Infrastructure (Financial Assistance) Bill

Lord Adonis Excerpts

Tuesday 23rd October 2012 Lords Chamber

[Lord Adonis]

I am very grateful to the Deputy Chief Whip for explaining the Bill and I am delighted to be debating with the noble Lord for whom I have the highest regard. I am also very glad that Paul Deighton is to become Minister for Infrastructure. It was specifically to shadow him and his vitally important work that I have returned to the Front Bench and I much look forward to engaging with him. I understand that Paul Deighton will not be joining the Government until January so this is an unusual, if not unprecedented, case of the shadow materialising three months before the substance, which sort of sums up the Government’s infrastructure problem: all shadow, no substance.

If I can continue the metaphor, this Bill is one of the most shadowy I have ever seen. Its four clauses simply give the Government power to spend up to £50 billion on infrastructure in very broad areas—water, electricity, gas, telecoms, sewerage, railways, roads, health, education, courts, prisons and housing—with little indication in the Bill or in the debates in the House of Commons beyond a single announcement about Crossrail trains of what real infrastructure projects it is intended to assist and when.

The Minister did not enlighten us much further, saying that,

“it would be inappropriate … to run down a list”,

which is a phrase redolent of Sir Humphrey at his very best. Our consideration of this Bill is a mere shadow since it is a money Bill which we cannot amend or even debate amendments to. However, before this phantom passes into law, I should like to set out some issues for debate and would be grateful for the Minister’s response.

In 2009, expenditure on infrastructure was at the highest real-terms level for about two decades. Three years later, the Construction Products Association is warning that infrastructure is in free fall. It is expected to decline by 13% this year compared to last. The CPA is projecting even bigger falls in key sectors—for example, a 40% drop in road construction this year—not least because of the coalition’s wholesale cancellation of road schemes in 2010. Will the Minister confirm these figures and tell us whether, in retrospect, it was wise to cancel essential schemes of national importance such as the dualling of the A14 east-west route from Felixstowe port to the Midlands and the dualling of the A21, a key route from London to the Kent and Sussex coast?

In the case of the A14, this project has now resurfaced as a proposed toll road. My officials told me that tolling of the A14 was unworkable when I was Secretary of State, but the coalition clearly has a higher source of wisdom. So, could the Minister tell me, first, whether the Government are considering a state financial guarantee for the privately financed A14 project, as it will surely need one; secondly, what tolling scheme is proposed, because I can find no reference anywhere to a scheme that appears even vaguely workable; and thirdly, when the tolled and dualled A14 will be open? If the work had gone ahead as a conventional road scheme in 2010, the opening would be taking place in stages from now. The only reference that I can find on the web is to a tolled scheme that will open from 2018.

Equally concerning is the delay and prevarication over energy policy, which is holding up investment in new infrastructure, including the £210 million Siemens investment in a wind turbine factory in Hull and huge investment in new wind farms and renewable energy. There are big delays, too, in rolling out superfast broadband and 4G. When I was on the Norfolk coast earlier this month, visiting Statoil’s new Sheringham Shoal offshore wind farm, a particular concern was the lack of fast broadband and the poor quality of mobile phone reception. Britain’s lack of 4G mobile phone provision is pushing us behind the United States, Germany, Sweden and parts of Asia. As for broadband, the Country Land and Business Association recently described the superfast broadband situation as lamentable saying:

“It is becoming clear that the Government’s strategy will not meet the target date of 2015”.

The shadowy case for this Bill is that it will help unlock the capacity of the private sector to invest in infrastructure, but it is important to understand that a critical obstacle to infrastructure investment is the Government’s own failure to lead and deliver.

I mentioned road schemes a moment ago. It is the same story with airport capacity in the south-east, where the Prime Minister has just appointed a review which is going to take three years. It is now three-and-a-half years since the previous Government announced their decision on airport capacity in the south-east. In the House of Commons, the Economic Secretary to the Treasury said that any decision on airport capacity would be taken by the next Government. In other words, this Government have given up. If I may say so, that is one of the most brazen abdications of responsibility that I have ever heard from a Government.

