Water infrastructure and flood risk management both feature in the government’s National Infrastructure Strategy published by HM Treasury last week.

According to the government, infrastructure investment will have a key role to play in the economic recovery from COVID-19 the recovery, both by maintaining jobs in the short term, and creating the conditions for long-term sustainable growth.

In the summer, the government brought forward £8.6 billion of capital investment in infrastructure, decarbonisation and maintenance projects. To support the recovery, government investment in economic infrastructure will be £27 billion in 2021-22.

The government is also setting out longer-term settlements for key infrastructure programmes, with record levels of investment in strategic roads, rail, broadband and flood defences.

This includes the £5.2 billion the government is planning to invest by 2027 to better protect 336,000 properties and boost resilience of communities to the increased risk of flooding and coastal erosion resulting from climate change.

The strategy paper says the investment will reduce national flood risk by up to 11% by 2027 and help to avoid £32 billion of wider economic damages.

Commenting on new water infrastructure, the paper says the government recognises that demand on water supply must be tackled through reducing the amount of water lost through leaks and reducing the volume consumed by customers.

The government is currently exploring the possibility of a statutory target to reduce water demand using powers in the Environment Bill.

Pension funds - "huge opportunity" to support the UK’s infrastructure investment ambitions

The paper also provides more detail about the new UK infrastructure bank the government is establishing to co-invest alongside the private sector in infrastructure projects. The bank, which will operate UK-wide, be based in the north of England.

The bank will co-invest alongside private sector investors including banks, institutional investors, sovereign wealth funds, pension funds and global infrastructure investors.

The Strategy draws particular attention to the role of pension funds, commenting:

“There is a huge opportunity for pension funds to support the UK’s infrastructure investment ambitions.”

“The industry anticipates that pension funds and insurers will be able to invest between £150 billion and £190 billion in infrastructure over the next ten years.”

The paper says the government wants the National Infrastructure Bank to work closely with the pension fund and institutional investor market to explore opportunities for a further expansion of pension fund investment in UK infrastructure.

At Budget 2021, the Chancellor will set out comprehensive details regarding the operations, mandate and scale of the bank. The government intends for the bank to be operational in an interim form, from spring 2021.

Government is committed to model of independent economic regulation

The government’s approach to independent economic regulation is also addressed in the strategy. The paper says:

“The Government is committed to the model of independent economic regulation, but will refine it 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.”

The government is planning to produce an overarching policy paper on economic regulation in 2021,which will “consider regulator duties, injecting more competition into strategic investments, and the benefits of a cross-sectoral Strategic Policy statement.”

According to the Strategy, “historic levels of investment” will be required in UK infrastructure in the coming year.

The paper says government’s approach to private investment is built on three key principles:

• The government will provide investors with long term policy certainty including where appropriate, directly coinvesting alongside the private sector and acting as a cornerstone investor on key projects through a national infrastructure bank;
• The government will maintain a strong and enduring system of independent economic regulation, helping deliver the investment levels the country needs and fair outcomes for consumers of today and the future; and
• The government will continue to use a range of policy tools and innovative funding mechanisms to embrace opportunities from new technologies and decarbonise and level up the economy

This Strategy paper outlines a major package of reforms the government says will be needed to implement the government’s approach of delivering infrastructure projects better, greener, and faster.

The reforms cut across the following four areas:

• Reforming infrastructure planning and better environmental regulations: accelerating planning permission by removing blockers and inefficiencies in current planning regimes, allowing more dynamic project development whilst ensuring better environmental outcomes after EU exit;
• Simplifying procurement regulations and modernising the construction sector: designing more streamlined procurement regulations after EU exit, enabling government to use its weight as a customer to support the construction industry in adopting modern, highly productive practices;
• More effective decision making: front-loading decision making – stopping or progressing schemes earlier; streamlining and condensing governance, with assurance and approval milestones planned upfront and bringing in functional expertise earlier; and monitoring and evaluating projects using better data to support continuous improvement and policy reform; and
• A step change in capability and leadership: accelerating investment in major project expertise and delivery skills; and recruiting expert leadership and improving the skills base across the country to ensure every area can deliver the infrastructure it needs.

According the government, the reforms could accelerate delivery of infrastructure projects by up to a third.

Reforming planning system is "overdue and necessary"

The paper describes the planning system which governs the regulation of land use and development. as “central to addressing the UK’s infrastructure priorities.” However, it can be "complex and burdensome", slowing project development and adding costs to construction.

Commenting on the current planning regime for infrastructure, the Strategy says that while the Nationally Significant Infrastructure Projects (NSIP) regime is well-respected, it is “currently not being implemented as effectively as possible, leading to slower delivery times and more uncertainty.”

