Highways (Financing) Bill (Second sitting)

Olly Glover Excerpts

Committee stage
Thursday 29th October 2026 Public Bill Committees

[Justin Madders]

We hope the Bill will address those concerns.

[Olly Glover (Didcot and Wantage) (LD)]

Q Both of your organisations and many others have highlighted how the UK is not great at delivering infrastructure quickly and efficiently. Do you believe that the Bill in its current form has the potential to accelerate the delivery of major road projects?

Ben Hopkinson: I completely agree that the UK has a long historical challenge with delivering infrastructure cheaply and quickly. HS2 is the most expensive railway ever built, and the Bakerloo line extension will be one of the most expensive underground lines ever built. Tramlines are double the cost here compared to other European countries. We have the most expensive nuclear power plant ever built. There is a real long-term failure to build infrastructure quickly and cheaply.

On the Bill, it is good that we are getting private financing in, and that will help ease some of the burden on the state, when we are already pushed up against our fiscal limits. As I have mentioned, I have a little concern about the incentive structure, especially insofar as the private constructor has incentives to escalate costs as much as they can get away with under the ORR. A concession model might work a little better.

Sam Dumitriu: One of the important things when it comes to infrastructure delivery is ensuring you have a pipeline of projects, you know what you will build next and you can plan appropriately. We have many reasons why, in the UK, those pipelines get knocked about. Sometimes you have a road that you want to build, and everyone wants it built, but someone has brought a lawsuit against the road and it is delayed by a year. That makes planning for that really challenging.

One of the other problems is that sometimes those delays mean that you get pushed into different funding windows—the Treasury can reopen conversations about value for money, especially when in every Budget someone is trying to squeeze things into the fiscal rules and moving things from one period into another period, and cost-saving measures that are really delays. Those things tend to happen, and have happened for ever.

One thing that was really impressive under the last Government was the road investment strategy approach, which essentially said “We will set out a strategic case for all the big roads we want to build, we will give a pot of money and then we will give a delivery body the freedom to execute that.” The freedom to execute was slightly constrained by the planning system and all those delays, but fundamentally that is a very good approach. The challenge comes when the money is not quite there from the public purse, in part because the fiscal situation is tighter, but also because different choices are being made. In that case, private finance can fill the gap and ensure that you have a much more stable pipeline. I am in favour of that aspect and I think that will speed up delivery.

[Tristan Osborne (Chatham and Aylesford) (Lab)]

Q Under the French model which you have cited as a template, 91% of roads are owned by privatised companies, and that is very different to the UK. They are extremely controversial and many accuse companies in France of price gouging. We have concerns about asset management and the valuations. You have said that the RAB model is potentially ideal, but is there any element of it that you can say is better than the French concessionary model? What teeth would you give the regulator to make it so, if we were to go down that route? What is missing from the RAB model that would make it more effective?

Ben Hopkinson: It is a good question. First, in the French example, I am well aware that it is quite expensive to drive on a French motorway. On the other hand, they have many more miles of motorway, and if it is too expensive you can take the equivalent of an A road for certain journeys. Judging by the number of people who drive on French motorways, I think people are generally willing to accept the costs, especially given that they have built many more miles of motorway just this century than we have in total.

I could be proved wrong if it works really well, but the main challenge with the RAB model is the sheer uncertainty of whether the ORR is up to the task and has the right staff in place. It has never done this before. I know there have already been some concerns about capacity issues and general commercial experience within the ORR. I would be concerned if the private sector had large commercial control and contract teams and the public sector did not have them and was out-negotiated. That is certainly possible if civil servants are not able to properly push back on price increases.

I think the fundamental incentives in a RAB model are not right for delivering one-of-a-kind, unique pieces of infrastructure. It works a lot better for infrastructure that has very clear unit costs—for example, the cost of laying 100 metres of pipe. That is good because a regulator is clearly able to understand how much 100 metres of pipe costs to lay and can apply that across its base, whereas the cost of one lower Thames crossing is up in the air. Some additions from the private contractor might seem sensible; they might get away with that. Having a more environmentally friendly construction process certainly seems sensible on the face of it, but that also adds cost. I would want to be reassured that the ORR is up to the task and has both the capacity and the know-how to properly understand the arrangements it is entering into.

