The Government growth agenda for infrastructure has gathered further momentum with the recent publication of the National Infrastructure and Construction Pipeline (NICP). The NICP is a forward looking publication of planned investment in infrastructure comprising both public and private sectors, and contains over 700 projects and programmes with a total value of more than £500 billion. Infrastructure, here, ranges from smart meters for energy suppliers to nuclear powers stations.
The Government has also published a new Funding and Finance Supplement setting out how planned investment in the pipeline supply is likely to be financed and the opportunities for private investment. These publications come hot on the heels of the Autumn Statement unveiling of the National Productivity Investment Fund (NPIF) that will direct £11 billion of additional investment into infrastructure projects and programmes across the UK, aimed at boosting productivity.
The NICP unashamedly showcases a wide range of projects and highlights that the country’s infrastructure sector is very much open for business and will continue to be post-Brexit. Indeed, significant private investment is needed to deliver the pipeline supply of projects and is estimated to make up more than half of the £300 billion of investment needed for the identified projects up to 2020/21, and a significant amount thereafter.
NLP has undertaken analysis of the project breakdown in the NICP. Figure 1 below provides a breakdown of the near £500 billion investment planned from 2016/17 onwards combining private and public sector investment for the main types of infrastructure. The largest sector in the pipeline supply is energy, totalling £206 billion. Unsurprisingly, nuclear power projects make the largest contribution to planned investment in this sector. The top 3 single largest projects all include nuclear power plants, and account for 22% of overall investment.
Figure 1: Infrastructure investment by sector
Source: NIC; NLP analysis
The next biggest sector is transport, with the total value being heavily skewed by High Speed 2 (accounting for 40% of the total planned investment).
Utilities are the third biggest sector with around £75 billion of investment to be directed towards electricity and gas transmission and distribution. The characteristics of this sector are inherently linked to the high performing energy sector. Interestingly, the utilities sector is the only sector identified in the NICP that is to be entirely funded by the private sector.
Around 40% of the £300 billion of projects up to 2020/21has been allocated to individual English regions - the other 60% cannot be allocated because it relates to schemes or programmes that cover multiple regions. Figure 2 below shows NLP’s analysis of the spatial variation of infrastructure investment from 2016/17 onwards.
Figure 2: Regional-specific infrastructure investment
Source: NIC; NLP analysis
Different regions have different priorities allocated in terms of infrastructure investment. It is noteworthy that a focus for London will be significant investment in transport improvements, which accounts for over two-thirds of its £29 billion planned private and public investment. Crossrail and tube line modernisation represent 2 of the big ticket items for the Capital alongside a large range of other comparatively smaller projects. The NICP shows that the North West and South West regions will attract the largest share of investment in the energy sector compared to the other regions in England, which elevates them into 1st and 3rd place respectively in terms of total planned infrastructure investment for the English regions (over £36 billion and £22 billion respectively). This is largely accountable to significant sums of private sector investment in new nuclear power stations at Moorside (West Cumbria) and Hinkley Point (Somerset). London comes in 2nd overall, spurred on by its planned transport improvements.
NLP has also analysed the timings of planned investment which shows that the energy and transport sectors are planned to receive the majority of investment from 2016 onwards (Figure 3 below). A decline in investment is anticipated in the 2-year post-Brexit era (assuming the UK leaves in 2018), which could just be a coincidence.
Figure 3: Infrastructure analysis by year
Source: NIC; NLP analysis
Certainly ‘Brexit-blight’ has the potential to influence Government spending priorities and private investor confidence, and generally reduce potential sources of funding. For example, the role of The European Investment Bank (EIB) as a source of debt finance for infrastructure projects in the UK is noted in the Funding and Finance Supplement, as is the EU’s “Investment Plan for Europe” which uses a 21 billion euro guarantee fund to enable the EIB to lend to an increased range of infrastructure projects. Whilst the EIB has continued to approve and sign financing deals with UK projects since the referendum, with over £2 billion of EIB financing approved and over £400 million of deals signed for UK projects since 23 June 2016, this support is only likely to continue while we remain a Member State.
It is also notable that investment in infrastructure post 2020/21 is anticipated to be dominated by the energy sector, accounting for 63% (around £127 billion) of the total planned £201 billion. This sector is predominantly privately funded, with overseas investment playing a pivotal role. Economic volatility is likely to hamper the UK’s ability to attract this form of investment.
The Government’s ability to drive the economy forward in the post-Brexit era will therefore be integral to securing the necessary funding and achieving its growth ambitions for infrastructure development in the UK. The NICP and Funding and Finance Supplement will hopefully help by highlighting investment opportunities and inspiring investor confidence.