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Private sector will be vital to curb plane, train and car congestion

by International Commercial Investment on November 1, 2015


The need for new infrastructure is driven by population growth, urbanisation and climate change, and this is particularly obvious in Britain. Here the population is forecast to grow by 10m over the next 25 years and within a generation the UK will overtake Germany to become the country with the largest population in the EU. Urbanisation is also accelerating, and London should soon become the first European city with more than 10m people.

Climate change is also a reality, even if the causes are hotly debated. There is no doubt that a changing pattern of rain, storms and drought is affecting our cities – as Hurricane Sandy reminded New Yorkers in October 2012 or as flash floods showed in the south of France in October last year.

Our challenge is to build the extra capacity to keep our economy growing, our cities moving, and our homes and factories powered, and that will help us avoid the annual panic around our looming power crunch.

Thankfully, the Government seems now to have to bitten the bullet. The recent announcements of a National Infrastructure Commission, together with Chancellor George Osborne’s commitment to invest £100bn in infrastructure, are more than just welcome – they are vital to prosperity.

This new commission is necessary to develop a long-term vision that will survive changes of government. Building a road, runway or railway line takes years and over its lifetime an infrastructure project will see several ministers come and go before completion. The mandate given to Lord Adonis should help to achieve that objective of long-term consistency and, even if the commission won’t be responsible for delivery, it will be able to hold governments responsible for following through on their commitments. The names announced for the commission are those of competent, experienced people who have seen the best and the worst of infrastructure delivery, from Canary Wharf and the Olympics to the struggles of Railtrack and Network Rail on the West Coast main line. No doubt they know what is needed and what it takes to deliver new infrastructure for the long-term needs of the country.

The spending pledge will also provide an economic shot in the arm just as growth is slowing. Research shows that spending on new roads, tunnels and trains provides a financial return of up to £2 in GDP for every £1 invested. Not convinced? Look at the time and money wasted in road congestion, estimated to reach £22bn by 2025, a huge drag on productivity.

The solution? Harness the financial muscle and delivery know-how of the private sector through more public-private partnerships.

Invented here in the 17th century, co-operation between governments and private entrepreneurs was instrumental to the success of Britain’s industrial revolution. Most of our canals and railways were built and operated by the private sector, under the protection of public frameworks, but at their own risk in terms of construction costs and the threat from new technologies. In short, public-private partnerships (PPPs) helped Britain to become the first nation in the world to industrialise. After the Second World War, PPPs helped to rebuild our shattered cities; and more recently they have helped to revitalise our schools and hospitals.

Indeed, every time there has been an urgent need for more capacity in transport, energy or public buildings, it has been the public sector that has designed the vision and established the framework, and the private sector that has executed the plans.

This is fast becoming the latest British export success story, as our PPP experts, be they engineers, lawyers, financiers, or operations experts, are in high demand in Central Europe, Australia, in the US and in the Middle East, helping to deliver infrastructure projects on time and on budget. The demand is such that we at John Laing Group are very busy recruiting and training experts in the UK to send them around the world. I am frequently amazed to find myself in a remote corner of the United States, Australia, or Saudi Arabia, to find a Brit working on the same transportation project.

So it is frustrating to see that the UK has cooled on the application of PPPs, while much of the rest of the world is rushing to copy our great invention. Public-private partnerships are not without their detractors, who are critical of them as a method for government to flatter and massage the national debt figure. They are missing the point.

PPPs are today primarily a way for government to transfer risk to private contractors, including cost overruns and delays. There are plenty of examples of PPP infrastructure projects that were delivered on time and on budget to public authorities that commissioned them, while the private sector has had to absorb the extra costs and penalties. Profits don’t come without risks or the potential for losses.

Overall , the UK has now successfully delivered more than 500 projects via PPPs since the PFI act in 1992. The train that you may be riding in as you read this newspaper was probably delivered, improved or maintained via a public-private partnership, as was the school where you dropped off your kids, or the hospital you recently visited.

Some projects have failed spectacularly – including London Underground extensions, and some NHS hospital schemes. Projects have ended up in court or criticised in the media because the different parties involved failed to co-operate for the benefit of the public. Yet I can probably count those instances on the fingers of my two hands.

With the establishment of the National Infrastructure Commission, and the UK Government’s commitment to fund £100bn in new capacity, it is time to revisit the way public and private sectors work together. While cynics will look at past failures and idealists will ignore them, realists will know that there is no better way to deliver so much infrastructure, so quickly. I strongly believe it would be a terrible shame to leave it to other countries to benefit from what we have invented, allowing them to overtake us in the global race, while Britain remains stuck in traffic.

International Commercial InvestmentPrivate sector will be vital to curb plane, train and car congestion