UK Infrastructure: 10-year Strategy

Baroness Kramer Excerpts

Tuesday 24th June 2025 Lords Chamber

[Baroness Neville-Rolfe (Con)]

My Lords, it is widely accepted that one of the problems that besets the UK economy is the low rate of capital investment in both the public and private sectors. It must be a good thing if the Government assess what will be needed in the way of capital investment and attract resources accordingly. I accept that, for many years, policies on all sides have been less than satisfactory, and I am not in a party-political mode today.

I am in favour of having a planned programme over a planned period, such as a five-year timeframe for capital spending. I welcome the new maintenance fund. My experience in business is that it is essential to provide for maintenance in respect of all capital investments. Having said all that, we are some way from having a coherent and detailed programme for future infrastructure, with the incentives that we need for success. Against that background, which is broadly supportive, I have a number of questions for the Minister.

There remain areas of uncertainty around governance, delivery, capacity and funding. It would be helpful if the Minister could explain how and when these vital details will be revealed in future. It is really important to be clear, at a time when we are often reminded by the Government of the fiscal challenges they face, where the money is coming from.

It appears from the strategy that the Government hope that a substantial portion of this investment will come from off-balance-sheet public/private partnerships. Does the Minister recognise that this is an assumption from the Treasury rather than a hard pledge of cash? If sufficient private investment is not secured, does the noble Lord plan to use public money to fill the gap, or will the Treasury consider legislation to compel private funds to invest in government programmes—an approach that will deter investors in the UK?

Incorporating private finance into the new strategy is a welcome ambition, and I am glad to see the readiness to learn from the past. However, we must ask what changes the Treasury will make to how it engages in PPPs, given the failings around HS2, Metronet and Norfolk and Norwich hospital, to make sure we do not encounter these problems again.

Furthermore, the question that my honourable friend Richard Fuller raised in the other place was not properly answered. What proportion of the £725 billion is newly committed, as against previously announced money? As noble Lords will be aware, investment on this scale and across these timeframes must come with assurances of continuity and origin. I hope that the Minister can address these questions in his response.

The focus in the strategy is, rightly, centred on delivery. One important area in the strategy is housing. The Government have signalled their ambitious intention over the next five years to contribute 1.5 million new homes to the national stock. But the strategy actually funds 580,000 homes over 10 years through Homes England, an average of some 50,000 homes a year. Even on the lowest net migration forecast—350,000 a year—this is far below what is required each year just for migration-driven growth in housing demand. This is not the whole housing picture. However, our concern is that this offers so little net gain for current households waiting for a home. We will explore this further during the passage of the planning Bill, but I would welcome any clarification that the Minister can offer today.

Another area is aviation. The strategy and recent government announcements around aviation are welcome, both on infrastructure and on things such as aerospace redesign. However, as a recent debate in this place highlighted, limitations in the Government’s broader strategy around things such as the European geostationary navigation overlay service, EGNOS—known as the GPS on steroids—mean that these changes will have only a limited impact. Airports such as Exeter, Shoreham and Inverness previously relied on EGNOS to avoid costly infrastructure upgrades but will incur greater costs because they are no longer party to this service.

Does the Minister agree that we need to make sure that, alongside the new spending, we are pursuing non-fiscal policies that enable it to be effective? A key area is skills, which barely get a mention in the 10-year strategy. Yet I know from my time as chair of the Built Environment Committee and as a developer at Tesco that skills in construction, planning and environmental and community engagement matter a great deal. We have become increasingly short of the skills we need to build the hospitals, roads, railways, nuclear facilities, housing, prisons and water and flood defences that we need for a successful country and a successful strategy. I know from the Cabinet Office that, despite the very welcome advances in IT and AI, there is just not enough capacity in terms of skills or supply chains to build all we need. Is this something that concerns the Minister, and what plans does he have to solve the problem?

All of this speaks to the wider question of how we make sure that this money is spent intelligently to deliver value for money, and in a way that grows our economy and promotes productivity. A fundamental question is what our projected return on investment for this strategy actually is: £725 billion, albeit over a long period, is a great deal of money, so our net benefit must also be substantial in order to justify it. I hope the Minister can clear that point up for us.

