Government infrastructure response includes new investment bank but vague on regulatory change

Plans for a national infrastructure bank, for the water sector to bring resilience to a one-in-500-year drought, a statutory consumption limit, an accelerated planning regime and a net-zero carbon duty on utility regulators are among policy pledges unveiled last week in the government's long-awaited response to the 2018 proposals from its advisor, the National Infrastructure Commission (NIC).

National Infrastructure Bank

In his foreword to the response paper, National Infrastructure Strategy: Fairer, Faster, Greener, the prime minister Boris Johnson said, “We will reduce policy uncertainty that holds back investment and create a new national infrastructure bank to co-invest with private-sector partners.

According to the government The bank, will “play a leadership role in supporting private infrastructure projects to help meet the government’s objectives on economic growth, levelling up, and transitioning to net zero,” according to Fairer, Faster, Greener. It will operate UK-wide with headquarters in the north of England. The new bank will operate within a mandate set by government while having “a high degree of operational independence.”

The government said it intends for the bank to be operational, in an interim form, from spring 2021, and will legislate “at the earliest opportunity” to put it on a statutory footing. And at Budget 2021, the Chancellor will set out “comprehensive details regarding the operations, mandate and scale of the bank.”

It will, the government said, use a range of tools to support private projects debt, equity, and hybrid products and offer guarantees through the existing UK Guarantees scheme.

Regulation

Under a heading of Coherent duties to reflect new challenges the government said it was “committed” to maintaining the current system of “independent economic regulation.” It is however evasive on the issue of change.

It said it agreed with the NIC’s primary finding that “the UK’s system of economic regulation is working well but needs updating in some areas to address 21st century challenges.” And it said it was “ committed” also to “taking a long-term approach to investment to provide predictability and the required stability, as well as appropriate incentives to investors.”

It pledged to “refine” the existing regulatory regime “to ensure it provides a clear and enduring framework for investors and businesses and delivers the major investment needed in decades to come, while continuing to deliver fair outcomes for consumers.” And it promises the government will produce an “overarching policy paper on economic regulation in 2021.” That paper will “consider regulator duties injecting (sic) more competition into strategic investments and the benefits of a cross-sectoral Strategic Policy statement.”

However for detail it refers readers to the Treasury’s response to the NIC’s 2019 paper, Strategic Investment and public confidence in which the Treasury backs none of the NIC’s recommendations offering only “partial” endorsement for some and passes responsibility to the regulators themselves to address for the rest.

The government is more supportive of the NIC’s proposals on environmental regulatory matters.

It says it supports “In particular”, the recommendation that, where relevant, regulators should have duties to support net zero targets. It says it “will continue to review the most appropriate measures, including a net zero duty, to ensure that regulators make the necessary contributions to achieve these targets.”

And it declares support for the NIC’s recommendation for the UK Regulators Network to have a stronger role, and “commits to increasing collaboration, including by reviewing data sharing powers between regulators, with a view to considering how best to encourage regulators to develop joint data sets for ‘whole customer’ analysis.”

Resilience

In its formal response to the NIC’s national infrastructure strategy published in 2018, the government has agreed with the NIC’s assessment that more water supply infrastructure should be coupled with demand reduction to meet the oncoming greater stress on capacity to meet demand. In its response document, National Infrastructure Strategy: Fairer, faster, greener, the government said that for the next round of plans in 2024 it will “require the water industry to plan to deliver resilience to a one in 500-year drought”.

Recognising the impact of leakage and excess water consumption by householders and businesses, the government said it was exploring the possibility of a statutory target to reduce water demand using powers in the Environment Bill.

This, it said in the response, “would be on the volume of water distributed or abstracted by water companies, encompassing household use, non-household use and leakage.

Planning

The government has committed to “set an ambition” to halve planning timescales “ for some projects entering the system from September 2023.” It is establishing a National Infrastructure Planning Reform Programme to “refresh how the NSIP regime operates, making it more effective and bringing government departments together to deliver more certainty in the process and better and faster outcomes.”

It conceded the need to “refresh the Nationally Significant Infrastructure Projects” process having identified “risks to the timeliness of ministerial decision making, inefficiencies in the ways in which different public bodies interact with the regime, and scope for improvement including through adoption of digital working practices.

Chair of the NIC, Sir John Armitt, said: “We are particularly pleased that government has accepted the commission’s proposal for an infrastructure investment bank, to help catalyse private investment.

“Alongside announcements in the Spending Review, the Strategy represents a solid down payment on a long-term fiscal commitment to infrastructure,” Armitt added.