It is the same story on HS2—another project that I know intimately—where dither and delay since 2010 have put the project back by at least two years and may again delay the key decisions until the next Government. It is a similar story too in London, where one of Mayor Johnson’s first cuts in 2008 cancelled the desperately needed Thames Gateway Bridge which would have provided another Thames crossing in east London, for which both planning and funding were already secured. Instead, all we have is a new cable car offering a tiny fraction of that capacity and—you could not make this up—the beginning of a planning process which might ultimately lead to a new bridge not far from the one which was cancelled for short-term political reasons. It is the same story now with the extension of the Northern Line to Battersea, a key development area. In June, a Treasury source told the Evening Standard:

“The entire weight of the Government is being thrown behind the extension of the Northern Line”.

Now, Transport for London can only say:

“Subject to funding being in place and permission from the Secretary of State for Transport, the new stations could be open by 2019”.

So much for transport, energy and broadband. Let us look at education. One of the Government’s first acts in 2010 was to slash to ribbons the school building programme. If that had not happened, hundreds of schools would be being built or refurbished as we speak, pumping billions into the construction industry and providing modern school premises which will now have to be built at far greater expense hereafter. It is the same story too with housing. The number of housebuilding starts fell by almost a quarter between March last year and March this year, with starts by housing associations, in the quasi-public sector, down by a similar proportion.

I have always taken it as a golden rule that the state should not preach to the private sector until it has got its own act together. Well, let us be clear: we are now confronting a situation where the state itself has slashed or delayed infrastructure spending across the board, and failed to agree planning decisions for key privately funded infrastructure projects, while deploring delays in the private sector. That is not leadership, but complacency masquerading as concern.

It is not just on investment that the state is failing to lead. The Government talk constantly about reducing planning delays, something which is within the power of the state to determine. Yet I note that last year only 60% of major planning applications were processed within the target date of 13 weeks, a big reduction on the 68% determined within 13 weeks in 2010.

Turning to the national infrastructure plan, which the noble Lord said was “ambitious but credible”, I note that in the latest reissue, 63 projects have disappeared without explanation from the 2011 plan—I assume that they were ambitious but not credible. Of the 357 projects in both the original plan and the updated version published this April, almost two-thirds were in pre-procurement stages. Only 38 had proceeded to procurement or construction. More than 300 projects in the national infrastructure plan therefore are still mere shadows, and 63 have vanished into thin air. Honing down to the most important projects, the British Chamber of Commerce identified 13 critical infrastructure projects before the last election. There has been little or no progress on eight of those 13.

Will the Bill help with any of this? It entirely depends what the proposed assistance is going to be used for. The Bill simply says that the Government may provide any kind of financial assistance up to the absolute limit of £50 billion. The only further limitation suggested by Ministers is that projects should be of “national significance”, a definition which looks to be in the eye of the beholder. Will the Minister give us just a few examples, beyond Crossrail trains, of projects which will now go ahead through the proposed guarantees to the private sector, as the CBI has said that we need urgent action from Ministers to identify further projects?

Will the Minister also give us an indication of when the first project financed under this guarantee scheme will actually go ahead? When the Crossrail trains announcement was made, the Financial Times said:

“The government appears to have relaxed one of its key criteria for guarantees—neither the super sewer”—

another possible project for this scheme, funding for which is apparently stuck in the Treasury—

“nor the Crossrail rolling stock schemes will be ‘shovel ready’ within 12 months”.

Will the Minister tell us about the relationship between the Bill and the Growth and Infrastructure Bill, which was published last week? The Bill was supposedly going to unlock a string of major infrastructure projects. Now, before it is even enacted, another appears whose Explanatory Notes state that its purpose is,

“promoting growth and facilitating provision of infrastructure”.

There are to be yet more changes to the planning system intended—and have we not heard this before?—

“to enable applicants to avoid delays in local decision-making”,

while respecting localism. The next Bill also includes changes to the infrastructure financing regime, which overlaps directly with this Bill: for example, removing so-called unviable Section 106 agreements for affordable housing.

The CLG blurb accompanying the Growth and Infrastructure Bill states that those further changes could:

“Unlock investment decisions across a range of technologies, bringing thousands of new jobs and billions of pounds of investment”.

Those are almost precisely the same words used to justify the present Bill and a host of other initiatives over the past two years, each of which has been succeeded by another intended to achieve precisely the same objectives before it has even been enacted, let alone implemented. They are also the justification for the regional growth fund, only a tiny fraction of whose allocated funds have yet been released to businesses, as catalogued in the highly critical report from the Public Accounts Committee.

