Speech by The Commercial Secretary to the Treasury, Lord Sassoon at the PPP Forum annual dinner
This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government
Speech by the Commercial Secretary to the Treasury.
Thank you, David, for that introduction - and thank you also for your leadership of the PPP Forum since you founded it in 2001.
But that is only half way back to the start of UK PPP as we now understand it. Because PPP/PFI was launched by Norman Lamont - Lord Lamont - in his austerity spending statement in November 1992.
I have read Chancellor’s Lamont’s statement and it has an eerie familiarity. I quote: “restraint on current spending has made it feasible to provide more protection to capital, and we have done so across a whole range of programmes. Next year there will be a significant increase in the volume of road building”.
Norman Lamont then described PPPs and went on to say “We may be prepared to consider such an approach, when the time arises, for projects such as the east-west crossrail… and perhaps also the channel tunnel rail link”. Well, after 18 years, the time has now come.
David mentioned PPP in Canada. It reminds me that the Australians can lay claim to have got to PPP before the UK. And, as you may know, one of the earliest showpiece Australian PPPs was the redevelopment of the Brisbane Cricket Ground, the Gabba.
So wouldn’t it be great if England’s cricketers not only thrashed the Australians in three weeks’ time but did so on the flagship PPP ground at Brisbane.
Now last week the Prime Minister announced the publication of the UK’s first national infrastructure plan - and he announced it because it’s so central to our growth strategy.
It clearly sets out the scale of the country’s infrastructure challenge - £200 billion over the next five years; it highlights where major investment is needed; and it focuses on the importance of infrastructure in supporting sustainable growth.
Because high quality infrastructure underpins a prosperous economy:
- It reduces costs to business.
- Helps create new clusters of firms.
- Expands cities, creates trade links, and improves overall quality of life.
In the UK we used to push the possibilities of infrastructure investment to the very limits of what was possible. Think back to the Great Exhibition of 1851.
While it is staggering to think that 73 million people visited this year’s Shanghai Expo, that is only six per cent of the Chinese population.
What about Crystal Palace in 1851. Well just 25 years after the world’s first passenger railway, UK private investment had built a rail network that delivered not six per cent but over 30 per cent of the British population, six million people, to that one six month exhibition.
That is the power of bold investment in cutting edge infrastructure.
But this was Victorian Britain, and one of the many problems we now face is that so much of our infrastructure was built in that era.
We haven’t so much waited for everyone else to catch-up, as watched as we’ve been steadily overtaken…
…and now we risk being left behind altogether.
Much of our capital’s water system dates back to the 19th Century.
Our railways are amongst the most expensive in Europe.
And, when compared to our European neighbours, our roads are some of the most congested, the most costly, and in the most desperate state of disrepair.
Because, for almost a century, Britain has suffered from serious under-investment in infrastructure; a lack of a coherent strategy and - excepting a period in the 1950s and 60s - a certain lack of ambition.
But this is set to change.
With our infrastructure plan we have set out, for the very first time, a clear and overarching vision of the UK’s future infrastructure.
It’s a plan that will act as a focal point for both the public and the private sector…
…and help us deliver what this country so urgently needs:
A reliable, world-class infrastructure base from which the economy can build.
For the first time, the Economic Affairs Committee of the Cabinet - chaired by the Chancellor - will coordinate infrastructure planning, prioritisation and policy development across Government.
Ours will certainly be a more joined up approach.
The Infrastructure UK team in the Treasury will work with colleagues across the public sector, but also with you, our private sector partners, to overcome the challenges we currently face.
So today I’d like to touch on three aspects of our infrastructure strategy:
First, how we will promote economic growth and make the most of our existing assets.
Second, how we must reduce the costs of delivery.
And third, how Public Private Partnerships will help us achieve our infrastructure ambitions.
First, then, growth.
Last week’s infrastructure plan clearly set out our overarching objectives…
…to create an environment where firms can invest in infrastructure with confidence.
We have set out, for example:
- How the UK will generate 15 per cent of energy from renewable sources by 2020;
- How we will remove bottlenecks right across our road and rail networks;
- How the UK will have the best superfast broadband network in Europe by 2015
- How we will invest in some of the world’s leading scientific research centres.
And much more.
And our national infrastructure plan clearly sets out how we will structure our decisions.
Our first priority will be to maintain our existing assets better - and manage demand wherever possible.
Our second priority will be to relieve the pinch-points in our networks - to increase capacity and improve resilience.
And our third priority will be to invest in new strategic infrastructure projects - to meet the demands of a 21st century economy.
Maintain, expand, and invest.
These are our priorities.
Cost of delivery and planning
Next, we must reduce the costs of what we build carrying through the excellent work of the ongoing Cost Review.
None of you will be at all surprised to hear that the Cost Review confirms that civil engineering in the UK is extraordinarily expensive when compared to some of our European neighbours.
Well there are many reasons.
Uncertainty of the investment returns; wasteful processes; inefficient procurement…
…I could go on.
