Taking the long view: A new approach to infrastructure

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

Sponsored by

About the sponsor URS is a leading provider of engineering, construction and technical services for government agencies and private sector companies around the world.

The Company offers a full range of programme management; planning, design and engineering; systems engineering and technical assistance; construction and construction management; operations and maintenance; management and operations; information technology; and decommissioning and closure services. URS provides services for government, oil and gas, infrastructure, power and industrial projects and programmes.

URS is now part of AECOM. Together, we have nearly 100,000 employees working in more than 150 countries around the world. www.urs.com For URS, contact: Muna Al-Azzawi Communications Director, UK, Europe, Middle East and India URS 6 Greencoat Place London SW1P 1PL United Kingdom D: +44 (0)20 7798 5158 M: +44 (0)7917 574 766 E: muna.al-azzawi@urs.com

Contents Foreword by Katja Hall, CBI

4

Foreword by John Horgan, URS

5

Overview – The stats that tell the story

6

The infrastructure landscape

9

The fourth CBI-URS infrastructure survey 12 Chapters 1. P ositive progress in this parliament is yet to translate into business confidence 16 2. P olitical barriers risk preventing us from closing the gap on our rivals

24

3. W here we are seeing breakthroughs, politicians must stick with the plan

30

R ail – Investments currently being made are starting to pay off D igital – Retain our current advantage through a long-term, cross-party strategy

4. W e can’t duck the big decisions that need to be made

38

R oads – Without a national debate on road funding reform, business sees a bleak future A viation – Indecision on new runway capacity is already impacting business investment

5. D eliver messages that reinforce rather than restrict future confidence 46 Energy – After the success of EMR, rhetoric now risks investment

6. A new approach is needed to boost our ability to take the right decision, at the right time. 50 References

58

4

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

Katja Hall foreword

This year’s infrastructure survey comes at an opportune moment for reflection, half a year out from a general election. After much hard work and sacrifice, the UK’s economy is now on firm ground, providing solid foundations upon which we can build.

We now need to ask ourselves the question: what kind of economy do we want, and how do we get there?

Knowing where we should be heading is the easy part. We need to see a rebalancing of our economy towards investment and exports. Getting there in practice however is going to be much harder, and requires us to take some tough, long-term decisions.

This means the coming election is not just about the next five years – it is about the next fifty.

Nowhere is this truer than for our infrastructure.

Quality, affordable networks will be instrumental in achieving our goals, but change doesn’t happen overnight. This means we need a long-term vision that delivers what we need, when we need it. Too often in the past, however, short-term politics has got in the way.

This is why this year’s survey is so important. With an opportunity to set ourselves on the right path, the survey shines a light on business’ perceptions of the big infrastructure challenges we simply cannot afford to ignore for the long-term health of our economy. It sets the agenda for the incoming government, as well as reflecting on our current efforts – where we are getting things right, and where we need to see change.

Looking back over this parliament, there is no doubt that businesses have appreciated the efforts made to put in place policies that will help infrastructure investment thrive. The National Infrastructure Plan, the UK Guarantee Scheme, reforms to the Highways Agency, Electricity Market Reform, pro-growth planning reforms – the list goes on. The impact is clear to see: since our first survey in 2011, the UK has become a more attractive location for investors.

What is worrying however is that businesses still don’t see significant improvements in missioncritical parts of our infrastructure – and don’t expect

to any time soon. Rumours of renationalisation of the railways, moratoriums on new airport capacity and mixed-messaging on renewable energy do little to indicate to business that politicians have infrastructure improvements high up their agendas.

All the while, the UK still requires £100bn investment in energy, a new runway in the south-east by 2030 and a new approach to address an £8bn shortfall in funding for the strategic road network.

It’s no wonder that confidence in the future remains low.

We need a new and better way of making important decisions about our infrastructure. That 89% of businesses want to see an independent infrastructure commission, as proposed by Sir John Armitt, is a stand-out statistic for me. It signifies a broader call for a new politics of infrastructure, helping to set out a long term vision which is not hijacked by every electoral cycle and can give investors much more confidence.

Businesses overwhelmingly want to see positive, bold messages in party manifestos, demonstrating an appetite to make the right kind of difference to our long-term economic outlook.

This new approach can help turn good policies of the last five years into spades in the ground and progress on the ground for the next fifty.

Katja Hall Deputy director-general, CBI

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

John Horgan foreword

Infrastructure is woven into the fabric of history. From Roman roads to the engineering feats of Bazalgette and Brunel, or the Freeways that brought prosperity to the US in the 1950s and 60s, inspired by the German Autobahn network seen by President Eisenhower in World War II – infrastructure has long played a decisive role in improving the way we live, travel and do business.

Dwelling on the milestones of past will not secure our future, however. At a time when the UK is facing uncertainty over long-term security of energy supply and real concerns about short-term generating capacity, we have no option but to plan ahead. Much of the UK’s most vital infrastructure urgently needs upgrading so it can cope with the expanding population, the impact of climate change and an increasingly globalised world.

In the Victorian era our infrastructure provided the backbone for economic growth – now, as this year’s CBI-URS Infrastructure Survey shows, the perception is that we are lagging behind our economic peers. Despite some high-profile success stories in recent years and the current government’s strong commitment to future projects such as HS2, the UK is falling behind many of the countries with which we compete for foreign investment.

This is why, six months ahead of the general election, the UK is at a crossroads. Politicians from all parties have a real opportunity to take decisive action that will transform the country for the better. For too long the country’s infrastructure has played second fiddle to changing political priorities, with every new government bringing a different agenda. Much of the infrastructure on which we are so dependent today urgently needs an overhaul. Now is the time to be as bold in our vision as our Victorian forebears.

For this to happen, infrastructure decision-making must change. The CBI-URS Infrastructure Survey provides clear evidence of the appetite for a new approach to infrastructure planning and delivery. Business is calling for a long-term approach to infrastructure that extends beyond the five-year electoral cycle. We want to see the establishment of an independent body to assess

and plan the UK’s infrastructure needs. While originally championed by Sir John Armitt, a broader consensus is now emerging as politicians across the spectrum recognise the compelling benefits of this vision.

Imagine the impact of a long-term, holistic approach that married national and local needs, integrating road, rail, aviation and ports. Imagine a strategy that enabled capacity to be one step ahead of demand.

Ending the stop-start approach to infrastructure investment would have a profound impact on the UK’s construction industry, from infrastructure operators through to small, specialist companies in the supply chain. Decades of uncertainty about the longevity of funding and demand have led to today’s engineering skills shortage. A longer term approach to infrastructure planning would give industry the confidence to recruit and develop the vital skills required to deliver complex, transformational projects. After all, we need to invest in the engineers, environmental scientists, planners, surveyors, architects, financiers and construction experts of the future – professionals who will work collaboratively and confidently with government to deliver the innovation the UK needs to secure a leading position in the global marketplace.

John Horgan Managing Director, Europe, Middle East, Africa and India, URS

5

6

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

Overview – The stats that tell the story

1 Positive progress in this parliament is yet to translate into business confidence

2 Political barriers risk preventing us from closing the gap on our rivals

• 99% of firms say the quality or cost of infrastructure has a significant impact on their investment decisions, so it is important infrastructure remains high on the political agenda.

• Key pieces of the UK’s infrastructure are viewed as internationally weak, with energy and transport seen in a negative light when compared to our rivals.

• Coalition policies to boost infrastructure investment in the last four years have been overwhelmingly positive, with 70-80% of infrastructure providers viewing the UK Guarantee Scheme, National Infrastructure Plan (NIP) and planning reforms as positive steps.

• Yet confidence that these developments will translate into better infrastructure on the ground is low with almost two-thirds of firms saying energy is deteriorating, and over half seeing the same in transport.

• Nor does the future look bright: 67% and 57% expect energy and transport to worsen in the next five years, meaning business expects a decade of decline in key areas.

• With 91% of firms ranking digital networks as a key factor in investment location, UK digital is a bright spot, as 89% have seen improvement since 2009 and 70% expect this to continue.

• Worryingly, the quality of our infrastructure fares particularly badly against some of our biggest rivals: Australasia, North America and the EU. • What’s more, business doesn’t think we are closing this gap. In 2011, 59% of companies saw infrastructure in EU countries as better than in the UK; in 2014, this has grown to 61%.

• The UK underinvests in capital spend relative to other developed economies, so 99% of firms want to see levels raised in line with the G20 average to at least stem the tide.

• If we are to actually close the gap, the UK will need to be a stand-out location for private infrastructure investment. While ranking above the EU as an attractive location, we currently lag behind North America and Australasia.

• The most significant factors that business sees as stopping us from attracting more private investment are overwhelmingly political. 71% of providers view political uncertainty as significantly discouraging investment, and 54% believe political rhetoric is a major barrier.

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

3 Where we are seeing breakthroughs, politicians must stick with the plan

4 We can’t duck the big decisions that need to be made

Rail – Investments currently being made are starting to pay off

Roads – Without a national debate on road funding reform, business sees a bleak future

• Investments in the rail network are paying off – a balance of +46% and +19% have seen improvements to metro and intercity rail services in the last five years.

• UK business sees the road network continuing to deteriorate. More than half of UK companies (52%) report a worsening of motorways in the last five years, and 65% see the same in local roads.

• Business backs the current regime to continue delivering improvements. This year, for the first time since the survey began, commuter rail is expected to improve.

• The future is seen as equally bleak, with 77% and 86% of respondents expecting motorways and local roads to get worse or stay the same over the coming five years.

• There is overwhelming support for the system of franchising and Network Rail’s plans to deliver significant investments into the future.

• But 39% are confident that Highways Agency reform will have a positive impact – a figure that increases to 45% among infrastructure providers and construction firms.

• Big projects also now have wider backing, with 59% supporting delivery of HS2, even if 70% feel there is still a greater role for government in making the case for new investments.

Digital – Retain our current advantage through a long-term, cross-party strategy • The importance of digital networks is on the rise for businesses of all types, with increases in the importance of these networks found in all sectors in just one year since the 2013 survey.

• Despite being a UK strength, business dissatisfaction with current networks is still too high. 48% of all firms and 71% of those in the IT sector are dissatisfied with current provisions.

• Business is particularly concerned about the UK’s mobile broadband coverage, demonstrated by the fact that 67% of firms rate current coverage as inadequate…

• …and with 55% of firms seeing a lack of access to superfast broadband as inadequate, it is clear we must do everything possible to maintain the pace of investment.

• Still, 80% of firms remain concerned about where investment for new roads is coming from, with 86% of all business leaders in the survey now backing greater private investment in the road network.

Aviation – Indecision on new runway capacity is already impacting business investment • Businesses see direct air links with high levels of frequency as key determinants of their travel decisions: with 74% seeing the direct routes as important and 66% prioritising frequency.

• While links with established markets remain critical, emerging markets are not far behind.

64% of firms see air links with North America as important, but just 7 percentage points behind is China (57%).

• Links to established markets are good, with +69% and +68% of firms positive on balance with links to the EU and North America. Yet for China (+22%), India (+15%) and Brazil (+14%), satisfaction is much lower.

• With runway capacity quickly running out in the south-east, 46% of firms in London say that indecision on new capacity is already impacting investment decisions. As a result, 92% want to see politicians implement the Airports Commission’s final recommendations in summer 2015.

7

8

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

5 Politicians must deliver messages that reinforce rather than restrict future confidence Energy – After the success of EMR, rhetoric now risks investment • Energy is mission critical to business competitiveness, as three-quarters of companies consider reliability and cost significant factors in choosing where to invest.

