Certainty for Infrastructure

The National Infrastructure Commission ’s latest annual assessment has described the government’s progress towards implementing its commitments on infrastructure as “mixed”.  Spanning energy and net zero, digital, rail, transport, flood resilience, water and waste the review looks across all of the critical infrastructure needed to support a modern society. The Commission’s own analysis suggests that the total investment in economic infrastructure needs to increase from an average of £55bn per year over the last decade to up to £80 billion per year in the 2030s. Without this scale of the investment, the UK’s ‘infrastructure’ gap will negatively impact on economic growth, delivery of net-zero, environmental quality and societal resilience. Many of the challenges that the NIC identify with delivery apply across sectors, although the degree to which each factor applies varies, with policy certainty and pace of decision-making being key themes.

The NIC emphasises the importance of policy stability, both in terms of the strategic framework which is set by central government and delivery frameworks set by other public bodies such as the economic regulator and planning authorities. There is particular criticism of the policy uncertainty that has been created around heat, with last minute delays to the implementation of the Clean Heat Market Mechanism, delay in banning new fossil fuel heating installations in off gas grid homes and no decision on the role of hydrogen in heating. This level of uncertainty will inevitably slow investment – businesses have a reduced incentive to invest in new, lower carbon technologies and householders, face with another layer of confusion, may well opt for the safer option of sticking with the technology that they know. For long-lived assets, long-term certainty is needed to attract investment.

But central government policy is only one part of the framework that influences the decisions of businesses and individuals. The NIC recognises the positive step that government has taken in giving Ofgem a duty to consider the net zero target and in designating a new strategic policy statement. As I highlighted in an earlier article, this is a big shift in Ofgem’s responsibilities and the RIIO-3 process will be a major test of how Ofgem implements these new duties. But the NIC highlights how the lack of clear strategic direction from government impacts regulators too – the strategic policy statement is vague on some key issues for the energy transition and government has not reviewed regulators’ wider duties in the round. A piecemeal approach risk creating further uncertainty and even conflicts that will only slowdown decision-making and progress.

In any sector, establishing a stable policy framework has to be the key focus for government. Without this clarity and certainty, investment and delivery just will not happen, regardless of how efficient and effective the delivery system is. But policy clarity is not the only barrier and accelerating reforms to sectoral governance and the planning system must be done in parallel to deliver the scale and pace of infrastructure development that the UK needs.