Sam Dumitriu: You mentioned price gouging. It is important to work out what the main risks are. Roads are, in most cases, natural monopolies, and the best thing about being a monopoly is a quiet life. It is not necessarily that you have all these opportunities to gouge your customers; it is that the lack of competition means you are not forced to adopt cost-saving measures, or become more customer-friendly and so on. You might have a situation where various people are claiming quite high margins or they are being aggressive in that sense, but the UK has the other problem, where people are not on it around costs. They are not working out what the best structure is to ensure that costs keep falling.

On Ben’s point, one possible way of resolving the issue is quite a radical reform that is probably beyond the scope of the Bill. I have always wondered whether it makes sense for the UK to have Ofgem doing RAB regulation for energy networks, Ofwat doing it for water, the ORR for road and rail and Ofcom for telecoms, or whether it makes sense to have a specialist economic regulator that deals with the costs of natural monopoly networks. That would have a bunch of advantages. It would potentially resolve some of the revolving door problems that you might see. It would also ensure that there is a similar expertise and a standard approach. You do not want varying approaches between all the regulators, because that suggests that they are doing something wrong when you have essentially the same economic problem to solve. As I say, however, that would be far beyond the scope of the Bill.

--- Later in debate ---

[The Chair]

I call Olly Glover.

[Olly Glover]

I am all right, Chair—I will defer to other colleagues.

[The Chair]

If there are no further questions from Members, I will thank the witness for his evidence and we will move on to the next panel.

Examination of Witnesses

Will Godfrey and Matt Palmer gave evidence.

--- Later in debate ---

[Justin Madders]

Do have anything to add, Mr Godfrey?

Will Godfrey: I would reiterate the point that the development consent order tightly defines the scope of what is being delivered. As Matt said, the project is already well advanced.

There are a few other points to bring up. Getting the cost forecast right, which underpins the allowed revenue for the first control period, is really important. That is the baseline against which you are holding the company to account. The instruments thereafter are what you specify in the licence, and that is really important to get right. That is not stuff you put in the Bill, but it is really important that you get it right in the licence and that you have the right incentives for the privately financed entity to deliver against that schedule. You need to make sure that the balance in the allocation of risk is right and that end users are ultimately protected from the risks of cost overruns.

As I say, this project is fairly well advanced already; it is not like we are talking about starting one from scratch.

[Olly Glover]

Q Over the decades, we have often heard the wisdom that private finance is better than the Treasury, because it helps to keep things off the Treasury books and avoids constraints from public sector financing. But with some of those private finance initiatives, the whole-life costs can end up being quite a lot higher and being a burden on the taxpayer in a different way. What metrics do you feel that the Government should use to determine whether alternative finance arrangements, rather than direct Treasury funding, deliver better value for money for individual road schemes? What criteria should there be for deciding that?

Will Godfrey: I think the ORR’s role, as envisaged in the Bill, would not be to advise on those questions. That would be more of a question to address to Government. It is perhaps relevant here that it is important to take account of the risk-adjusted cost of financing. You have already made the point about whether things are on the balance sheet or not. Another point to bring in is the certainty around the funding and delivery arrangements. RAB-based price controls are a commitment to a certain cycle of, typically, five-year reviews in which you set the funding requirements, the price control limits and what is delivered in that period. You reset each time but the point is that it is not potentially subject to Government reopening the arrangements for the funding, which is sometimes encountered in other publicly funded arrangements. I think that is as much as I am able to say. That is more of a question for Government.

[Olly Glover]

Q Any thoughts from you, Mr Palmer, using your rich and wide-ranging career experience?

Matt Palmer: If you talk specifically about the lower Thames crossing, its strategic case is incredibly strong and it was introduced by Government to be built because of the broader economic benefit for the country. There is a mixture of models that the Government could choose to fund it. There was a discussion about concessions and RAB-based models earlier. They will all carry the same carrot and stick for driving cost performance. In the end, it is the Government’s decision to bring a project forward. If it is of a strategic nature then this Bill will allow you to fund it.