6 A new approach is needed to boost our ability to take the right decision, at the right time • Business wants to see all parties commit to bold action in manifestos, including backing for rail franchising and Network Rail’s investment programme (99%), commitment to implement the Airports Commission’s findings (92%) and longterm road funding reform (86%).

• Concerns that the UK is not attracting the investment needed for the future have steadily eroded business confidence that supply will improve, with a balance of -34% of firms expecting improvement in 2012, -54% in 2013 and now in 2014, -67%.

• In the long run, business wants to see a new approach to infrastructure, with 89% backing the creation of an independent body to assess the UK’s long-term future needs. In this framework, 99% of business feel it would have been easier to make the case for HS2 successfully.

• 80% of firms say fears about future energy security are being factored into their investment decisions now, while 74% say the same about fears of higher costs.

• Business is also supportive of greater local input on infrastructure spending, with 86% in favour of greater spending power for local enterprise partnerships (LEPs) and 73% for local authorities.

• 95% of businesses say electricity market reform (EMR) will improve investment in energy, so with the right measures in place, it is essential that political rhetoric encourages rather than stymies this investment.

• It’s not just politics though: business believes more action is needed to attract a range of commercial investors (92%), to improve commercial awareness in government (92%) and to tackle delays in planning (91%) to get projects moving.

• 97% of companies feel that a more attractive capital allowances regime would boost private appetite for infrastructure investment – something that could be delivered within this parliament.

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

The infrastucture landscape

Our economy is finally back on its feet, but now is not the time for complacency.

It is essential we equip ourselves with the right tools to deliver the sustainable future we want to see in the UK, and in this context, addressing the UK’s longterm infrastructure challenges must be near the top of our to-do list. Things have moved in the right direction in recent years, but with an election on the horizon, business is asking if we have yet seen the decisive leadership capable of setting our infrastructure delivery on a new trajectory.

Under this government, our infrastructure ambitions have soared…

The cuts in capital spending of 2010 seem like a long time ago now. While the need to reduce the deficit continues to loom large, spending on infrastructure has been on the rise during this parliament – from £45bn each year in 2010-2013 to £50bn in 2014-15, with pinch-points in digital connectivity and the road network seeing particular attention.

Even more encouraging is the gusto with which the government has worked with industry to design new structures capable of channelling a steady stream of investment into our infrastructure. The introduction

by Infrastructure UK (IUK) of innovations such as the UK Guarantee Scheme has made a positive impact – helping to bolster £14bn of much needed investment for the construction of Hinkley Point C, among other schemes. The Infrastructure Bill is on track to reform the Highways Agency, helping put an end to the stopstart cycle of funding for the road network. Planning has also seen positive change as the National Planning Policy Framework’s (NPPF) pro-growth principles begin to slowly bed in.

What’s more, longer-term plans in the 2013 Spending Round demonstrate a continued level of ambition across the next parliament. This has allowed the government to make a number of bold pledges – from the construction of major transport links such as HS2, to the trebling of planned investment in major road upgrades by 2020-21.

Key achievements since 2010 • October 2010 – First National Infrastructure Plan launched • March 2012 – National Planning Policy Framework created • July 2012 – UK Guarantee Scheme introduced • December 2012 – Reforms to public private partnerships, as PF2 starts • July 2013 – UK Guarantee Scheme extended to 2016 • November 2013 – HS2 Hybrid Bill enters Parliament • December 2013 – Energy Bill receives Royal Assent • July 2014 – Infrastructure Bill introduced to reform the Highways Agency

9

10

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

…yet without a clear future pipeline of projects, business remains worried about the speed of delivery These announcements give the impression that the right actions are being taken to ensure the UK’s infrastructure needs will be met. The reality on the ground, however, has been a mismatch of expectations – the confidence built up by politicians through high-profile announcements is quickly undermined by the hard truths about the time and complexity of delivery. With political uncertainty on key upgrades growing – such as future airport capacity – it is understandable that many businesses feel deflated by progress.

This limited improvement is borne out in the data too. The UK now fares little better by international comparison than it did in 2011 when the CBI first ran this survey. At that time, our overall global ranking for quality of infrastructure was 28th according to the World Economic Forum (WEF) Competitiveness Report, just one place down from the 27th position that we find ourselves in now, and still well below our main rivals – not to mention countries such as Oman and Barbados.

What’s worse is that our most serious challenges are becoming more acute as time moves on. The UK’s road network has dropped two places to 30th in the WEF rankings in the last year alone – below countries such as Namibia and Puerto Rico2. Our electricity capacity margin forecast for the winter of 2015 is uncomfortably low, having dropped to just 2% from 4% in 20123. In the last five years, our competitors have opened up new air links to Chinese destinations such as Xiamen, Wuhan, Hangzhou and Shenyang – links which are not provided at all from the UK. These examples only compound the anxiety in the business community that the UK is falling behind.

With an election on the horizon, business only sees more risk of delay Time is running out for this government to finish the job. While it is important that legislation such as the Infrastructure Bill reaches completion, minds are already turning towards the election and the promises to be made in manifestos.

On the one hand, companies feel the big questions on their risk registers are going unanswered. The UK needs new runway capacity and yet having set up the Airports Commission to find a solution, some members of this government have stopped short of backing it. We also need an answer to the £8bn black hole in funding that has built up in our strategic road network4 – yet talk about long-term reform seems to have been relegated to the ‘too difficult’ box, with politicians somewhat reluctant to engage.

Where tough decisions have been taken to unleash private investment, headline-grabbing rhetoric is instead alarming investors. Despite the Energy Act receiving a huge parliamentary majority, some politicians are jeopardising investment with promises of price freezes and mixed messaging on renewables. Meanwhile, on the rail network, hints of partial renationalisation under a new government risk undermining a system currently making up for decades of underinvestment – while also now delivering substantial improvements in passenger satisfaction.

27

th

UK ranking for quality of infrastructure according to World Economic Forum

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

Business wants to change the politics of infrastructure – setting us on a new competitive trajectory Business is now looking to all political parties to set out their own vision for the UK’s infrastructure in election manifestos. Companies want to see politicians playing their part in tackling the big, divisive issues, such as runway capacity in the south-east and road reform, demonstrating restraint in areas like energy, where rhetoric could put new investment at risk. Where we are getting things right, as with digital and rail, companies want to see commitment to sticking with what’s already working.

In the long run however, business wants to see the politics of infrastructure fundamentally change in order to improve perceptions of the UK as a place to do business and deliver the networks the country needs to prosper. We need a new approach that delivers a clear picture of what the UK needs, when and where, providing investors with the confidence to finance and build the infrastructure for our future success.

CBI priorities for the next parliament and beyond: 1 Establish an independent body to determine future infrastructure needs and how they should be met, without delaying projects already underway.

2 Boost infrastructure investment by introducing capital allowances for structures and buildings.

3 Implement all elements of Electricity Market Reform to secure the necessary levels of investment in our power sector, and ensure energy efficiency is an infrastructure priority.

4 Commit to implementing the recommendations of the Airports Commission to bring an end to the hiatus over UK aviation capacity, with spades in the ground for a new runway by 2020.

5 Spark a national debate on the future funding of the UK’s road network by conducting an audit of the network, providing a clearer picture of the current funding deficit.

6 Provide long-term investment certainty for digital infrastructure by committing to carry through the digital strategy currently being formulated.

Business wants to see the politics of infrastructure fundamentally change in order to improve the perception of the UK as a place to do business

11

12

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

The fourth CBI-URS infrastructure survey

The fourth CBI infrastructure survey, now run in partnership with URS, provides an authoritative snapshot of business perceptions of the state of the UK’s infrastructure networks in 2014 and priorities for the years ahead. Since the inaugural survey in 2011, infrastructure has come to play an increasingly central role in the coalition government’s drive for economic growth, so with an election on the horizon, this year’s survey is an ideal opportunity to assess the progress made.

The results provide a business assessment of the quality, affordability and competitiveness of the UK’s infrastructure networks compared to other leading economies and highlight where UK business wants to see investment. With private sector investment in infrastructure essential to future improvement, the survey also reviews the infrastructure landscape from an investor perspective, identifying the barriers still to be addressed.

Conduct of the survey

Exhibit 1 Respondents by sector (%)

Respondents from all sectors of the economy took part…

Agriculture 1%

Construction 6% Finance & insurance 8%

Other services 23%

Gas & electricity 1% Information & communications 7% Mining & quarrying 2%

Wholesale, retail & leisure 14%

Manufacturing 10%

Water & waste 1% Transportation & storage 4%

Real estate 11%

Professional & support services 12%

The survey was conducted over a three-month period ending August 2014, with responses received from 443 participants. The respondents were senior executives from companies of all sizes, spanning all major sectors of the economy and all parts of the UK. Infrastructure investors, providers and users all took part in the survey, so the responses provide an assessment of the UK’s infrastructure from a variety of different angles.

Companies across the economy responded to the survey (Exhibit 1). Grouped by broader sector type, the largest category of respondents came from service sectors (79%), followed by production sectors (15%). In the analysis of the results responses were weighted according to the sectoral contribution to Gross Value Added based on the latest available Office of National Statistics estimates. Responses were also analysed by firms that classed themselves as infrastructure providers and those that were solely users. Almost a quarter (23%) of those taking part in the survey said their company was primarily a provider of infrastructure (Exhibit 2).

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

Exhibit 2 Infrastructure providers (%)

Exhibit 3 Primary location of respondents by region (%)

Primarily infrastructure providers 23%

East of England 3% East Midlands 7% No primary region 19%

Yorkshire & Humber 5%

London 25%

West Midlands 5%

Wales 7% Northern Ireland 3%

South west 3% Primarily infrastructure users 77%

…and from all regions of the UK Most respondents were companies with operations in more than one region of the UK, with close to half (44%) reporting that they operated in all regions. To establish a clearer picture of the regional spread and presence of participants, the survey asked respondents where the company’s core business was primarily based (Exhibit 3). Nearly a fifth (19%) reported they had no primary regional base, but among those citing a primary region the most common location was London, accounting for 25% of the sample.

South east 9%

North east 2% North west 4% Scotland 8%

443 senior business leaders took part in this year’s survey

13

14

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

Exhibit 4 Respondents by UK workforce size (%)

Exhibit 5 International presence of companies (%)

More than 50 other countries 20%

5,000+ 15% 0-49 27%

1-50 other countries 7%

500-4,999 29%

50-249 16% UK only 73%

250-499 13%

Companies of all sizes took part‌ Companies of all sizes, measured by number of employees, participated in the survey (Exhibit 4).

Larger firms employing 500-4,999 employees constituted the biggest group, making up more than a quarter of all respondents (29%). Small companies with under 50 employees represented the second largest group, also making up over a quarter of the sample (27%). In all, 43% of the total sample were SMEs on the official definition of businesses employing under 250 people.

‌with many participants operating in more than 50 countries More than one in four participants (27%) had operations in other countries in addition to the UK (Exhibit 5), with one in five (20%) operating in more than 50 countries.

With international operations on this scale, respondents were well placed to assess how the UK’s infrastructure compares with that of other economies.

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

15

16

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

Positive progress in this parliament is yet to translate into business confidence chapter 1

During the course of this parliament, we’ve seen a steady stream of positive moves to boost infrastructure investment. From the introduction of the National Infrastructure Plan, highlighting some £383bn6 worth of projects for delivery, to reform of the major infrastructure planning system, progress has been steady.

With infrastructure such a key determinant of business investment location, it is worrying that we’ve seen little change in business perceptions since 2011. In priority areas of concern to business, such as transport and energy, confidence in the future remains frustratingly low.

Key stats • 99% of firms say the quality or cost of infrastructure has a significant impact on their investment decisions, so it is important infrastructure remains high on the political agenda.