Yes, we all know there are opportunities to reduce costs, but now we have to take them.
And this time, we will deliver.
In the past, when money was rather easier to come by, there was a degree of complacency.
The news was full of stories about capital projects going massively over budget.
The Millennium Dome, Wembley Stadium, Portsmouth’s Spinnaker - to name a few of the more obvious cases.
The financial position the UK is now in means that this is a luxury we can no longer afford.
And our relentless drive for efficiency will provide the impetus to finally make some much needed changes.
Starting with our planning system.
We want to fundamentally reform our planning system and create a simple, coherent, national planning framework.
Yes - we are replacing the Infrastructure Planning Commission with ministerial accountability but we will keep the fast track planning option for nationally significant infrastructure projects; follow the National Policy Statements for energy with Statements for other sectors such as waste; and take forward some of the proposals of the Penfold Review for non-planning related consents.
As the infrastructure plan identifies, funding remains a real challenge.
We need to unlock new sources of finance, and look at the reasons behind our low levels of private sector investment.
Now, more than ever, we need more private funding if we’re to take advantage of new opportunities.
As a Government, we’ve committed to important projects such as:
- Superfast broadband
- and carbon capture and storage.
But it will be the private sector, which will have the opportunity to make a much larger contribution to achieving our future infrastructure needs.
Where we cannot get the market mechanisms right, we will consider targeted interventions, such as through the Green Investment Bank, particularly to help alleviate front end risk. And, of course, we remain committed to Public Private Partnerships in their widest sense.
But we are shifting the emphasis from social to economic infrastructure. This means that classic PPP and PFI structures will have a less significant role to play. There is no point in trying to hide that.
However, it is in the context of a total £200 billion infrastructure investment - overwhelmingly from the private sector - over the next five years. This is a significant step up from the £150 billion invested in the past five years.
And you will know that the Spending Review supported a significant numbers of PPP projects - including 11 waste schemes, three highway maintenance developments, and the Nottingham Tram extension; as well as confirming the greater part of the pipeline of projects already in procurement…….
…but it also required us to make some tough choices.
I know many of you will be disappointed, given the time, energy and bid costs you’ve invested in projects that have now been discontinued.
But PPPs will continue to play an important role in Britain’s future infrastructure.
Through the June Budget and the Spending Review 7 PFI projects reached financial close…
…and many other key PFI projects have proven to be good value for money.
Over the coming weeks, departments and local authorities will be turning their attention away from the Spending Review, and looking again at where to invest their resources.
And this is where PPPs have an important role to play.
Partnering with the private sector, and the use of private finance, brings significant value to complex public infrastructure projects.
This is something we both know, but in recent years is something we’ve failed to fully take advantage of.
Yes, PPP has brought whole life costing into the public sector; ensured proper due diligence; and drastically improved the risk assessment of projects.
These benefits must be retained.
But we have to do more.
A challenge has been laid down by Government to deliver public services more efficiently, and PPPs are an important part of the solution.
Britain has one of the most mature PPP markets in the world.
But there’s still room for improvement.
We have to ensure that all government spending - including infrastructure and PPPs - drives the greatest possible value for money.
And this is not just about future pipelines…
…we must drive savings in the 630 projects already signed.
Please do not underestimate how important this work is to this Government.
I know that the Forum is already engaging positively with our operational savings work and I want to thank you for that and ask for your continued support.
We need to renew public trust in Public Private Partnerships.
We must overcome the perception that PPPs have been unfairly prioritised over other forms of delivery: that they’ve failed to achieve value for money; handcuffed the public sector to unnecessarily long contracts; and been used to hide government liabilities.
In short, we have to make PPPs more transparent.
Through the publication of the Whole of Government Accounts, and by committing to publish all contracts over £10,000, we will achieve this.
Improving confidence in PPPs and in the involvement of the private sector as our delivery partners.
We’re not looking to undermine PPPs. On the contrary, high regulatory standards and greater transparency will only help strengthen our relationship.
And I would like to touch on, just for a moment, one other change that we’ll be taking forward.
A change that’s been driven by PPP’s success.
The Chancellor announced at the Spending Review that we will no longer provide funding for the Infrastructure Finance Unit other than to meet its current obligations.
The value of TIFU has been considerable. As a lender of last resort they have helped improve market confidence, delivering over 50 government infrastructure projects since 2009 - all without the need for further central support.
In fact, they’ve been so successful in their current capacity that they’re no longer needed.
So TIFU staff are now being redeployed to IUK.
Their expertise will be essential as we work on the agenda to enable the greatest possible private sector investment in infrastructure.
And we need to hear your ideas for how best to leverage in more private finance; manage costs more effectively and ensure that we get the best value possible from every project.
Government certainly doesn’t have all the answers.
The Government is now focused on Britain’s infrastructure industry - to help support the recovery and to underpin a balanced economy for decades to come.
It is a £200 billion prize for investors, contractors and professional advisers - as well as for the nation - and I want to work with all of you to deliver that prize.