Highways (Financing) Bill (Second sitting)

Mike Reader Excerpts

Committee stage
Thursday 29th October 2026 Public Bill Committees

[Shivani Raja]

No, that is fine. Do you have anything to add, Mr Palmer?

Matt Palmer: I think it is beyond my scope—National Highways is here as an operator and a constructor. I think Will has probably answered the question properly.

[Mike Reader (Northampton South) (Lab)]

Q Matt, I think you have already answered my first couple of questions: the legal requirement on climate was set in 2022 in the original direct consent order, and the requirement to use alternative fuels to diesel is not a significant cost driver in a scheme of this scale. However, reflecting on a conversation that you and I have had previously, I was wondering about the cost impact, and the impact on the project generally, of delays caused by uncertainty of finance. Would a Bill like this enable future schemes to have certainty of financing arrangements, and therefore get on site and be delivered more quickly? Is that a fair assumption?

Matt Palmer: I think all of us recognise that annualised costs on major projects, especially mega-projects, are very difficult to deal with. They drive perverse cost behaviours, where you are trying to fit into a 12-month window, and the Government are currently moving, with the mega-projects piece, towards more of an envelope-type conversation. This is just another extension of that. You end up with a cost envelope that you are working within, with a driven timeframe that you have to deliver to, which then allows the flexibility to execute at the right time—depending on the weather and so on. It is that flex that you need in order to execute efficiently. If you are constraining yourself on cost to a budget every year, which is common, it does drive cost. This model gives you the flex that allows you to drive an efficient construction project.

[Mike Reader]

Q For those who are concerned that the capital cost of this scheme continues to rise, and it has risen since I was first involved in it many years ago, what mechanisms have you put in place specifically with your contractors to drive down cost in delivery?

Matt Palmer: The base cost of the scheme—the cost without inflation—has been fixed since 2020. The great thing about a development consent order is that the scope is fixed. We are still building 52 bridges, 22 km of road and 4.3 km of tunnel. The cost difference between now and previously is essentially driven by inflation. You have got great cost control sat there inside the direct consent order. Our contracts with our contractors then drive to that same scope and control, and there is a pain/gain share: they get into pain if they exceed and they get incentivised to deliver below, which is normal with any project of this scale.

[Mike Reader]

Q Will, I do not know whether you heard the earlier evidence and the thoughts about how the ORR needs to scale up and strengthen to deliver this. Do you have any reflections and what have you fed back to the Government about what the ORR needs to be able to do its role effectively on this project?

Will Godfrey: I hope my earlier answers go to some of that. If your question is specifically about the scope of what you were just asking Matt, it is important for us that the arrangements around what will be LTC Co. and its relationship with its contractors, and in turn what it is allowed to charge to end customers, is not a simple pass-through-type arrangement. That is really important.

You need to make sure that there are the right liability caps in relation to the pain/gain sharing. Are those at the right level? Has LTC Co. or any company licensed under these arrangements—let us concentrate on the LTC example—got the right incentives to be able to control the relationship with the contractors? Through the licence and the price control arrangements we need to create arrangements in which there remains that discipline to control those costs, so it is not a set of arrangements in which, beyond a certain threshold, end users are ultimately on the hook for cost pass-through.

The importance that the Bill places on efficiency in the economy and that being at the heart of our duties is something that we would take really seriously and very much welcome. It gives us the authority to be able to act on getting to those kind of price control licence arrangements. Of course, as I said earlier, the first price control arrangement would be set by the Department through that first competition for the first licence. In terms of how we operate on it thereafter, we would look to make sure there is not just a simple mechanistic pass-through in the event that costs overrun, whether for inflation or other cost shocks.

--- Later in debate ---

[Douglas Lumsden]

Q Will you not make any changes after hearing the comments today?

Justin Madders: I do not think that this is covered by the Bill anyway, but I will certainly take it away to see if there is anything to reflect on. I assure you that this would not be proceeding if there were no interest in investment.

[Mike Reader]

Q Minister, we have heard evidence that there is not a massive amount of competition for major schemes in Europe, yet competition is important to drive down the cost of capital. Do you think that the RAB model will help us to secure the best possible deal on the capital for building the lower Thames crossing?

Justin Madders: I think it will. Obviously the Treasury decision on how this is going to be funded is driving us in a direction where we have to secure private investment. I think the model gives us the opportunity to give the investor certainty over a long period. Clearly, guardrails in there will protect users as well, but as I say, the indications I have had so far are that the long-term nature of the project and the way in which it has been de-risked make it an attractive proposition.

[Mike Reader]

Q In the passage of the Bill, do we have to be careful to separate what it is about—a financing regime and addressing some of the legacy challenges of tolling in the UK—and the construction decisions made by National Highways on the type of fuel it might use, which is probably the equivalent of less than 1% of the overall construction cost?

Justin Madders: As I probably made clear, the Bill is scheme agnostic, so an amendment to require a certain type of fuel would not really help us at all. Look, we have had quite a lot of evidence and, as a Committee, we should take confidence in the measures that are in place to ensure that the costs are kept under control.

[Mike Reader]

Q We heard some evidence about 343 projects, which I think Sam from Britain Remade referred to, which included a whole range of projects delivered around the world. I did a very similar study in 2020, with a similar number of projects—I need to look at whether a bit of plagiarism is going on there in that work! We are actually very good at delivering major road projects in the UK—the A14, the Silvertown tunnel and various others. We are very good at delivering major infrastructure projects on time in the highways space in the UK. I think people need to have a bit more optimism about the delivery of this project.

Justin Madders: I suppose, to pick up from one of the witnesses, I will reference the fact that the road investment strategy—which was started by the previous Government —has set us up with a very sustainable model to develop these large projects over a longer term, giving confidence to the supply chain to keep control of costs and to deliver on time and within scope. I think that National Highways is now very well skilled at doing that, which should give us all confidence.

[Mike Reader]

Q The Secretary of State told the Transport Committee that you would set out the process for setting tolls, which may address some of the concerns about what toll levels might be. Is that still the case? When will we see that during the passage of the Bill?

Justin Madders: The tolls will ultimately be part of part of the licence, which is covered by the Bill—

[Mike Reader]

Q But the process for setting the tolls—will we see how they are to be set, with the key principles and how that is to be done, as the Bill progresses?

Justin Madders: That will be part of the licence conditions, and probably a little too specific for the Bill. Obviously, there are safeguards in the Bill about the things that will need to be considered by the operator.

[Mike Reader]

Q As the licensing conditions are not subject to parliamentary scrutiny, will you set out the core principles of what those licensing principles will be as the Bill progresses through Parliament?

Justin Madders: Yes, we are happy to do that.

[The Chair]

As there are no further questions from Members, I thank the Minister for his evidence. That brings us to the end of the sitting. The Committee will meet again at 9.25 am on Tuesday 3 November to begin line-by-line consideration of the Bill.

Ordered, That further consideration of the Bill be now adjourned.—(Michael Wheeler.)