• Coalition policies to boost infrastructure investment in the last four years have been overwhelmingly positive, with 70-80% of infrastructure providers viewing the UK Guarantee Scheme, National Infrastructure Plan (NIP) and planning reforms as positive steps.

• Yet confidence that these developments will translate into better infrastructure on the ground is low with almost two-thirds of firms saying energy is deteriorating, and over half seeing the same in transport.

• Nor does the future look bright: 67% and 57% expect energy and transport to worsen in the next five years, meaning business expects a decade of decline in key areas.

• With 91% of firms ranking digital networks as a key factor in investment location, UK digital is a bright spot, as 89% have seen improvement since 2009 and 70% expect this to continue.

With infrastructure essential to investment, confidence in future improvements can drive growth The recovery is now well-set, with UK GDP expected to surpass its pre-crisis peak in the second quarter 2014 results, and suggests business investment is starting to put in a good showing7. We now have the platform from which to build a sustainable economic future; however, we must safeguard against complacency – there are still plenty of risks that could throw us off track.

Against this backdrop it is more important than ever that the UK has infrastructure which is reliable, cost-effective and sufficiently robust to cope with our future demand. Infrastructure is continually cited by businesses as a key determinant of their investment decisions – whether the air freight that helps them compete for international export opportunities, the digital networks that boost productivity by allowing staff to work seamlessly on the go, or the roads and rail that are relied upon to get people and goods from A to B. This year’s survey underlines just how important this perception is for private sector investment decisions.

99% of firms in the survey this year say that quality or cost of one or more of the infrastructure classes is either significant or very significant in their investment decisions, with varying levels of importance on different classes (Exhibit 6).

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

Exhibit 6 Significance of quality, reliability and cost for business investment (%)

Energy 33

42

20

5

Quality and reliability 38

38

20 4

Cost Transport 50

38

10 2

Quality and reliability 38

39

20 3

Cost Water 13 Quality and reliability 12 21 Cost Waste 11 Quality and reliability 11 Cost

impact technological development is having on demand, with a growing dependency across all sectors of the UK economy. At the same time, all infrastructure types have increased in significance since the results of 2013 (Exhibit 7), serving to underline the influence that the right calibre of infrastructure can have on inward investment, especially as firms look to grow as the economy improves.

35

41 53

36

Exhibit 7 Businesses rating quality and reliability of infrastructure as significant for their investment decisions (%)

14

43

25

11

52

10 12

91 80 Communication 88 85

Communication 61

30

72

Transport 75

Quality and reliability Cost Flood defences 9 Quality and reliability 7 17 Cost 0 20 Very significant

35

41

21 3

70

Energy 48 28

38

25

42 40 Significant

60 Not very significant

41

Water

80

100

Not at all significant

While all infrastructure classes score highly, the survey gives us a strong sense of priority, with the most important investment considerations attached to communications, transport and energy. What’s more, for the first time this year, the quality and reliability of digital and broadband networks are the most significant factor, highlighting the revolutionary

2014

47

34 Waste 0

2013

39 20

40

60

80

99%

100

say that quality or cost of one or more of the infrastructure classes is either significant or very significant in their investment decisions

17

18

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

This government has made a positive difference to the infrastructure landscape…

Over the course of this parliament, the policy landscape for infrastructure has been slowly overhauled, putting in place a range of institutions and programmes designed to support, simplify and speed up the delivery of infrastructure in the UK. From innovations such as the NIP, the National Planning Policy Framework (NPPF), the UK Guarantee Scheme and the Green Investment Bank, Infrastructure UK should be applauded for its efforts to get projects up and running (Exhibit 8).

These innovations are not just good ideas – businesses and infrastructure providers alike have welcomed them in practice, viewing them on the whole as either positive or very positive (Exhibit 9).

Scoring most highly is the UK Guarantee Scheme, in a year that has seen the scheme used to support construction of Hinkley Point C, as well as other major projects such as the Mersey Gateway. Second on the list, but highest for infrastructure providers, is the NIP, suggesting that with greater detail on investment opportunities in recent iterations, the NIP is becoming an increasingly useful point of reference.

Exhibit 8 Examples of government innovations since 2010 UK Guarantees Scheme

Providing government underwritten financial guarantees for infrastructure projects, the scheme has so far been used to secure investment for £1.4bn, including the conversion of Drax Power Plant to biomass, the Northern Line tube extension and the Mersey Gateway. Now, with the approval of state aid, it has been extended to support £14bn of construction risk for Hinkley Point C nuclear plant, demonstrating the key role government can play supporting major infrastructure over the line.

Major Infrastructure Planning Unit

In 2012 the Planning Inspectorate’s Major Infrastructure Planning Unit was created to speed up consents for major projects, delivering quicker decisions with much clearer timelines, and providing greater assurances for investors. Projects that have gained consents through this new system already include Brechfa Forest West wind farm in Wales, East Anglia ONE offshore wind farm and Daventry Rail Freight Terminal.

National Infrastructure Plan (NIP)

Responding to calls for greater visibility of the UK’s pipeline of projects, the latest iteration of the NIP in 2013 sets out plans for 270 projects worth some £383bn of investment, of which over £40bn is expected to be delivered by 2016. With each year, the detail in the plan has increased, with revenue streams and project time scales set out, although business still sees room for improvement – particularly in prioritising a small number of key schemes.

National Planning Policy Framework (NPPF)

Since March 2012 the NPPF, which provides a simple framework for local planning decisionmaking in a single document, has helped shape a more pro-growth approach, but it is too early to gauge the real impact. While the changes are starting to impact on appeal decisions, the effects at local level are still less pronounced, so further embedding of NPPF principles in all local plans will help deliver better outcomes for local communities and businesses.

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

Reforms to planning for major infrastructure projects have also made significant waves, with innovations such as a Major Infrastructure Planning Unit inside the Planning Inspectorate and the NPPF scoring highly with all firms – but particularly construction firms, of which 100% of respondents view the latter as a positive step. On almost all the schemes, however, the majority of businesses are supportive that the actions taken had delivered a positive impact on the UK’s attractiveness as an investment location – an impressive track record from this government.

What remains concerning, however, is the general awareness of these programmes and schemes. 52% of infrastructure providers say they are not aware of the NIP, 58% have no knowledge of the UK Guarantee Scheme and 59% are unaware of PF2. While low levels of awareness among the average business might be expected, that the schemes are visible to only a limited number of infrastructure providers, despite being so warmly welcomed by those in the know, suggests that action here could reap rewards.

As a result, there is a role for government, along with industry groups and businesses, to raise awareness and understanding so that we derive the greatest possible return on these initiatives.

Exhibit 9 Impact of policies on appetite of investors for UK infrastructure (%)

National Planning Policy Framework 6 All 6 Providers 11 Construction

60

27

58

36 89

Major Infrastructure Planning Unit inside the Planning Inspectorate 7 67 17 All 7 66 Providers 9 82 Construction UK Guarantee Scheme 10 All 17 Providers 18 Construction PF2 5 All 5 Providers

infrastructure providers report that they are not aware of the National Infrastructure Plan

9 27 9

77

12 1

70

11 2

64

18

58

34 3 66

22

38

50

7 12

Construction Pension Infrastructure Platform (PIP) 8 All 3 Providers

53 69 57

52%

7

32

7

21

7

29

14

72

14

Construction National Infrastructure Plan 14 All 17 Providers 29 Construction

71

12

53

Green Investment Bank 10 All 3 Providers

56 75 50

18

24

10

3

9

42

8

19

8

Construction UK industrial strategy 8 All 14 Providers 17 Construction 0 20 Very positive

Positive

65 49

29 67

40

60 Negative

80 Very negative

8 16 100

19

20

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

…yet confidence that infrastructure is improving on the ground has budged little since 2011…

With such a positive record, it may seem surprising that the business perceptions captured in this survey suggest firms think many of our key networks are still deteriorating. The great majority consider the UK’s energy and transport networks and flood defences to have worsened over the past five years (Exhibit 10) – particularly worrying given the importance attributed to energy and transport in investment decisions.

More positively however, a large majority view our communications and waste infrastructure as having improved in the last five years, while a slim majority have seen improvements in water.

Communications infastructure has seen considerable improvement in particular, with some 89% now seeing networks as better than in 2009, reflecting the pace of change. The period has seen not only the rapid expansion of superfast broadband, but also the introduction of 4G mobile networks, demonstrating that the UK has managed to keep pace with these technological changes, even if business expectations of these networks have grown alongside them.

1%

Firms who see transport as having significantly improved in the last five years

Exhibit 10 Business perceptions of changes in the quality of infrastructure over the last five years (%)

2 Energy

36

1 Transport 4 Water 11 Waste 16 Communications 5 Flood defences 0

45

40

17

41

18

47

40 63

9 23 3

73 36

20

7 4

39

40

60

20

80

Improved significantly

Improved slightly

Deteriorated slightly

Deteriorated significantly

100

Firms’ assessments of transport paint a mixed picture (Exhibit 11). Tube and metro networks, as well as intercity rail, score highly, with significant positive balances. By comparison however, respondents overwhelmingly agree that the UK’s motorways and local road network continues to deteriorate.

Exhibit 11 Improvements across passenger transport networks over last five years (% balance)

-57 Local road networks -34 Motorway road network -7 Commuter rail network -5 Interconnectivity of transport networks -2 Domestic air links +3 Ground transport links to UK airports +16 Bus and coach networks +17 International air links +19 Intercity rail +55 Tube/metro/tram networks +57

Cycling networks -60

-40

-20

0

20

40

60

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

On air transport in particular, there is a divergence in business opinion. A small positive balance of businesses (+17%) think the UK’s international air links have improved in the last five years, but a small negative balance (-2%) feel domestic air connections are now worse than in 2009. When the overall picture is compared against responses from London-based businesses, there is a clear difference. Businesses in London view international air links as having deteriorated on balance (-1%), demonstrating that the current lack of airport capacity in the south-east is already having a detrimental impact when compared to changes seen in the rest of the country.

While the long timeframes required to deliver major infrastructure upgrades mean a complete turnaround in opinion in four years is unlikely, a comparison of business perceptions in 2014 and 2011 demonstrates worryingly little progress – in infrastructure classes perceived as moving in the right direction, and in those viewed as deteriorating (Exhibit 12). Firms seeing significant improvement or deterioration in key areas have remained stubbornly the same, although we have seen a small increase in the numbers seeing moderate improvement.

Exhibit 12 Business perception of change across infrastructure classes in the last five years, 2011 vs 2014 (%)

Energy 2 2014 2 2011

36 22

Transport 1 2014 2011

45 66

40 25

Water 4 2014 2 2011

10

41

18

58

17

47

40

45

9

46

Waste 11 2014 4 2011

63

25

20

73

40

60

Improved slightly

Deteriorated slightly

Deteriorated significantly

80

Comparison of business perceptions in 2014 and 2011 demonstrates worryingly little progress

5

7 4 78

Improved significantly

6

23 3

66

Communications 16 2014 15 2011 0

17

52 100

21

22

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

…and business remains sceptical about the next five years Last year when surveyed, just 35% of businesses thought that the coalition’s policies would make a positive difference over the coming five years, and this year’s survey gives little cause for optimism.

Respondents remain worried that the current course of action is insufficient to deliver the improvements we need to see.

Firms expect almost all major infrastructure asset categories apart from digital to become worse, including water and waste, which have been seen to be moving in the right direction in recent years.

The grimmest outlook is predicted for the energy sector, with over two-thirds of businesses (67%) expecting infrastructure to weaken despite the sizable investment flows into our energy grid and generation

in recent years (Exhibit 13). Confidence that transport infrastructure will improve is also low – 57% expect it to worsen.