[Olly Glover]

Q I have a quick follow-up on something you said earlier, Mr Godfrey, about the importance of getting the licence right. You perhaps cannot answer, but let me ask the question in a slightly mischievous way. There was a debate about the Railways Bill and how it was important to see ancillary documents that it referred to while considering it, because those documents had a lot of implications for how the Bill would operate in practice. Would you view the licence and the code, which this Bill stipulates that the ORR must create, as operationally critical to how the Bill would be implemented in practice?

Will Godfrey: One distinction I would draw with the Railways Bill is that that Bill was so significantly concerned with the creation of Great British Railways, which will be responsible for something like 75% of all traffic on the network—not quite the whole market but a very significant proportion of the market. People are therefore understandably keen to see what arrangements are in the licence for that entity. This Bill is enabling and economy-wide. Clearly, the main project that we are talking about currently is the lower Thames crossing, but in principle several other licensed entities could be out there. That is one distinction that I would draw.

As to whether a particular licence is essential to inform the scrutiny of a Bill, my feeling is that the Bill gives you, as a regulator, the kind of duties, functions and powers that you would expect. On the licence, clearly there is work to be done there, but one advantage is that the licences will be put out to competitive tender. That provides a different level of scrutiny from the arrangements under the Railways Bill, in which the licence is awarded to GBR as the given entity that will receive it.

[Tristan Osborne]

Q The recent independent regulatory review of the ORR included a section specifically about the Thames crossing. Paragraph 5.58 of that review indicated that there are resource concerns:

“There are, however, likely to be gaps such as those relating to construction phase price controls, project specific

I know you said that you had confidence in that area, but that report was published just last month. Can I get some clarity? Are you saying that the report is not entirely right and that you are confident that the three aspects it raised will be covered going forward?

Will Godfrey: We very much welcome that independent review of the ORR. It is always helpful to have that sort of outside-in look and scrutiny.

On what it describes as gaps, the other point that Dr Richard Judge brought out was that we are not building from scratch, so this is about providing incremental capacity. I think he was right to draw out those areas as ones where you would want to make sure that the gaps have been filled by the time you are past Royal Assent, the first licence has been awarded and you are into the start of the first price control, which is a long way from today. The point I am making is that, from the discussions I have been having with the Department, I am reasonably confident about being able to resource what I would describe as incremental gaps, rather than starting from a blank sheet.

--- Later in debate ---

[The Chair]

Olly Glover?

[Olly Glover]

Q This Bill proposes use of alternative financing models. Do you have any thoughts on the principles that should be used to make sure that risk is appropriately allocated among Government, investors, contractors and the eventual road users, to keep the project deliverable and affordable for all those parties?

Andrew Truscott: My biggest concern about this project is the ultimate cost to the end user. That is a piece of maths that we all, collectively, need to get right, because we cannot end up with a wonderful project that unfortunately saddles the user with an uneconomic toll for the next 50 or 60 years. How can we manage that? We can manage it by, obviously, trying to keep the cost of construction as low as we possibly can. Other things in our toll roads and our businesses globally include dynamic tolling, where we encourage road use by differentiated pricing depending on the time of day—I would love to explore that with the Government at the right time—and differentiation for different types of vehicles. I think there is a way of getting the end users’ experience to be a little fairer than if there was just a flat toll.

In terms of the overall costs and delivery, obviously, the cost of financing at the moment is as high as it has been in my career. That is a factor that we all have to be aware of. I am sure you guys all know this, but infrastructure is a diversifier in pension fund portfolios. We are a spread to the risk-free investor. That is how we calculate our returns, so unfortunately, as risk-free rates go up, the expectation of the returns on our capital also goes up.

Innovation around how we can collectively deliver a financing package against that backdrop that is as cheap and deliverable as possible is also quite important. How do we do that? Certainty of outcome, high-quality regulation and ensuring that everybody who commits capital understands the limits of their capital and is therefore able to calculate their returns accordingly.

[Olly Glover]

Any thoughts from you, Mr Forsdyke?

Roger Forsdyke: Not on the subject of financing; it is outside my experience.

[Olly Glover]

Fair enough.

