Speech by the Commercial Secretary to the Treasury.
[Check agains delivery - 1,410 words]
I am delighted to be visiting Canada and meeting with so many of the country’s leading businesses, and it’s a particular pleasure to do so with the country’s leading infrastructure companies here in Toronto and UK companies with operations in the Canadian market.
In my old banking life at SG Warburg, I was heavily involved in infrastructure and privatisation work globally and a decade ago I was an advisor here on Hydro One.
So I know something about Ontario and its successes in infrastructure - and that we in the UK have at least as much to learn from your experiences as you do from ours.
And I have to say that it’s especially exciting to be working on infrastructure in the current Coalition Government, because this Government has put infrastructure at the heart of its growth strategy as we rebalance the UK economy away from one of debt-fuelled consumption to one based on enterprise, export and investment.
Over the summer we have witnessed market volatility that we haven’t seen since 2008. At the heart of this has been the downgrade of US debt and the ongoing sovereign debt crisis in the Eurozone.
Only last week the Chancellor urged his European counterparts to take decisive action to resolve the uncertainty around Greece and ensure the resilience of their banking systems. Ultimately the Eurozone must accept the remorseless logic towards greater fiscal integration.
These events inevitably impact on UK economic fortunes. But in one key respect we are insulated from the storm.
We have taken a firm grip of our debt problem…having inherited the largest peacetime deficit in our country’s history, we have put in place plans to eliminate our structural current budget deficit by the end of the parliament.
As a result, UK gilt yields have fallen to near record lows in recent weeks, and that makes a huge difference for households and for businesses.
But we need to work tirelessly to help our businesses across the economy…to embed a recovery based on private sector enterprise, investment and export.
Earlier this year we released our Plan for Growth to galvanise a private sector led recovery.
It set out plans to create the most competitive tax system in the G20… secure £190 billion of bank lending for UK businesses… overhaul our stifling regulatory and planning rules… and sets the stage for £200 billion of investment in our key infrastructure needs, with a substantial increase in transport and energy infrastructure, and a greater share of private finance.
For many international businesses the quality of our infrastructure is a pivotal factor in their decision whether or not to locate in the UK. And high quality infrastructure stimulates new growth in key sectors such as construction but also future high growth industries in the digital and online sectors.
But the UK is lagging. We are poorly perceived compared to our international peers when it comes to the quality of our infrastructure.
That is why we brought a renewed focus on infrastructure when we came to Government through a new body called Infrastructure UK. And IUK has done a tremendous job in identifying our infrastructure priorities and galvanising private sector interest around the world in UK investment.
Last year we published our first ever National Infrastructure Plan which set out our vision for of the economic infrastructure that our nation needs…smarter and more efficient use of existing assets…small but big impact investment in network stress points…and investment in transformational large scale projects where they are part of a clear long term strategy.
This includes providing the best superfast broadband in Europe by 2015, investing in the construction of London’s Crossrail, currently the world’s biggest urban transport scheme under construction, and developing a national high speed rail network.
Running through these priorities of course, is our commitment to build a low carbon economy. It’s a thread that runs through all our investment decisions, and it is an ambition that will be supported by our wider structural investments in the economy.
But we are also pursuing discrete investments to support a green recovery, including the Green Investment Bank, the UK’s first Carbon Capture and Storage project, and £200 million for the development of low carbon technologies.
And, of course, the Private Finance Initiative will continue to play an important role in underpinning our country’s future infrastructure needs.
It’s impossible to deny that PFI projects have a better track record of delivering on time and to budget, compared to conventionally procured projects.
More than that, they allow us to achieve a real transfer of risk away from the public to the private sector.
But at the same time, we must acknowledge that there is room for improvement. To ensure that we are making the most out of every pound spent.
PFI remains a focus of much political attention in the UK, both on how we can take cost out of the existing portfolio of projects; and on how we can ensure better risk transfer, proper sharing of refinancing gains and more flexible FM contract terms in all new contracts.
We have already taken significant steps to improve the cost effectiveness and transparency of PFI. In July I announced plans to deliver at least £1.5 billion in savings across almost 500 existing operational PFI projects across England.
This followed a review of pilot projects which confirmed savings opportunities of up to 5 per cent of annual payments through more effective management of contracts, making better use of space, and by reviewing soft service requirements in contracts.
In April, we introduced new guidance to departments to strengthen our scrutiny and approvals processes and all major projects now need to go through three key approval points.
We have also established a Major Projects Authority, a joint venture between the Treasury and the Cabinet Office, which will review and assure government’s most risky projects including those delivered using private finance.
And in July, for the first time the Government included future PFI liabilities in the unaudited Whole of Government Accounts.
This complements the PFI statistics already published on the Treasury website and is part of our drive to ensure greater transparency in all aspects of government procurement and spending.
All of these measures are part of an ongoing programme of reform to improve the delivery of public sector infrastructure and assets using private finance and we will continue to look for ways to deliver the best possible value for money from existing and future PFI contracts.
As for Canada, I know you have taken on board some of the lessons from the UK’s earlier challenges with PFI and are improving your understanding of how the UK has made the PPP process more effective and efficient, for example by standardising certain contracts.
There are of course more lessons to be learned in the future, especially as early PFI projects in the UK begin to come to maturity, for example the importance of asset management over the contract, and utilising investment in better quality materials to ensure the asset is handed back to the public sector as it was delivered.
There is much more that we can learn and share with our international partners.
Canada has an extremely strong track record in the infrastructure and PPP arena, and we are eager to capitalise on your complementary expertise and work together to drive innovation in the sector in our respective markets and globally.
We are keen to promote UK PPP expertise internationally. Indeed, we were actively engaged through IUK with Partnerships British Columbia and Infrastructure Ontario in the early stages of their development.
And we also have an established business presence in Canada through companies such as John Laing, Balfour Beatty Capital and Turner & Townsend to name a few, and we are keen to secure new business and work with Canadian partners as the federal, provincial and municipal authorities embark on new and ambitious infrastructure plans over the next decade and beyond.
And we are also committed to widening our infrastructure investment base.
We know there is huge international appetite for investment in UK infrastructure, including from Canada as demonstrated for instance through investments by the Ontario Teachers Pension Plan, and Borealis Infrastructure on behalf of the Ontario Municipal Employees Retirement Scheme.
I look forward to our discussion and identifying how we can capture PPP opportunities, together as partners.