For the UK’s road networks, a balance of -38% and -23% of firms on local and motorway networks respectively expect continued deterioration over the next five years (Exhibit 14). More positively, however, business expects intercity rail to continue to improve, and it also expects commuter rail to buck the trend seen over the last three surveys.

Exhibit 14 Confidence UK passenger transport will improve over next five years (% balance)

-38 Local road networks -23 Motorway road network -1 International maritime links

Exhibit 13 Confidence infrastructure will improve over the next five years (% balance)

-34 Energy -14 Transport -18 Water -14 Flood defences Waste (0)

-40

-30

-20

-10

+34 Communication (including digital/broadband) 0 10 20 30 40 50

-40

-30

-20

-10

+2 Interconnectivity of transport networks +3 Domestic air links +3 Ground transport links to UK airports +9 Bus and coach networks +13 Commuter rail network33 +27 Intercity rail +39 Cycling networks +46 Tube/metro/tram networks 0 10 20 30 40 50

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

Without tangible upgrades, business confidence is unlikely to shift The UK does appear to have made progress under this government – whether through perceived improvements to our digital and rail networks, or through the policy innovations that have demonstrated a commitment to getting new projects off the ground.

Yet with business unable to see improvements in key areas of our infrastructure, this suggests that the changes we are making are either not fast enough to make a material difference, not broad enough to impact on all areas, or are simply not visible to everyday users. The majority of respondents remain gravely concerned about our future energy supply and transport networks – particularly roads – and confidence that things will improve across the board remains subdued.

With businesses seeing limited progress, it is clear that further action is still needed if we are to turn policy innovation into project initiation, and as the next chapter shows, in many cases, this requires political action.

23

24

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

Political barriers risk preventing us from closing the gap on our rivals chapter 2

With investment reliant on the quality of our infrastructure, it is essential our networks rival those of our competitors. However the results of this year’s survey show a familiar story – the UK continues to lag behind our main competitors – and has done little to close the gap since 2011.

With capital spending constrained, it is essential the UK becomes a stand-out location in the world for infrastructure investment, however, investors warn that at the moment the barriers holding us back are overwhelmingly political in nature.

Key stats • Key pieces of the UK’s infrastructure are viewed as internationally weak, with energy and transport seen in a negative light when compared to our rivals.

• Worryingly, the quality of our infrastructure fares particularly badly against some of our biggest rivals: Australasia, North America and the EU. • What’s more, business doesn’t think we are closing this gap. In 2011, 59% of companies saw infrastructure in EU countries as better than in the UK; in 2014, this has grown to 61%.

• The UK underinvests in capital spend relative to other developed economies, so 99% of firms want to see levels raised in line with the G20 average to at least stem the tide.

• If we are to actually close the gap, the UK will need to be a stand-out location for private infrastructure investment. While ranking above the EU as an attractive location, we currently lag behind North America and Australasia.

• The most significant factors that business sees as stopping us from attracting more private investment are overwhelmingly political.

71% of providers view political uncertainty as significantly discouraging investment, and 54% believe political rhetoric is a major barrier.

Infrastructure forms the solid foundations of our international competitiveness Infrastructure is key to our international competitiveness. Our air links and digital networks help us exploit global business opportunities, forging new relationships and rebuilding the UK’s reputation as a trading nation. Our energy costs form the bedrock of price competitiveness, especially for industries such as aerospace and automotive – sectors key to the UK’s industrial strategy. Our transport networks are essential to the 24/7 movement of our people, goods and services, getting them where they need to be, when they need to be there.

Piecemeal improvement is therefore not enough. So long as we trail our competitors, our infrastructure will hinder rather than drive growth. We need to set ourselves a clear benchmark to match, and then exceed the infrastructure of our rivals.

UK infrastructure is considered internationally weak in some critical areas…

Business gives the UK a mixed scorecard when it comes to rating our infrastructure internationally.

Overall, the UK’s energy, transport and flood defences are judged to be poorer than our international competitors. While this year’s balance figures represent a slight improvement for energy and transport since 2013, they remain below the levels seen in 2011 – suggesting that the UK still needs to claw back ground lost in recent years, never mind narrowing the gap (Exhibit 15, see page 25).

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

Exhibit 15 Significance of quality, reliability and cost for business investment (%)

Water is another strong point, going from strength to strength in recent years and demonstrating how a stable framework can reap rewards – giving infrastructure providers the confidence to invest, and providing infrastructure users with improved services.

Energy -18 -22 -16 -14

…and we fare poorly against some of our main competitors in mature economies

Transport -35 -37

When asked how the UK’s infrastructure compares with our rivals, respondents provide a degree of reassurance about perceptions of the UK (Exhibit 16).

So far, our infrastructure is still seen as more attractive than that in emerging market economies such as India, Brazil and China, although with the scale of capital spending in these locations, their infrastructure is on a rapid upward trajectory.

-47 -33 Water +17 +13 +3 +9 Waste +12 +11 +11

While this is positive news, when compared with other mature economies, the UK compares less favourably.

Our infrastructure still ranks below that of North America, Australasia and the EU, with sometimes significant negative balances.

-33 Communication* +9 +13 +13 +2 Flood defences** -21 -50

-40 2014

-30 2013

-20 2012

-10

0

10

20

2011

Exhibit 16 UK infrastructure compared to other locations (% balance)

* Before 2014 the question related solely to digital/broadband ** Asked for the first time in 2014

+83 Brazil

Digital networks remain an international strong point, despite business assessments of our communication provision starting to plateau over the last two surveys.

With the rapid pace of change, however, as seen in the last chapter, today’s advantage can quickly become tomorrow’s ‘norm’. If we are to remain at the forefront of digital communications, it is essential that we plot a long-term strategy to encourage investment in new technologies at the earliest possible stage, giving companies access to state-of-the-art networks.

+83 India +82 Russia Other Asia

+44 +43

China +26 Middle East

-40

-14 Australasia -36 North America -38 EU -20 0

20

40

60

80

100

25

26

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

Gaps of this magnitude represent a significant challenge, but more worrying is the fact we have seen little positive movement on this assessment over the last four years. Comparing the figures to that of our closest rivals in the EU, the gap in the quality of our infrastructure has remained remarkably consistent since 2011 (Exhibit 17).

Exhibit 17 Change in UK infrastructure firms rating the UK as less favourable compared with EU 20112014 (%)

54

2013

6

59

2011 0

7

61

2012

Exhibit 18 Public investment as a % of GDP, 1999-2014 8

61

2014

As a result, 99% of all firms in the survey support the idea of bringing capital spending in line with our competitors when our finances allow. The coalition government recognised that it was wrong to cut capital spending so sharply on coming into office in 2010, and since then we have witnessed a turnaround. Business is now looking for all parties to commit to continue this trend as they head into next year’s election.

5

10

20

30

40

50

60

70 4 3

Lower capital spending makes it less likely that the UK will catch up…

On public investment in infrastructure, the UK starts from a disadvantage: our rivals have a long history of higher capital spending – a trend that continues today (Exhibit 18). While figures have converged in recent years, the UK’s capital spending still sits below that of countries such as Canada, the US and France and our rivals have at times been spending two to three times the amount we have – a factor that leaves a legacy.

Business understands and supports continued efforts to reduce the deficit in order to improve the long-term credibility of the UK economy, and appreciates there are limits on how much we can spend. It also understands, however, that competitive and consistent levels of capital spending can form the bedrock of investment in our infrastructure, encouraging additional private investment, sparking major projects, sending out the right signals to investors and helping build strong, resilient supply chains.

2 1 0

99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 Germany Canada US Japan France UK Source: OECD

99%

support the idea of bringing capital spending in line with our competitors

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

…meaning the environment for private investment must stand out from the crowd Even if we go toe to toe with our competitors when it comes to capital spend, this is unlikely to be enough to close the gap on our competitors. We must continue to attract private investment in our infrastructure networks to bridge the gap. This investment remains an attractive proposition – if the opportunities are there, and the environment for investment is right.

However, with the UK competing for internationally mobile capital, it is crucial that we stand out as a place to invest. The good news is that among infrastructure providers and investors, the UK is seen as attractive – surpassing many other potential locations including other EU states and China (Exhibit 19).

Under this government, the UK has made solid progress in raising investor perceptions. Between 2011 and 2014, the balance between favourable and unfavourable assessments of the UK relative to other investment locations has steadily improved (Exhibit 20), perhaps reflecting the strides made in improving policy frameworks and the general business environment.

Exhibit 20 Change since 2011 in how the UK compares as a place to invest in infrastructure (% balance)

+28 India +27

Less welcoming is our attractiveness compared to North America and Australasia – which both comfortably outstrip the UK as attractive locations, suggesting that they remain a first port of call for investors.

EU +24 China

1 Brazil

-10

+75 +38 +34 India +23 Other Asia +10 EU +9 China +1 Middle East

-10

0

0

10

20

Investors, on balance, view investment in the UK as preferable to North America

-10 Australasia -22 North America -20

+16

-22%

Russia

-30

+19

Russia -22 -3 North America

Exhibit 19 How the UK compares as a place to invest in infrastructure (% balance)

Brazil

+24

Other Asia

10

20

30

40

50

60

70

80

30

27

28

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

Political uncertainty and limited opportunities are the biggest barriers to the flow of private infrastructure investment in the UK These results are clear: having put in place many of the right tools to facilitate infrastructure delivery, the UK is becoming an attractive location, and yet something still holds us back. With few tangible projects reaching fruition during this parliament, we need to be clear about the barriers that remain to successful infrastructure development.

Asking infrastructure providers their views on the current barriers to investment in the UK, the result is clear: the appetite is there, but short-term politics risks undermining the kind of long-term, stable outlook that investors need (Exhibit 21).

Number one on the risk register of infrastructure providers is political uncertainty. At this stage in the electoral cycle, 71% are saying uncertainty is significantly discouraging investment. The size of this score underlines the extent to which a lack of consensus among politicians risks considerable upheaval every five years on issues and decisions that must be taken for the long-term good of the country – something that other nations, such as Australia, have taken steps to address (Exhibit 22).

93% Firms say political rhetoric is undermining confidence in markets

Exhibit 21 Factors affecting investment in UK infrastructure (%)

Political uncertainty due to the electoral cycle 62 All companies

34 4 26 3

71

Infrastructure provider

Political rhetoric undermining confidence in markets 44 All companies 54 Infrastructure provider

49

43 3

There is no clear pipeline of projects 22 All companies 27 Infrastructure provider

69 63

Over-burdensome regulation 44 All companies 44 Infrastructure provider

45 41

National Infrastructure Plan (NIP) does not provide clear priorities 21 57 All companies 51 32 Infrastructure provider NIP does not provide sufficient detail on funding/timelines 43 20 All companies 32 51 Infrastructure provider It is difficult to secure sufficient levels of financing 43 20 All companies 44 26 Infrastructure provider

20

40

Not discouraging investment

18

23 17

37 17

54 50

Significantly discouraging investment

14

30

44

Infrastructure assets have the wrong risk profile for my portfolio 40 10 All companies 36 25 Infrastructure provider 0

9 10

37

The cost of long-term debt is too high 39 7 All companies 6 Infrastructure provider

7

60

80

50 39 100

Somewhat discouraging investment

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

Infrastructure providers also identify political rhetoric as a major barrier, with 54% believing it significantly discourages investment, while concerns remain about a pipeline of projects and the shape of the National Infrastructure Plan (NIP). Over-burdensome regulation continues to be problematic to some investors, suggesting that while issues such as planning have moved in the right direction in recent years, there are still major hurdles to overcome.

