, particularly when it comes to energy policy. And the biggest gap in the Infrastructure Strategy for us is on the devolution of funding and powers to enable cities to pursue ambitious, integrated infrastructure strategies.
Our priorities for 2021
This brings me to what the Commission sees as the key infrastructure priorities for the year ahead. There are two overarching themes:
First, this year has got to be about turning policy goals into delivery plans. We published a report last month that set out the ten priority actions to taken by government this year to keep us on track. A number of these actions are in the net zero space. The government has set clear goals for many parts of the energy system, including renewables, nuclear, hydrogen, heat and electric vehicles.
These goals, alongside clarity on the pace and timetable for decarbonisation, are important to help businesses align their investment and planning decisions – and to frame economic regulation. It’s critical that these goals are now underpinned by specific policy levers and delivery plans with clear milestones, in order to allow progress to be tracked on a regular basis. We hope that the forthcoming strategies for hydrogen, and heat and buildings, and electric vehicle charging infrastructure will move us from goals to plans.
The second theme is that government should raise the level of ambition on devolution. The Commission’s strongly held view is that to achieve the levelling-up goal, major and longer-term funding and control must flow to cities. Despite some progress, the Infrastructure Strategy does not yet set out a long-term plan on the scale needed in urban public transport outside London to tackle congestion in our largest cities and reduce constrains on growth. I’m not saying that economic infrastructure is the silver bullet to end regional economic disparities. But what I am saying is that better infrastructure is a necessary condition to support local growth – alongside complementary policies on education, skills and innovation.
So, turning policy goals into delivery plans. And a focus on how to better spend infrastructure funding through local decision-making and accountability, are the two themes that we think should drive infrastructure policy in the year ahead.
The Commission’s future work
The final area I want to cover is the Commission’s longer term work plan. This year, we will start work on our second National Infrastructure Assessment. We are required to publish an Assessment once in every Parliament. The first Assessment was published in 2018. We will publish the second in 2023.
The second Assessment will take a long term look at the UK’s infrastructure needs and develop a costed plan for addressing them. The first part of this will be a baseline assessment of the state of the UK’s infrastructure today – which we’ll publish later this year. The second part will be to identify what we see as the biggest infrastructure challenges and opportunities facing the UK over the next 20-30 years. Commissioners haven’t settled on what these challenges are yet – but it is likely that on the list will be the future of heat and how to decarbonise our buildings. How you swap out the UK’s universal, convenient, low cost but fossil fuel-powered form of heating is probably the single biggest net zero challenge.
We’ll need to make some big decisions later this decade about how to decarbonise heating – and we must ensure the evidence is in place to inform them. Heat is often presented as a technology or supply-side problem to fix. While there are complex questions about the roll-out of low carbon alternatives to gas-powered heating, we may well find that the biggest challenges in switching our buildings lie in how to overcome inertia, information failures and incentive problems, on the demand-side. I’d hope that the Commission can play a critical role in shaping the pathway to heat decarbonisation – as well as brining our expertise and independent perspective to bear on other challenges in the second Assessment.
The final part of the second National Infrastructure Assessment will be to set out the pathways to address each of the major infrastructure challenges we’ve identified – being clear on the costs and benefits of our policy recommendations under our fiscal and economic remits. I’m very keen that we engage with a wide range of stakeholders on this, including business and CBI members.
Covid and uncertainty
I’ve got to the end of this speech without saying much about Covid-19. This is mainly because I don’t know the answer to the critical question – what will the long term impact of the pandemic be on demand for and supply of infrastructure? The short term impacts have clearly been significant in terms of the substitution of broadband use for public transport use – as part of the major social experiment in home working and home schooling. But a shock of this magnitude is likely to lead in longer term directions that are very hard to predict. And this means that policy makers will need to be prepared for a range of possible futures.
We are doing a piece of work to describe this uncertainty by exploring different scenarios for long term behaviour change and considering how these might influence demand for and use of infrastructure in future. This scenario planning will help frame the policy choices in NIA2, alongside other drivers of infrastructure demand such as population growth and economic growth.