A related question is: what sort of assessments went into choosing the areas to spend on? Transport spending is welcome, but is the Minister directing investment into the forms of transport that local communities benefit from the most, or does he risk further white elephants? How have the choices been made? Ensuring that we spend infrastructure money wisely, strategically and with an eye to the future is essential if we are to see the sorts of improvements in growth that the Chancellor and the whole country want. In doing so, we must target spending, combine it with wider enabling policy changes and ensure that we do not allow reforms to the Green Book and to local investment to lead to funding for white elephants.

We support the ambition behind this strategy. Long-term investment in infrastructure is a vital step if we are to address the real challenges facing our economy, our services and our communities, but this cannot be an exercise in headline figures or lofty announcements. If this plan is to succeed, the Government must show how the money will be secured, how it will be spent wisely and how it will deliver, for each project, tangible long-term benefits across the whole country—not just for now but for a changing economy and for future generations. How this policy fits in with yesterday’s industrial strategy will also be a vital consideration that we will examine carefully.

[Baroness Kramer (LD)]

My Lords, like my colleagues in the other place I welcome this strategy, which if well managed can significantly improve the UK’s potential for growth. My colleague, the MP Sarah Olney, who responded to this Statement in the other place, focused very much on the absence of a serious discussion of skills in the paper. She did not get a very satisfactory answer. I hope that we will hear something more from the Minister today, because that is the Achilles heel of a great deal of this Statement. However, I am going to focus not on the specific projects or on the issues that were covered in the other place but on some critical aspects of the financing.

As the noble Baroness, Lady Neville-Rolfe, indicated, the strategy proposes an updated version of public/private partnerships. I was recently privileged to chair a round table. Under Chatham House rules, I cannot tell you who was there by name, but there were leading developers, contractors and, basically, the money. To my amazement, and completely in contrast to most public statements, everyone started out by arguing against such a flawed model. Through an hour’s discussion, we identified some conditions under which a PPP could work. I will happily share that report, when it is prepared, with the Minister. The most significant condition was that the public sector has to field an educated buyer team with world-class negotiating skills, with world-class engineering, legal and financial knowledge in support. According to the people we talked to, such teams have not been in evidence.

The second most significant condition was that the projects must be specified in very fine detail, far more so than for a conventional financing and, especially if outcomes-based, allowing only for minimal variances. This condition, which many people will agree is essential for successful PPPs, seriously limits the eligible projects. I would like to hear from the Minister how much of a gap this might mean if these issues are pursued, as I hope they will be.

My second finance issue is specific to London, which will not receive government funding for much new infrastructure, even though it drives the national economy. If that is to be the case, London needs to be able to go directly to the financial markets at scale, to raise money against future value added, to build projects—and without the constraints associated with the current tax increment financing schemes, which are heavily laden with Treasury control. Once refined, this could extend to other parts of the country. I stress the urgency of dealing with this issue. London is the UK’s golden goose.

My last issue is to warn the Government again against abusing the regulated asset base as a mechanism to finance small modular nuclear reactors. In the Conservative era, the estimate that we were given on the Economic Affairs Committee for the then Government’s plans was an £80 increase to annual energy bills for ordinary people—£10 for each of eight SMRs. It was clearly an underestimate then and would be even more so now.

Does the Minister agree that the ordinary bill payer must not be treated as the stuffee—believe it or not, that is the common-parlance term—who must carry the risks and costs while others take both the immediate and future profits?

[The Financial Secretary to the Treasury (Lord Livermore) (Lab)]

I am very grateful to the noble Baronesses, Lady Neville-Rolfe and Lady Kramer, for their comments and questions, and for their broad support and welcome for this strategy.

The noble Baroness, Lady Neville-Rolfe, began in her non-partisan mode, which I will try to replicate if I can. She talked first about the low rate of investment, and she is absolutely right. When we came into power, we saw the lowest rate of private sector investment as a share of GDP in the G7; we clearly have to turn that around. We saw public sector investment repeatedly cut, which is one of the reasons why we changed the fiscal rules in the way that we did, to incentivise capital investment and try to protect it from being cut to subsidise day-to-day spending. I am very grateful to the noble Baroness for her support for that investment and for the plan that is in front of us.

I am grateful to her for welcoming the maintenance fund. As we speak, there is a £46 billion backlog in the public sector maintenance of our schools, hospitals, prisons and courts. As part of this plan, we are putting £5 billion into the maintenance backlog for the NHS, £3 billion into our schools by 2030, and £600 million into courts and prisons. That is really important, so I am pleased that there is cross-party support for it.