Exhibit 22 Infrastructure Australia Australia has an independent body of infrastructure experts, scientists and economists called ‘Infrastructure Australia’, set up to assess the country’s existing infrastructure and then advise government on how to meet its needs and priorities. It also plays a role in the funding of specific projects, both by working with investors and by allocating Commonwealth funds to state-sponsored projects. The development of this body has been praised for creating a more ‘evidence-based’ approach to decisions on nationally significant infrastructure, and its high level of visibility allows it to influence public opinion on specific projects, building consensus.

The politics of infrastructure must change The UK is set to face major infrastructure challenges in the coming years, and as we enter the 2015 election, we find ourselves at a critical juncture. The engineering and construction industry needs to see a sustained, long-term strategy for infrastructure investments in order to recruit with confidence. The UK’s stop-start approach to infrastructure investment over many decades has led to the current technical skills shortage.

With investors citing political considerations as the key barrier to infrastructure development, we now need to see politicians of all parties sending out the right messages that deliver confidence for the future and new investment prospects. However, the problems we face are not uniform: • In some cases, such as rail and digital, the focus is not on changing a winning formula but agreeing on a cross-party, long-term strategy and letting the market continue with delivery.

• Where we still lack a viable long-term solution, however, as with aviation and roads, tough decisions will need to be made to remove political roadblocks to new investment.

• Sometimes the tough decisions have already been made, as with energy and electricity market reform (EMR), and we must ensure that political rhetoric does not undermine this good work and spook investors at the last hurdle.

In each of these scenarios, there is an onus on politicians to set the right course, say the right things and recognise where they have a constructive role to play in attracting the investment that will boost business perceptions and position the UK as a leading light on infrastructure.

Number one on the risk register of infrastructure providers is political uncertainty

29

30

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

Where we are seeing breakthroughs, politicians must stick with the plan chapter 3

Elections are often about articulating different visions for the UK’s future.

However, where things are working well, it is important we stay the course rather than changing direction in order to demonstrate difference or score political points. Prior to an election, this focus on disagreement over consensus can stop investment in its tracks, and in the years following, leave a reputation that takes time to shake.

The UK’s railways are demonstrating real improvement and good outcomes for passengers, businesses and investors so we should not deviate from the current course. Equally, the UK’s digital networks are one of the UK’s infrastructure success stories, but with the rapid advancement of next generation networks, it is essential that we create a stable long-term outlook with cross-party support to ensure we remain at the forefront.

Key stats • Investments in the rail network are paying off – a balance of +46% and +19% have seen improvements to metro and intercity rail services in the last five years.

• Business backs the current regime to continue delivering improvements. This year, for the first time since the survey began, commuter rail is expected to improve.

• There is overwhelming support for the system of franchising and Network Rail’s plans to deliver significant investments into the future.

• Big projects also now have wider backing, with 59% supporting delivery of HS2, even if 70% feel there is still a greater role for government in making the case for new investments.

• The importance of digital networks is on the rise for businesses of all types, with increases in the importance of these networks found in all sectors in just one year since the 2013 survey.

• Despite being a UK strength, business dissatisfaction with current networks is still too high. 48% of all firms and 71% of those in the IT sector are dissatisfied with current provisions.

• Business is particularly concerned about the UK’s mobile broadband coverage, demonstrated by the fact that 67% of firms rate current coverage as inadequate…

• …and with 55% of firms seeing a lack of access to superfast broadband as inadequate, it is clear we must do everything possible to maintain the pace of investment.

Rail – Investments currently being made are starting to pay off The picture in recent years is one of improvement As shown in Chapter 2, many companies consider parts of the rail network to have moved forward in recent years. A balance of +55% of businesses see tube and metro networks as having improved in the last five years, while a balance of +19% have seen improvements in intercity rail. The exception is commuter rail, which business perceives to have worsened in the last five years by a score of -7%.

Across the board however, these results are an improvement on those when we first asked the question back in 2011, including commuter rail – even if, on balance, the view is that the service is still worsening (Exhibit 23).

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

Exhibit 23 Assessment of rail networks compared with five years ago (%)

Tube/metro/tram networks

65

2014

25

44

2011

34

10 22

Intercity rail 38

2014

43

36

2011 Commuter rail

19

36

29

28

35

36

2014 21 2011 0

33

20

Improved

46

40

60

Stayed the same

80

100

Worsened

...and business backs the current approach to deliver Looking to the future, the business outlook is even brighter (Exhibit 24). Tube networks are expected to improve by a positive balance of +51%, while +30% expect intercity rail services to improve. Perhaps even more notable, however, is that commuter rail is also expected to improve for the first time since 2011 when the CBI started gathering data – with a positive balance of +15%.

Given the scale of investment currently being made, these results should not be surprising. Franchising

has delivered substantial new rolling stock over the last decade, leading to a 143% improvement in fleet reliability since 20068, while passenger satisfaction is at near record highs, standing at 82%9. Furthermore, Network Rail’s ambitious £38bn investment plan over the next control period will play a critical role in supporting transformational projects such as HS2, as well as seeing through those already underway, including the Northern rail hub.

This confidence has spread to commuter rail too, reflecting the scale of investment that is now going into the network. With 400 million more journeys a year expected by 2019-20, the rail industry is investing in additional capacity of 20% peak seats into and out of central London, and 32% peak seats into and out of large regional cities10.

Moreover, this positive outlook is reflected in support for the current system of investment, with some 99% of respondents to the survey saying that they back the current franchising system combined with Network Rail’s investment plan to continue to deliver in the future (Exhibit 25).

Exhibit 25 Business backing for rail franchises and Network Rail’s improvement plan (%)

(Strongly oppose 0%)

Oppose somewhat 1%

Strongly support 34%

Exhibit 24 Expectation of change in the quality of rail passenger services over the next five years (%)

62

Tube/metro/tram networks 52

Intercity rail Commuter rail 0 20 Improve

27 26

47 40 Stay the same

22

21 60 Worsen

11

32 80

100

Support somewhat 65%

31

32

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

This turnaround in fortunes has come at a cost. As the financial burden continues to shift from taxpayer to passenger, rail fares still hit the headlines.

Frustrations are understandable, but after decades of underinvestment in the network, during which passenger numbers have soared and little additional capacity has been added, politicians need to be honest about why fares are increasing and how we ensure sustained investment.

To ensure the UK continues its current trajectory, politicians have a vital role to play in order to keep investment flowing. Franchising will continue to deliver more reliable rolling stock and better services, but Train Operating Companies must have confidence that the market place for franchising contracts will continue to be a competitive one. At the same time, politicians must continue to make the case for ambitious upgrades that boost the capacity of our network.

Business backing for HS2 is growing In the last nine months, under the leadership of Sir David Higgins and Lord Deighton, HS2 has enjoyed a resurgence in support. The publication of a stronger business case was welcome in cementing the need for capacity rather than speed in people’s minds, and the results of this year’s survey demonstrate that support for the scheme is building, with a clear majority of businesses (59%) now supporting the project (Exhibit 26).

Exhibit 26 Business support for HS2 (%)

Oppose strongly 10% Strongly support 27% Oppose somewhat 14%

Neither support nor oppose 17% Support somewhat 32%

But government must do more to ensure the benefits of these upgrades are translated into local growth While support for HS2 is now building, business still feels that advocacy for the scheme is somewhat lacking. More than two-thirds (70%) say that government has failed to make the case for HS2 on the ground, figures that show particularly high dissatisfaction along parts of the planned route (Exhibit 27). 92% of those in the north west say the case has not successfully been made, while 78% of those in London feel the case is still lacking.

Politicians must continue to make the case for ambitious upgrades

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

Exhibit 27 Businesses that feel the government has not yet successfully made the case for HS2, by region (%)

70

All

94

Wales

92

North west 83

Scotland 78

London 72

South east

72 East Midlands 0 20

40

60

80

70%

of respondents think the government needs to do more to make the case for HS2

100

HS2 is a good example of the level of ambition that now exists around our rail network. It also underlines, however, the important role that leadership at both national and sub-national levels can have in ensuring the benefits of bold infrastructure decisions are well understood, allowing for smooth delivery.

To unlock more development opportunities it is essential that we see the right level of engagement with regions and cities affected by proposed projects, developing coherent plans that link national and regional infrastructure, and ensure that local voices favour the new infrastructure developments. Research conducted

by Ipsos MORI for the CBI suggests that local concerns far outweigh those about the national economy. Seeking to influence public support for projects by bringing local voices into the national debate is essential11 (Exhibit 28).

Exhibit 28 Building public support for infrastructure projects In polling conducted by Ipsos MORI for the CBI and published in the CBI’s Building Trust report, members of the public indicate that the best way to build trust and acceptance for infrastructure plans is to develop a strong local case for action, with local figures playing a key role in making the case. 42% of people look to others in their community to determine whether a project is positive or negative, 33% look to local councillors, 24% to their local MP, with just 11% finding the business developers’ case convincing. As a result, when we continue to make the case for renewed investment in the rail network and other infrastructure, it is critical that the impact on local people, local job opportunities and the local environment is at the heart of the case for new development.

33

34

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

Digital – Retain our current advantage through a long-term, cross-party strategy

Exhibit 29 Businesses reporting quality and reliability of digital networks as significant for future investment (%) 2014

Our digital and communication networks are an asset, but user satisfaction is mixed As demonstrated in Chapters 2 and 3, the UK’s digital networks are an asset. On balance, businesses rank the UK’s digital infrastructure above our rivals.

Furthermore, firms expect these networks to get better, with 77% expecting provisions to continue improving in the future.

Our advantage takes on additional significance given how important digital networks are to doing business. From communicating with customers in new and exciting ways, to opening the door to global markets, online platforms, payment methods and use of mobile technology have revolutionised daily operations. Firms now rate the quality and reliability of digital networks as the most important consideration, with 91% of companies rating this as a significant factor in investment decisions – up 11% on the same figure last year – and an increase that is even more acute in the sectors most reliant on these networks (Exhibit 29).

98%

rate mobile broadband networks as important for success, with 42% rating them as crucial

61

All

30 94

Information & communication 68

Professional services

6

27

2013 44

All

36 82

Information & communication 57

Professional services 0

20 Very significant

40

14 39

60

80

100

Significant

Despite this positive assessment, business satisfaction levels indicate a more worrying picture, with considerable room for improvement (Exhibit 30).

Only 52% of businesses are currently satisfied with the UK’s national digital infrastructure provision, with levels low among information and communication firms. This hunger for improvement also extends to sectors such as construction, demonstrating the extent to which the importance of digital connectivity permeates all parts of the economy.

Exhibit 30 Satisfaction with national provision of digital networks (%)

52

All Construction

39

29 Information & communication 0 20 40 Satisfied

48

Dissatisfied

61 71 60

80

100

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

Reliable nationwide coverage remains an issue, but we are making progress...

The latest data from Ofcom helps us to understand why dissatisfaction persists, even as the UK is seen as a world leader. The data indicates that considerable ‘not-spots’ continue to exist in the roll out of mobile and superfast broadband networks (Exhibit 31). While the overall availability of superfast broadband stands at 73% in the UK, there is a marked difference between the figure for England (76%), and the comparative figure for Wales (48%).

For mobile broadband, the trends are similar. 51% of Scotland by area remains without 3G coverage from any provider, while 22% of Wales also lacks coverage.

Exhibit 31 Digital network coverage by nation, 3G and superfast broadband (%)

The lack of consistency when it comes to mobile broadband coverage is particularly concerning. According to this year’s survey data, 98% of all businesses rate mobile broadband networks as important for success, with 42% rating them as crucial. There has been an unprecedented uptick in the use of mobile technology in recent years. Mobile and smartphone traffic increased from 22.8% of all data to 37% in 2013 – a trend that suggests this could become the more popular option for companies in the next couple of years over access from a desktop.12 It is also reflected in the results, with businesses most dissatisfied with mobile broadband coverage (Exhibit 32).