I have asked a lot of questions, and I entirely understand if the Minister writes to me about those to which he cannot get answers by the time he replies. I fully recognise that it may take longer than two hours —perhaps two years or even two centuries—to come up with a viable scheme for tolling the existing A14.

Let me end on a broader note. When the Bill was debated in the Commons, the Economic Secretary to the Treasury said that it would,

“facilitate headline schemes for infrastructure and housing investment, accelerate and bring forward investment in major UK infrastructure projects and increase the number of homes being built and occupied”.—[Official Report, Commons, 15/10/12; col 121.]

Those are fine words, but what we need now is action. At the moment, we are simply chasing shadows.

--- Later in debate ---

[Lord Newby]

That is a philosophical question, almost. When is a menu a plan and when is it not a plan? If I am making a dish, it very often lists a number of things that are absolutely required to make a successful dish but it does not necessarily say in what order I need to chop them up. The menu taken together would undoubtedly represent the implementation of a very significant plan.

[Lord Adonis]

Is the Minister not confusing a menu with a recipe? A recipe is the plan; a menu is options which then lead to recipes thereafter, if I can be philosophical.

[Lord Newby]

I am always in awe of the culinary skills of the noble Lord, Lord Adonis, and am extremely grateful for that way of looking at it. However, whether it is a plan, recipe, menu, or none of the above, the key thing is that, as far as risk is concerned, which was the second question that I wanted to address, the Treasury will be responsible for managing the risk and assumes the contingent liabilities. Value for money, as I said earlier, is key.

The noble Lord, Lord Giddens, asked about the pension infrastructure platform, about which I should perhaps have said more. As he may know, last week, seven pension funds announced that they would be initial subscribers to the platform. They will each invest at least £100 million. We hope that the system will be up and running early next year and that it will be the first element of a much larger fund. As to why we think that pension funds might now get involved in this kind of investment whereas they have not in the past, the answer is that, in the past, they have been able to get better returns through conventional means of investing the money. At the moment, with interest rates so low, they are getting very low returns. The other problem that they have had is that, where they have gone via private equity houses which have managed infrastructure programmes, they have often found that the programmes have not worked very well and that they have been charged an arm and a leg for it. So this is a way for the funds, with support from the Treasury, to get into what could be very important new form of investment without what they have seen as being the unreasonable cost of going down a purely private sector route.

The noble Lord also asked about the relationship between this Bill and the energy Bill. The purpose of the energy Bill is to set a framework for investment in the energy sector over the medium term. Once the energy Bill, which will come forward relatively soon, is enacted, and against the framework that that Bill sets out, people looking to invest in the energy sector can form a view about what they want to do and individual projects will be eligible for support under the Bill.

The noble Lord, Lord Skidelsky, started with three nonsenses and will not be surprised that the Government do not agree absolutely with everything that he said. I find it almost incredible to think that if the Government had not been seen to get the fiscal position under control, interest rates would not have gone up. Even if they had not gone up to the levels that they are at in Greece or Spain, a single percentage point increase in interest rates, among other things, costs mortgage holders in the UK an extra £12 billion a year and would over the course of a Parliament, with all other things being equal, cost the Government about £25 billion. These are very important considerations. Interest rates would almost certainly have been higher if we had turned on the tap.

On his proposal for a British investment bank which would raise money in the private market, the noble Lord will not be surprised to know that the Treasury view is that, if that bit of the state is raising money in the private market and conventional government borrowing is happening in the same private market at the same time, the markets will judge the pair of them together as a common pool of demand from the UK Government. Therefore, we could not segregate borrowing for a British investment bank without it having consequences for the way in which all government borrowing was viewed.

The noble Lord asked how many of the net gains in employment were self-employed or part time. There is a false assumption that working for oneself or working part time are somehow second-class things to do or things that people do not necessarily choose to do. Some people are forced to do one or the other. However, when I was made redundant in the last property crash in 1992, I in effect became self-employed by setting up my own company and it was one of the better things that I have ever done. It did not mean that I was economically out of the market or that I was not able to grow anything. Many people who become self-employed find that they are successfully self-employed. Equally, many people who work part time—and even the Guardian accepts that the figure is at least 80%—do so through choice rather than because they are forced to.