Supporting private investment

The UK is an attractive destination for private investment in infrastructure, with the Government estimating that over GBP200 billion has been invested in the last decade in the water and energy sectors alone. The National Infrastructure Strategy recognises the importance of private investment to funding new infrastructure and the Government’s plan to maintain high levels in the future are set out in Chapter 4.

A new infrastructure bank

The Government will establish a new infrastructure bank, headquartered in the north of England. The bank will operate within a mandate set by Government, though with a “high degree of operational independence”.

It will use a variety of tools to support private projects, including co-investment, guarantees, debt, equity and other hybrid products. The bank will also be able to lend to local and mayoral authorities to help deliver regional infrastructure projects.

Details regarding the operations, mandate and scale of the bank will be announced in the 2021 Budget and the Government intends for it to be operational in an interim form from Spring 2021.

The Government is also considering a number of technical changes intended to encourage pension funds to increase their investments in UK infrastructure.

Economic regulation

The Government intends to update the UK’s system of economic regulation, which is delivered in their respective sectors by Ofcom, Ofgem and Ofwat. The key issues to be addressed are:

• Clear strategic direction – A “more transparent strategic framework” will be introduced for economic regulators. This will include a commitment to consider the regulators’ duties, measures to introduce more competition into strategic investments and consideration of cross-sectoral policy statements aimed at providing greater clarity for regulators, investors and consumers.
• Coherent duties to reflect new challenges – Regulators’ duties will be reviewed to ensure they are fit for the 21st Century and promote innovation and growth. Where relevant, they will have a duty to support the “net zero” carbon emission target.
• Greater use of competition – The Government sees greater competition as the most reliable means of promoting innovation in infrastructure delivery, and will review whether regulators need additional powers to promote competition.
• Building public confidence – The regulatory framework will be updated to “reflect the government’s priorities for levelling up and devolution of powers within the UK”. In particular, devolved administrations, local authorities and metro mayors will be able to contribute to consultations as part of the price control process. Regulators need to ensure a balance between ensuring sectors are adequately financed and that the rewards for investors reflect performance.

An overarching policy statement setting out the Government’s position will be issued in 2021.

Funding support mechanisms

Both new funding models and the application of existing models to new areas will be considered, including:

• Using the Regulated Asset Base model pioneered on the Thames Tideway Tunnel project for new nuclear and other energy sources.
• Developing new support mechanisms and markets for carbon capture and storage.
• Opening up contracts for difference to onshore wind and solar PV.
• Incubating new ideas by increasing public support for R&D.

The Government is also carrying out a review of existing PFI contracts “to ensure they are well-managed”.

If you have any questions about the potential implications of the NIS for your business, please contact Ian Graves, Legal Director and a member of our Planning and Land Use team and UK Infrastructure, Construction and Transport sector group.