Exhibit 32 Companies rating the UK’s networks as inadequate (%)

67

Mobile broadband 55

Superfast % of geographical area with no 3G signal from any operator 23 UK 6 England

13 Northern Ireland 22

Premises with access to superfast broadband 73

UK

76

England 52

Scotland

96

Northern Ireland 48

Wales 0

10

20

30

40

50

60

70

80

51

Scotland

Wales

43

Fixed-line broadband 0

20

40

60

80

100

Source: Ofcom

Telecom companies, both fixed-line and mobile alike, have invested considerable amounts in their networks. However, in places, it is simply not economic for the private sector to invest, usually due to the combination of a small customer base that requires disproportionate capital to reach. For this reason, the government has set up a number of initiatives, delivered through Broadband Delivery UK and the situation is improving. Programmes such as the Rural Broadband Fund and Super Connected Cities Vouchers are starting to impact, meaning that targets for coverage have been revised upwards during the course of this parliament in some areas.

35

36

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

If these ‘not-spots’ are to be addressed, it is crucial that the government also makes it easy for telecoms companies to put in place the right infrastructure.

Both mobile and fixed-line operators in particular face obstacles in installing new interconnections, particularly around land ownership rights and costs.

Landowners are not regulated when it comes to rents charged to dig or build new digital connectivity, and with land rents associated with other utilities much lower, it is important that government also looks at addressing the costs for digital operators.

…but with demand also growing for next generation connections, we need a strategy to keep pace with our rivals Digital connectivity does not stand still as the technological boundaries are always being pushed – whether it is through ever-faster fixed-line connections, or 4th and 5th generation mobile networks. Each new development offers a new set of opportunities to business which is never far behind in exploiting the benefits. Asked how important faster, more reliable web access is over the coming five years, 82% of firms say that improvements in superfast broadband would be crucial or very important, while 72% say that improvements in mobile broadband are likely to be critical (Exhibit 33).

In fact, just 2% of firms say that they did not expect faster, more reliable coverage to be important to them in coming years.

Given the importance of the next generation of networks to business and the pace of change, the UK cannot afford to rest on its laurels. A year is a long

Exhibit 33 Importance to firms of faster, more reliable web access over the next five years (%)

42

Superfast broadband

39

Mobile broadband Fixed line broadband 0

Very important

26 2

36 40

16 2

33

34

20 Crucial

40

60 Somewhat important

24 80

6 100

Not at all important

time in the world of digital connectivity, and so any uncertainty about the investment environment can have damaging long-term impacts.

It is for this reason that many of the UK’s competitors are already taking concrete steps to develop worldclass digital infrastructure, recognising the need to approach the challenge with a long-term strategy and a clear objective. In the 2013 report Let’s get digital, the CBI called for the same in the UK, and the government subsequently committed to consult on a Digital Communications Infrastructure Strategy earlier in the year. However, recent delays to the process have put the deliverability of the strategy within this parliament into doubt. With an election looming, there is a danger that the strategy – even if completed – may be short-lived. This is the kind of long-term thinking that should not fall foul of partisan politics: we know the kind of network we need and politicians should focus on giving infrastructure providers the right long-term framework and therefore confidence to invest.

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

37

38

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

We can’t duck the big decisions that need to be made chapter 4

By demonstrating a willingness to take on tough choices and engaging in an open debate with business and the public to find credible solutions, politicians can help support the economic momentum we’re now experiencing.

The UK’s roads remain a real national weakness.

With France spending 75% more per head on its road system, we cannot delay discussion about a new funding model for another five years because it isn’t politically expedient14. Meanwhile, the UK’s air links to emerging markets – critical to our future growth – continue to lag behind those of our competitors, held back by a lack of decisive action on new runway capacity in the south-east. With a new mandate, all parties must offer a compelling vision that addresses the challenges ahead.

Key stats • UK business sees the road network continuing to deteriorate. More than half of UK companies (52%) report a worsening of motorways in the last five years, and 65% see the same in local roads.

• The future is seen as equally bleak, with 77% and 86% of respondents expecting motorways and local roads to get worse or stay the same over the coming five years.

• But 39% are confident that Highways Agency reform will have a positive impact – a figure that increases to 45% among infrastructure providers and construction firms.

• Still 80% of firms remain concerned about where investment for new roads is coming from, with 86% of all business leaders in the survey now backing greater private investment in the road network.

• Businesses see direct air links with high levels of frequency as key determinants of their travel decisions: with 74% seeing the direct routes as important and 66% prioritising frequency.

• While links with established markets remain critical, emerging markets are not far behind.

64% of firms see air links with North America as important, but just 7 percentage points behind is China (57%).

• Links to established markets are good, with satisfaction at +69% and +68% of firms positive on balance with links to the EU and North America respectively. Yet for China (+22%), India (+15%) and Brazil (+14%), satisfaction is much lower.

• With runway capacity quickly running out in the south-east, 46% of firms in London say that indecision on new capacity is already impacting investment decisions. As a result, 92% want to see politicians implement the Airports Commission’s final recommendations in summer 2015.

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

Roads – Without a national debate on road funding reform, business sees a bleak future UK roads are still perceived to be deteriorating, and assessments are increasingly damning…

Business depends on our road network every day; however the perception amongst respondents suggests they have not seen much improvement since 2011 – despite government funding pledges and the increased use of active traffic management systems, such as smart motorways. More than half of UK businesses report that UK motorways have deteriorated over the last five years, while assessments of local road networks are even more troubling (Exhibit 34).

When it comes to local roads, the results vary considerably by region. While at least 50% of businesses in all regions feel that local roads have deteriorated over the last five years, concern is

Exhibit 34 Assessment of road networks compared with five years ago (%)

Motorways 18

30

52

2014 19

35

46

20

33

47

35

47

2013

especially high in Wales and the North West (Exhibit 35).

Exhibit 35 Businesses reporting deterioration in local roads networks compared with five years ago (%)

91 Wales 90 North west 88

Yorkshire & Humber 76

South east 68 South west 61

North east 55 London 55 East of England 0 20

40

60

80

100

…and with few large-scale projects actually being delivered, business sees the future as bleak too While the government has set a high level of ambition on roads in the coming years, with proposals to treble investment by 2020-21 outlined in the 2013 Spending Round, 77% of respondents believe that motorway provision will worsen or stay the same in the next five years, while 86% say the same of local roads (Exhibit 36).

2012 2011

18

Local roads 7 2014 4 2013 4 2012 6 2011 0

28

65

23

73 31

65

31 20

Improved

Exhibit 36 Expectation of change to road networks over next five years (%)

63 40

Stayed the same

60 Worsened

80

100

2 21 Motorways 1 13 Local roads 0 20

29

35 38

31 40

60

Improve significantly

Improve slightly

Worsen slightly

Worsen significantly

80 Stay the same

13 17 100

39

40

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

These results are perhaps to be expected. While UK spending on the road network is set to increase over the next parliament, we are starting at a historic low, with funding at just a third of that 40 years ago.

Furthermore, where upgrades have been announced during this parliament, they have rarely graduated into action – held back by further feasibility and value for money assessments. The long-awaited A303 upgrade in the south west is a good example, where an additional feasibility study was announced in the 2013 Spending Round but the Local Enterprise Partnerships (LEPs) on the ground are still fighting for progress to be made.

On local roads, the sustained focus on funding for short-term Repair, Maintain, Improve (RMI) projects has been welcome – especially after the flooding experienced earlier in 2014 – as has funding to address local pinch-points. But the survey results demonstrate that business is yet to see how this additional spending is filtering through into tangible improvements, suggesting the government must tell a better story about the impact of its targeted funding and how the network is improving as a whole.

Achieving net gains to our roads network will require improvements to both the Strategic Road Network and local roads to overcome the current two-tier system. Priority investment into vital trunk routes via the Highways Agency and joined up support from local authorities and neighbouring councils will help remove existing bottlenecks in the local road network, making the whole system more efficient. To help this to happen, the CBI recommends that government sets out details of how local transport bodies can bid for projects via the single local growth fund, while also joining up local funding to align this spending with growth strategies being devised by LEPs15.

Highways Agency reform will help address key business bugbears Maintenance, congestion and investment in new roads stand out as key business concerns (Exhibit 37). As in 2013, congestion remains near the top of the list – not surprising when the annual cost of UK congestion is £12.9bn a year, with costs expected to rise by 63% to £23bn by 203016.

Exhibit 37 Balance of businesses concerned about factors affecting the quality of UK roads (% balance)

85

Quality of existing road surfaces

84

Congestion 72 Investment in new roads 50 Disruption caused by road works 23 Taxes 3 Safety 0

20

40

60

80

100

The quality of road surfaces matches concerns about maintenance, with a positive balance of +85%, indicating that the UK’s record when it comes to keeping our existing network up to scratch has been poor. Subject to political whims, funding for the upkeep of the road network has frequently faced cycles of stop-start activity, dependent upon the political cycle and where priorities of the day lie. This has a knock-on effect for the road industry’s ability to plan for the future and contractors have had their fingers burnt as a result – investing in apprentices and ramping up activity, only for funding to fall flat.

For this reason, the reform of the Highways Agency (HA) into a government-owned company along with a five year Road Investment Strategy (RIS) is seen as a welcome step by business. 39% are confident that HA reform will have a positive impact on the road network – a figure that increases to 45% among infrastructure providers and construction firms as those most affected by the stop-start cycle of funding.

If implemented correctly, this will help to reduce some of the shorter-term uncertainty for those in the supply chain giving a clear picture of demand in the years ahead. With the reforms set to come into force in April next year however, the challenge remains to ensure that the legal changes are complemented by a culture shift within the HA, ensuring that the requisite skills and experience are available to operate at an arms-length distance from government on day one.

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

Lessons should be learned from investigations by HM Treasury and the water industry to smooth the financial stop-start experience created by the fiveyear Asset Management Plan (AMP) cycles.

We need an honest national debate on road funding

Exhibit 38 Business support for greater private investment in the road network (%)

All Oppose somewhat 13%

Strongly oppose 1%

This still leaves 61% of companies looking for another solution to help fix our roads, and while HA reform is clearly a step in the right direction, there is still a considerable black hole in our funding for another key aspect that sits high up on businesses’ list of concerns – investment in new roads.

With fiscal constraints set to continue for the foreseeable future, we cannot put off the difficult discussion of longer-term road funding reform any longer. Since the Prime Minister’s speech in 201217, tentatively opening the door to discussion of private investment, the issue has fallen away, much to the disappointment of many global investors who had started to look seriously at the role they could play in improving the UK’s network.

While clearly a sensitive subject, our roads will not improve without difficult decisions being made.

Business understands this: 86% of firms and 84% of providers support greater private investment into the road network (Exhibit 38). Just 1% are strongly opposed to the idea. In 2012, the CBI proposed a regulated asset based model18 as an indicative framework for introducing private sector involvement into the road network in order to spark some life into this debate, and ahead of the forthcoming election, debate is exactly what we need again now (Exhibit 39). .

Strongly support 40%

Support somewhat 46%

Providers Oppose somewhat 15%

Strongly oppose 1%

Strongly support 48%

Support somewhat 36%

Exhibit 39 Regulated asset based (RAB) model of roads funding A RAB model would address the insufficient investment and uncertainty caused by current short-term funding cycles by taking the road network out of the government’s budget. It could provide a secure revenue stream through user charging – created initially by reclassifying vehicle excise duty but with the flexibility to explore other mechanisms, such as tolling. The long-

term outlook provided by a RAB model is attractive to investors to maintain the current network and expand capacity. In this model, a roads regulator would champion standards for motorists and ensure value for money through its licences and capped charges, with government learning lessons from the experience of regulators in other sectors.