The noble Baroness, Lady Neville-Rolfe, talked about governance and delivery capacity. I completely agree with her on the point about delivering value for money. Obviously, the strategy is not just about giving long-term certainty of investment, in terms of the numbers—she is quite right to say that—but what sits beneath them. The strategy is about trying to do things differently and to make sure that we get the strategic planning behind the investment that we are making.

That is the insight that sits behind the creation of NISTA, the National Infrastructure and Service Transformation Authority. It brings together under one roof infrastructure expertise combined with the policy and strategy insight of the National Infrastructure Commission and the delivery specialism of the Infrastructure and Projects Authority. Every two years, it will do a report into the delivery of this strategy. It will give Ministers real-time advice and expertise on specific projects. I hope that that goes a long way to solving some of the issues that the noble Baroness talked about.

The noble Baroness also talked about where the money is coming from. The announcements, as part of the spending review envelope, were fully funded and fully costed as part of that process and are within the current fiscal envelope. Beyond that, we have said that we will guarantee that investment spending will grow by at least inflation for the period beyond the spending view for a total of 10 years, which gives people certainty about the level of infrastructure investment that we are making.

The noble Baroness, Lady Neville-Rolfe, talked about PPPs, and the noble Baroness, Lady Kramer, also talked extensively about this. I agree with a lot of what she said and respect her great expertise on this matter. She talked about the criteria for success, and lessons clearly need to be learned from our previous experience of PFIs and PPPs. The Government are absolutely committed to that. There are several reports now available to us; the NAO’s lessons learned report, for example, provides vital information on what we can do differently and can do better.

The noble Baroness, Lady Kramer, said that, once you apply those criteria, it severely limits the number of projects for which you can use PPPs. To answer the question from the noble Baroness, Lady Neville-Rolfe, I do not think that this is about huge, widespread use. We clearly want a widespread degree of private sector capital coming in and financing infrastructure, and we want to continue to invest alongside the private sector and the private sector to step up and fund things.

We see a role for PPPs but in a very limited way and where their role will clearly be appropriate. We have said specifically that we will explore the feasibility of using new PPPs—learning lessons and applying the right criteria—for taxpayer-funded projects in very limited circumstances where they could represent value for money. We have given two specific examples where we think they could do that. One good example is Euston—the HS2 station—where we will investigate the use of PPP models for user-funded infrastructure. The other is the Lower Thames Crossing, where, again, we think there is the potential for the criteria that the noble Baroness mentioned to apply. There are a limited number of examples but those are two where there is a clear case to be made.

On housing, I completely agree that 1.5 million new homes is a stretching target. It absolutely remains our commitment and we think we are on course towards achieving it. We put a record amount of funding—the greatest for several generations—into social housing. The noble Baroness is clearly right that the potential occupiers want that housing now, which is why that funding has gone in. She wanted reassurance, and I can say that we firmly believe that we are on course towards that housing target.

Both noble Baronesses talked about skills, and I completely agree. It is good that we are in the spirit of consensus and cross-party thinking here. Obviously, with these commitments, it is absolutely right that we need people to build the things that we want built. Clearly, we can always do more, but we have made a strong start. We have made a record commitment to invest in skills—£1.2 billion of additional investment per year by 2028-29 to support current and future workforce needs.

I know that we are in a cross-party mood, but I have to reflect the fact that the degree of underfunding that we inherited was substantial. We had to put in significant amounts of money—billions of pounds—just to stand still and just to plug the gap that existed between needed provision and the funding that was there. Having to plug that gap limits the extent to which we can move forward.

However, we have provided funding to support over 1.3 million 16 to 19 year-olds to access high-quality training—some 65,000 additional learners per year by 2029. The spending review has delivered £625 million to train up to 60,000 construction workers. In the industrial strategy yesterday, we announced that we will introduce new short courses for priority skills as part of the growth and skills levy, continue to roll out foundation apprenticeships and deliver a targeted package for engineering skills. We have specific packages for engineering and construction, both of which are priority occupations in the infrastructure strategy and the industrial strategy.

How do we choose the investment? We always talk about growth, and I think noble Lords can see that much of this investment is targeted towards the sectors that will, I hope, really drive our growth agenda—transport, energy and housing just to name three.

On the questions about London from the noble Baroness, Lady Kramer, I cannot give any commitments today on the future financing model, but I completely share her support for London and her reflection of it as the golden goose. Future investment in London will be central to driving the economy.