The Strategy states:

“Combined with EU exit, this is a historic opportunity to design more nimble frameworks that speed up the delivery of critical infrastructure while protecting and enhancing England’s unique ecosystems.

“Reforming the planning system is not a task this government undertakes lightly, but it is both an overdue and a necessary reform.”

The government is planning to establish 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.

The aim is set an ambition to cut timescales by up to 50% for some projects entering the system from September 2023, together with establishing a project “acceleration team” of planning experts to accelerate infrastructure projects through the system and identify innovative ways to deliver faster planning consents.

"Quicker, simpler framework for assessing environmental impacts"

On environmental regulations, the Strategy papers says that delivering vital infrastructure whilst protecting and improving the environment is a “top government priority” and EU exit would provide an “historic opportunity” to design “a quicker, simpler framework for assessing environmental impacts and enhancement opportunities, that speeds up the process while protecting and enhancing England’s unique ecosystems.”

Reforms will include a new system of environmental assessment (including Strategic Environmental Assessments and Environmental Impacts Assessments) – to deliver a new framework that provides clarity, removes duplication, and ensures environmental considerations are embedded effectively in decision making at an early stage.

Better use of data and creation of "national digital twin" of UK infrastructure systems

The Strategy says that good decision making is underpinned by clear and accessible data – both on the nature of the problems that infrastructure is trying to solve, and on the performance of existing infrastructure systems.

However, it points out that the NIC’s 2018 study Data for the Public Good identified that there is currently limited understanding of how the UK’s infrastructure works as a system. In addition, use of new technology like sensors, digitalisation, digital twins, the internet of things, big data, and artificial intelligence is “piecemeal and not done in a coordinated way.”

The government said it will address this by:

• Launching a new cost benchmarking hub and data platform, supported by cost estimating best practice guidance to ensure project assumptions are realistic and achievable at the outset, enabling more robust decisions at an earlier stage;
• Developing a “national digital twin” of the UK’s infrastructure systems and built environment, via smart infrastructure which is capable of collecting data about itself as it operates

Although many infrastructure owners across energy, waste, transport and water have “digital twins” of their assets, according to the government the exchange of data between these systems is often ineffective, making it harder to tackle cross-cutting infrastructure issues such as climate change.

The Strategy says the government will also develop a National Underground Assets Register, pointing out that the UK does not currently have an efficient process for utility asset owners to share their data.

Describing the current process as ”low, inefficient and ( limiting) the speed at which works can be carried out, the paper says a comprehensive register of underground assets would help address this.

It would also help prevent accidental damage to underground pipes and cables which currently costs the UK economy £1.2 billion per annum.

Economic regulation - UK Regulators Network to have a stronger role

According to the National Infrastructure Strategy, the economic regulatory framework is central to the provision of infrastructure, with Ofcom, Ofgem and Ofwat monitoring and refereeing how infrastructure is funded, delivered and operated within their respective sectors.

The paper says the government is committed to maintaining this system of independent economic regulation.

However, the Government announced at Budget 2020 that it agrees with the NIC’s finding that the UK’s system of economic regulation is working well but “needs updating in some areas to address 21^st century challenges.”

This includes:

“Notably the need to decarbonise infrastructure across all networks, adapt to climate change, capitalise on new innovative technologies and take advantage of opportunities arising from leaving the EU.”

The government’s position will be expanded further in an overarching policy statement to be published in 2021.

Among the duties needed to reflect new challenges, the government supports the NIC’s recommendation that, where relevant, regulators should have duties to support net zero targets.

It also supports the NIC’s recommendation for the UK Regulators Network to have a stronger role – the government will increase 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.

Greater use of competition

To ensure that new infrastructure is delivered in the most efficient and appropriate way, the government supports the NIC’s assessment that the use of competition should be harnessed as the most reliable means of supporting innovation and providing enhancements to economic infrastructure.

The government will also review whether regulators need further powers to promote competition as part of the forthcoming policy paper.

Commenting on the strategy, Alex Plant Director of Strategy and Regulation for Anglian Water said:

“We welcome the Government’s priorities set out in the NIS. It reflects many of the goals and ambitions we have set ourselves to ensure a green economic recovery post Covid19, and prepare for a resilient future across the East of England where the challenges of climate change and a rapidly growing population in an already water-scarce region are greater than anywhere else in the UK.

“We also welcome the commitment to support private sector investment in core infrastructure. we agree with the need to review economic regulation to ensure that it enables investment which is essential to meet the 21st Century challenge of climate change.

“Climate change will not wait, and our customers are clear that we should be taking action now to address these urgent challenges. I look forward to engaging with HM Treasury on its proposed economic regulation review which should consider how we can ensure economic regulation supports these ambitions.”

Click here to download the National Infrastructure Strategy in full