41

42

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

Aviation – Indecision on new runway capacity is already impacting business investment Frequent, direct air links are needed to respond to global opportunities – wherever they arise It’s not just our domestic transport networks that require big decisions to be made: our links with the rest of the world, upon which our ability to grow trade relies, also requires some bold thinking, particularly as the UK faces a shortage of runway capacity in the south-east.

Business and politicians want to see the UK revive its role as a trading nation by exploiting global opportunities, and the survey demonstrates that direct, frequent air links are a big part of the puzzle (Exhibit 40). Asked how different factors affected their travel decisions, 74% of companies rate direct flights to the final destination as either crucial or very important – with just 8% saying that it is not important to them to have these links. Moreover, it’s not just the existence of an air link that matters – it is also the quality of that link. 66% of companies report that frequency and flexibility are either crucial or very important to them, with just 7% saying these factors are not important.

Exhibit 40 Factors affecting business travel decisions of companies (%)

20 Direct flights to the final destination 17 Frequency/flexibility of service 14 45 Ease of access on the ground 17 36 Cost 0

20 Crucial

40 Very important

54

18

49

60 Quite important

27

8 7

31

10

38

9

80 Not important

100

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

The importance of frequent, direct services corroborates earlier findings of research conducted for the CBI by Steer Davies Gleave in 2013 19, which indicates the critical role that direct links play in growing trade. The research, analysing trade patterns between 48 pairs of countries over a 20 year period indicated that for each and every daily route between the UK and an emerging market, trade increases by as much as £128m a year – £1bn from eight routes alone, demonstrating that the first step to growing trade is getting to the markets to which we want to sell.

Emerging market connectivity is high on the business agenda…

It’s not just selling to the usual suspects that is important. With global growth increasingly coming from emerging economies – whether those of today, such as the BRICS or those of tomorrow like the MINTS or ‘next 11’20 – business is clear that we must be ready to move quickly to build the right connections.

This year’s survey shows that direct connections with established and emerging markets alike are important to business (Exhibit 41).

Exhibit 41 Firms reporting direct flights as important or very important (%)

78

EU 64

North America 57

China 54

Middle East

54

Other Asia 45

India 33

Brazil Russia 0 10

33 20

30

40

50

60

70

80

As would be expected with our largest trading partner, direct flights to EU markets are most important, with 78% of businesses seeing them as important, and 40% describing them as crucial. These figures are up on 2013 and 2012, indicating that the EU remains the bedrock of the UK’s trade. Next highest is North America, but just 7 percentage points behind is China – with well over half of all firms (57%) considering these links as important – a figure that climbs to 78% for manufacturing firms. Not far behind are flights to India, which are seen as important to almost half of all firms, while a third see connections to Brazil and Russia as important.

Taken as a whole, 61% of respondents to the survey say that direct flights to at least one of the BRIC economies are either important or crucial to their business. Given that currently just 3% of UK exports head to China and 1% go to Brazil – yet direct flights to both locations rank highly amongst firms. This clearly demonstrates that business does not just have an eye on the markets it is in today, but also on where it can go tomorrow.

43

44

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

…but our links to emerging markets remain an Achilles heel

Indecision on runways capacity suggests this won’t improve, impacting investment

In assessing the quality of our air links, business rates the UK’s connections with established markets highly; however, the picture is much less rosy for emerging markets, and the gulf in satisfaction is noticeable (Exhibit 42). While more respondents say they are satisfied than not satisfied, the balances are substantially lower, with only links to Russia21 seeing a score above +25%.

The current constraint on UK airport capacity in the south-east is well understood by business. In the interim report of the Airports Commission, published in December last year, the case was made for at least one additional runway by 2030 in order to avoid running out of capacity, with a second likely to be required as early as 2050. Yet, with our politicians still not signed up to implement the Commission’s recommendations, just under a third of businesses (32%) expect improvements to international air travel in the next five years, leaving two-thirds either seeing the UK remaining the same or worsening (Exhibit 43).

Reflecting the shortage of capacity in the south-east, this score is even worse in London, with just 19% expecting to see any improvement in the coming years.

Data on the forging of new links illuminates why dissatisfaction has emerged regarding the UK’s connectivity to emerging markets in recent years.

Analysis shows that over the last 20 years, the UK ranks in 4th or 5th position within the EU for share of new flights to China, Brazil and Russia as our rivals forge direct connections with a wider range of destinations, giving them first-mover advantage. With success in these markets so critical to meeting our exports target, that the UK is being left behind is a major concern.

Exhibit 42 Business satisfaction with links to markets (% balance)

Exhibit 43 Expectation of change across air passenger transport over next five years (%)

International air 25 Domestic air 0

+69

EU

+49

Middle East +38

Russia +22

+17 Other Asia +15 India +14 Brazil 0

10

20

22 3

43 52 40

60

Improve significantly

Improve slightly

Slightly worsen

Significantly worsen

17 80

6 100

Stay the same

+68

North America

China

32

20

30

40

50

60

70

80

Worryingly however, businesses are now starting to report that indecision is starting to have a detrimental effect on their future investment decisions, with one in five saying it is having an impact (Exhibit 44). When broken down by region, 46% of businesses in London say their investment decisions have been hit by this hiatus, whilst a third in the West Midlands also say it is having an effect.

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

Exhibit 44 Businesses reporting the lack of decision on new aviation capacity in the south-east having a significant impact on their investment decisions (%)

20

All

46

London 33 West Midlands South east 0

18 10

20

30

40

50

The situation has now become critical and inaction is no longer an option. 92% of businesses say that they would like to see the recommendations of the Airports Commission fully implemented when it reports back with recommendations on the location of new capacity in 2015. With the UK’s runway capacity diminishing each year, it is imperative that the new government of the day acts immediately to create the necessary planning policy statements and statutory instruments to get building by the end of the parliament. This means all political parties taking the decision to put the country’s economic interests above politics in party manifestos.

Spare hub capacity is needed to tackle pinch-points in the UK’s connectivity While all airports have a role to play in growing our links, not all airports play the same role. If the UK is to address the UK’s emerging market Achilles heel, we are going to need a solution that prioritises the creation of spare hub capacity. Research for the CBI shows that from a sample of 15 emerging markets, hub airports serve on average nearly three times as many destinations as point-to-point airports, while also delivering almost twice as many flights on the routes that are served – 1.5 daily flights from hubs, compared to 0.8 from point-to-point airports22.

With transfer passengers allowing connections to new emerging markets to become viable before sufficient demand exists from the population on the ground around the airport alone, the presence of a hub with spare capacity capable of sparking new routes is a real asset, providing first-mover advantage for UK business.

As a result, it is essential that when formulating his final report, Sir Howard Davies takes into account the UK’s current weaknesses, ensuring that we futureproof the decisions we make today to set us on the right path towards the kind of economy we want to be tomorrow.

92% Businesses say that they would like to see the recommendations of the Airports Commission fully implemented

45

46

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

Politicians must deliver messages that reinforce rather than restrict future confidence chapter 5

The burden of responsibility falls on all parties to maintain the momentum of investment in our infrastructure networks, especially in an election year.

Business is pragmatic: it recognises the realities of an election, but it is essential that all sides show an awareness of the long-term impact that political messages can have at this time.

Energy is a prime example. The scale of the challenge is huge: the UK needs to attract £100bn to secure and decarbonise our energy system, whilst ensuring that consumers’ bills remain affordable23. Despite the real policy progress that has been made during this parliament – the Energy Act gaining Royal Assent being a key milestone – there is a risk that careless political rhetoric will have a knock-on effect on business’ confidence in the UK’s energy future.

With the stakes high, and confidence low, we need all parties focusing on the positive actions that will make the right kind of difference, while avoiding the creation of unnecessary uncertainty in order to score short-term political points.

Key stats • Energy is mission critical to business competitiveness, as three-quarters of companies consider reliability and cost significant factors in choosing where to invest.

• Concerns that the UK is not attracting the investment needed for the future have steadily eroded business confidence that supply will improve, with a balance of -34% firms expecting improvement in 2012, -54% in 2013 and now in 2014, -67%.

• 80% of firms say fears about future energy security are being factored into their investment decisions now, while 74% say the same about fears of higher costs.

• 95% of businesses say electricity market reform (EMR) will improve investment in energy, so with the right measures in place, it is essential that political rhetoric encourages rather than stymies this investment.

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

Energy – After the success of EMR, rhetoric now risks investment The UK is facing a major energy investment challenge, with energy security a key priority

Exhibit 46 Business views of whether the UK’s energy security is better or worse than five years ago

Much worse position 15%

The UK is currently embarking on the biggest transformation of our energy market since privatisation, which will require over £100bn of private sector investment24. Indeed, energy projects account for almost 60% of the National Infrastructure Plan’s £383bn pipeline.

This is needed first and foremost to keep the lights on – a major priority for business, with 87% of those surveyed citing energy security as a concern – a figure that rises to 92% among manufacturing firms (Exhibit 45).

Much better position 2% Better position 11%

About the same 27%

Worse position 45% Source: CBI-YouGov poll 'Business and public attitudes towards UK energy priorities', May 2014

Exhibit 45 Levels of concern about future energy security of supply (%) All 47

41

111

Manufacturing 60

32

8

Professional services 62 0

20

40

60

Slightly concerned

Concerned

Not particularly concerned

Not at all concerned

28 80

82 100

This reflects polling carried out by the CBI and YouGov25 earlier in the year, which showed that one in five businesses believed the UK’s security of supply position to be worse now than it was five years ago (Exhibit 46).

This concern is certainly understandable – with a fifth of our power stations coming offline by the end of the decade, our electricity capacity margins are set to fall as low as 2% next year, which is uncomfortably tight (Exhibit 47, see page 48). Despite increased investment across the UK’s energy grid in recent years, there is still a very real perception that we are experiencing an energy crisis, and there is clear evidence this is affecting firms’ investment decisions.

Going ahead with Hinkley Point C, for example, will not immediately solve our capacity constraints, as the station is only expected to start producing power from 2024. In the short term, sensible interventions are being made to manage both electricity demand and supply, but importantly, we must attract sustained investment in a balanced and diverse energy mix if we are to ensure the lights stay on in the future.

47

48

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

Exhibit 47 Ofgem’s projected electricity capacity margins 2014-2019 (%)

Exhibit 48 Firms’ support for full implementation of electricity market reform to improve investment climate (%)

12 (Strongly oppose 0%) Oppose somewhat 5%

10

Strongly support 41% 8

6

4

Somewhat support 54%

2

0 2014/15

15/16

Overall range

16/17

17/18

2018/19

Future Energy Scenario range

Source: Electricity Capacity Assessment Report 2014, Ofgem

But while the policy is shaping up, there is a risk that the politics undermines progress Attracting this investment requires a long-term, stable market framework, and on this front, solid progress is being made. The Energy Act is now on the statute books and is firmly in the implementation phase with the Capacity Market auction due to take place this winter. Indeed, 95% of businesses surveyed agree that implementing EMR will improve investment (Exhibit 48), reflecting the fact that multiple contracts have now been signed for new renewable generation and further commitments have been made to invest in an offshore wind manufacturing site in Hull. We now also have an agreement across Europe on an energy and climate change framework for 2030, including a new emissions reduction target of 40%.