[Tristan Osborne]

Q This question links to the independent review. I questioned the ORR on this. Obviously, you are sitting on the other side of the table, and you are looking to extract as much as you can from an investor perspective. You represent one side of the spectrum, and the regulators are on the other side. There has to be a working partnership between you both. Obviously, the efficiency of a project finance model such as the one for this crossing relies on certainty and predictability for investors, and regulators being there to ensure the stability of the regime. Obviously, we do not have a regulator that manages this at the moment. Where does investor confidence stand regarding the ORR? Do you think investor confidence is there for this model to work going forward?

Andrew Truscott: I would slightly reject your first statement, if I am honest. As an infrastructure investor, we provide, candidly, the lowest cost private capital that is available across the world. If you are attracting John Laing and people like us, I can guarantee that you are getting the lowest cost of equity capital that you can possibly attract and therefore the risk transfer needs to be accordingly appropriate.

I will slightly repeat my opening comments: when we first started interacting with DFT about this project, I was quite nervous about the RAB model. I am not a RAB nerd; there are lots of RAB nerds, and I am not one. RAB can be incredibly complicated, and it can take a huge amount of time to drill down. There is not a regulator. There is an awful lot of work that needs to be done. Am I nervous that that is going to take longer than it should do or could do? Yes, I am, but again, credit to DFT and the Treasury, they seem to be well on track. Maybe the better answer to your question is that we as investors will need absolute certainty—and I mean absolute certainty—about what that regulatory model is, who the regulator is and how that regulation is going to work before we will put in a dollar, a pound, or a euro—whatever currency you like.

--- Later in debate ---

[Jim Dickson]

Q I am a very strong supporter of the Bill, because it enables major projects such as the lower Thames crossing to be funded, but the tolling issue is important. We cannot talk about individual toll levels, but we can talk about mechanisms by which reasonable—hopefully affordable—tolls will be set for both industry and individual motorists. Could the Minister enlarge a bit on how the ORR, with the legislation designed and passed by Parliament, will ensure that tolls fit the definition of “affordable” as far as possible?

Justin Madders: I understand why you ask that question. The Bill sets the framework for the RAB model, and that will establish the independent regulator. Its remit is clear, and it is there in the first few clauses of the Bill: to take account of the interests of road users. There will be fair pricing, transparency and long-term sustainability as a result of that. You will also be aware that there will be a stakeholder group in which users will have the opportunity to feed in. We have a pretty robust set of reassurances that I hope will satisfy you and your constituents.

[Olly Glover]

Q A witness said that one of my questions was best aimed at Government, so it would be churlish of me not to avail myself of the opportunity to ask it to you, Minister. What metrics should the Government use to determine whether alternative financing arrangements deliver better value for money for road infrastructure projects than direct Treasury funding? How are the Government thinking about that question?

Justin Madders: First, as it made clear, the Treasury will not fund the totality of the project, so we have to look at other models. There are different views about how that would work. If we want to compare it to the private finance initiative, which has been the major funding source for a number of crossings in recent years, costs under the RAB model tend to be lower.

Clearly, we have an independent regulator that will, as I have explained and you have heard in evidence, be able to limit cost recovery, to make sure it is economic and efficient. There will be regular requirements set out to review that under the licence. Ultimately, the Government will not be left, as they would be under PFI, with repaying a debt over many years. That might be off the balance sheet, but it still ends up coming to the taxpayer.

[Olly Glover]

Q We hope that will end up being the case, because they have not all ended up marvellously—although you are right to say that some have gone well. You mentioned the Office of Rail and Road as the regulator. Why has it been selected as a regulator, given that the Railways Bill was rather shunted into the siding, some could say? Why the ORR rather than a different kind of regulatory arrangement?

Justin Madders: As this is a road, the Office of Rail and Road seems to be the appropriate regulator.

[Olly Glover]

Q Yes, but it is for rail, which is also in its title. I alluded to the Railways Bill, and I am just interested in the different approach.

Justin Madders: There is a different approach because this is a different situation. This is the regulated asset base model, which is about a long-term investment, balancing the interests of users and investors and having a strong regulator that understands the sector. As we have heard, the ORR is already working on it. That is absolutely the right balance to make sure this delivers for everyone.

[Olly Glover]

That is an interesting answer, because railways also have both users and investors, but perhaps that is a debate for another day. I will happily let other people come in now.