Yet while slow but steady progress is being made on the policy framework, much of this work is being overshadowed by the politicisation of energy policy, which is undermining business confidence in future improvements. Despite a continued consensus on the big questions around the UK’s energy future, indicated by the significant majority with which the Energy Bill passed through parliament, political rhetoric seems to suggest a greater divergence. Whether it is the threat of a future price freeze or comments around cutting subsidies for onshore wind, political risk is impacting on investors’ sentiment.

95%

agree that implementing EMR will improve investment

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

Energy costs are a major concern, and more must be done to support consumers in managing them Of course, the major preoccupation for politicians is the cost of energy, and this is a key concern for business too, with 94% reporting that they are worried about the cost of future energy supply (Exhibit 49). Levels of concern are particularly high among manufacturers, with 97% worried about the impact of costs.

Exhibit 49 Levels of concern about future energy costs (%) All 48

46

51

Manufacturing 64

33 3

Professional services 44 0

20

40

49 60

Slightly concerned

Concerned

Not particularly concerned

Not at all concerned

52

80

100

Indeed, the cost of power in the UK for industry has been peeling away from European competitors, with prices up to 33% higher than the EU median for extra-large users, ranking the UK 14th among the EU1526. For those competing in a global market, this is seriously undermining their competitiveness as UKbased businesses. A position whereby energy costs contribute to driving industry abroad or deterring investment in the UK would be bad for jobs, bad for growth and bad for the environment.

Politicians must play the long game

The decision taken in the March 2014 Budget to freeze the UK Carbon Price Support and expand and extend the compensation package provided partial relief for some energy-intensive industries (EIIs), but there remains more that can be done. For example, it is important to implement the exemption for these industries from the costs of EMR, and the government should work in conjunction with industry to further rollout long-term decarbonisation roadmaps.

Energy efficiency has already played a major part in industrial decarbonisation, and further support is needed to reach the high-hanging fruit and to simplify the policy landscape.

It is important, therefore, that business confidence is restored, and political mood music will play a key role.

At the moment, opportunism is trumping pragmatism and short-term thinking risks undermining long-term investment. While we cannot expect to completely take the politics out of energy, given its huge national importance, we need our politicians to keep an eye on the long-term prize and maintain the trust and confidence of industry.

It is clear that business concerns are starting to bite on the ground. When asked what impact these concerns around energy have had on company investment decisions, 74% of businesses anticipate future energy costs having a negative impact while 80% feel similarly about security of supply.

49

50

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

A new approach is needed to boost our ability to take the right decision, at the right time chapter 6

To better deliver against the UK’s long-term infrastructure needs, it is essential we find a new way of ensuring decisions are made when they need to be, and that we stick to them – even where it might be politically more expedient to change course.

We need a new approach that builds consensus around our priorities, takes the sting out of decisionmaking and ultimately filters through to the speedier delivery of a pipeline of projects – at both national and local level. While there are a range of improvements that would help, business is clear that an independent system that identifies pinch-points early on and works out what is needed could boost the UK’s capacity to take decisive action.

Key stats • Business wants to see all parties commit to bold action in manifestos, including backing for rail franchising and Network Rail’s investment programme (99%), commitment to implement the Airports Commission’s findings (92%) and longterm road funding reform (86%).

• In the long run, business wants to see a new approach to infrastructure, with 89% backing the creation of an independent body to assess the UK’s long-term future needs. In this framework, 99% of business feel it would have been easier to make the case for HS2 successfully.

• Business is also supportive of greater local input on infrastructure spending, with 86% in favour of greater spending power for local enterprise partnerships (LEPs) and 73% for local authorities.

• It’s not just politics though: business believes more action is needed to attract a range of commercial investors (92%), to improve commercial awareness in government (92%) and to tackle delays in planning (91%) to get projects moving.

• 97% of companies feel that a more attractive capital allowances regime would boost private appetite for infrastructure investment – something that could be delivered within this parliament.

UK business backs the idea of an independent body to assess the UK’s longterm infrastructure needs Over the course of the last three chapters, business appetite for the incoming government to take decisive action is clear (Exhibit 50). From the backing of rail franchising, to implementation of the Airports Commission’s recommendations and a strong commitment to HS2, the overwhelming majority of businesses would like to see clear and unambiguous commitments in forthcoming party manifestos. This supports the conclusion of Chapter 3 that the key barriers to improved infrastructure are political in nature – often as a result of the short-term political cycle.

89%

support the idea of an independent commission to assess the UK’s infrastructure needs

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

Exhibit 50 Support for manifesto priorities to boost infrastructure delivery (%)

98

Support rail franchises and Network Rail’s improvement plan

95

Implement electricity market reform

92

Implement Airports Commission’s recommendations 85

Greater private investment in the road network 77

Commitment to HS2 0

20

While the detail of such an independent commission would need careful consideration, the underlying rationale is that it would be able to step back from the short-term politics of major issues, assessing the UK’s longer-term needs based on evidence and delivering an assessment against which government action can be held accountable, as well as creating consensus around projects (Exhibit 52, see page 52).

40

60

80

100

In the longer run, however, business is clear that we cannot continue to see major decisions mounting up as politicians put off making the tough calls required.

In this year’s survey, business overwhelmingly demonstrates its support for a new approach to establish the UK’s long-term infrastructure needs.

Asked whether they support the idea of establishing an independent body to assess the UK’s needs as a way of building consensus, as recommended by Sir John Armitt, 89% of all companies backed the idea, including virtually all infrastructure providers (Exhibit 51).

Exhibit 51 Support for an independent body to assess the UK’s long-term infrastructure needs (%)

51

All businesses

38 57

Infrastructure providers

39 211 72

Construction Manufacturing Professional services 0 20

8 12

40

21 39

61 40

Strongly support

Support somewhat

Oppose somewhat

Strongly oppose

60

7 18 3

30 80 Neither support nor oppose

9 100

Part of the problem is that, currently, the case for major infrastructure upgrades is not well made, and so we need to spark a debate on the nation’s longterm needs, long before our current networks start to creak. With no vision or national consensus over what needs to be built, when and where, it is hard to make the case for new infrastructure – especially when these projects may add costs to consumers and cause local disruption.

The drawn out debate around HS2 demonstrates how damaging a lack of consistent messaging from government on the cost and strategic importance can be. Initially sold on the basis of its speed, the project appeared to be an optional upgrade rather than essential. When the projected costs increased the public naturally questioned the need for HS2, as well as the credibility of the project, leading the government to revise the business case to focus on capacity.

51

52

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

Exhibit 52 An independent commission?

Sir John Armitt’s review calls for a National Infrastructure Commission (NIC), made up of industry experts, independent of party political influence, to set infrastructure policy on a ten year cycle. The NIC would be charged with delivering a 25 to 30 year assessment of the UK’s infrastructure needs every ten years using an evidence based approach, and then monitoring delivery against it, with government departments required to produce plans for each infrastructure sector.

The reason an Armitt-style body of experts appeals so much to business is because the institution would be designed to remove some of the uncertainty from the process of taking decisions on, and then delivering nationally significant infrastructure projects. Such a body could build cross-party consensus, setting out a credible long-term vision which would help create greater stability for investors and also make the public case for infrastructure, as well as holding the government of the day’s feet to the fire on delivery.

An independent body which was constantly assessing and updating the National Infrastructure Plan would eliminate the current pattern of stop-start investment – helping infrastructure providers plan for the future, allowing for the development of robust supply chains, as well as recruitment and retention of the right skills, and even encouraging re-shoring activities. What’s more, investors would be able to align their own funds with an improved long-term pipeline of projects, with a knock-on impact on access to finance at better rates, potentially reducing the costs of infrastructure to consumers and the UK taxpayer.

Reflecting on whether it would have been easier to make the case for HS2 successfully if it had been part of a clear long-term infrastructure plan, 100% of infrastructure providers, and 99% of UK businesses feel it would have been (Exhibit 53).

It is not only business that feels this change in approach would help make the case for major infrastructure. In polling conducted by Ipsos MORI for the CBI on public attitudes towards infrastructure, just 6% of people said that they trusted government ministers to make a strong case for infrastructure upgrades, compared to 54% who trusted independent technical experts, indicating that an independent commission could help boost the public case for new projects too27.

Exhibit 53 Businesses that agree making the case for HS2 would have been easier as part of a longterm infrastructure plan (%)

46

All busineses

53 54

Infrastructure providers 0 20 Significantly easier

40 Somewhat easier

46 60

80

100

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

Ensure national and local priorities are complementary While large-scale national infrastructure understandably dominates the headlines, local network improvements can be just as important to firms. Different regions have different needs, and so it is essential that there are voices speaking up for local priorities, as well as ensuring large national projects have a transformative effect at a local level – an aspect that has taken on additional significance in recent months with the growing debate about greater devolved powers to nations, English regions and key regional cities.

Too often, however, businesses have cautioned that government decisions on local infrastructure are viewed in isolation, meaning that opportunities to make a real difference are missed, so it is essential that central government steps back to focus on truly national schemes, while empowering local bodies to take control at the sub-national level. One way of doing this, as highlighted in the CBI’s Next Regeneration report,28 is to improve the joining up of the wide range of central funding schemes to make them available to local areas through the Local Growth Fund, thereby reducing the amount of time and resource local bodies must commit to preparing bids.

Support seems to be strong for greater local control over infrastructure spending. When asked specifically whether giving greater control to Local Enterprise Partnerships (LEPs) and/or local authorities would be supported, most businesses agreed that it would (Exhibit 54), suggesting strong local leaders have a valuable role to play in bringing about positive change.

There are also improvements that can be made at the local level to the way funding is used to deliver maximum impact. In particular, business is keen to see these bodies work more closely together to deliver projects across geographical boundaries, with 88% of infrastructure providers agreeing that this would have a significant impact on the delivery of infrastructure priorities (Exhibit 55).

Exhibit 54 Support for greater control of infrastructure spending by local government and LEPs (%)

Exhibit 55 Impact greater collaboration between neighbouring local authorities/LEPs would have on the delivery of infrastructure (%)

86

LEPs

88 Infrastructure providers

73 Local government 0 20

40

60

80

100

All businesses 0 20

85 40

60

80

100

Business is keen for local government to work much more closely with LEPs to deliver infrastructure

53

54

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

A failure to join up public funds at a local level is often seen as the reason why transport upgrades do not get off the ground. There are examples where this has been achieved with great results – authorities in Greater Manchester pooled resources to achieve greater scale and returns on their investment, to create a £1.2bn fund that will be invested in schemes based on their potential impact on gross value added. Business is now keen to see more positive examples of collaboration to deliver on local growth priorities.

But it’s not just the politics getting in the way of delivery As Chapter 3 demonstrated, the UK’s business environment for infrastructure investment does not yet stand out from the crowd and politics is not the only concern. If the UK is really to deliver the step-change in private investment required to bridge the gap between us and our competitors, we need to be more ambitious, removing all barriers to improved delivery.

As opposed to assessing the barriers to investment, the survey also asked investors what actions in the forthcoming parliament would have the greatest impact on investment in UK infrastructure (Exhibit 56).

Exhibit 56 Business support for policy changes which are expected to improve investment (%)

93

Introducing a clearer pipeline of projects

92

Attracting a broader range of private investors

92 More commercial awareness and project-management expertise in govt 91 Tackling delays and costs in the planning system 88 Reducing regulatory burden 81 Improving public sector contract management 78 Mitigating construction risk Improving private sector contract management

71

Reducing the cost of debt 0

20

72

40

60

80

100

Once again, a clearer pipeline of projects came out on top, highlighting the extent to which political action is needed. However, the survey also highlights a range of other non-political factors meriting closer attention by policy-makers, including: • A broader range of investors involved in UK infrastructure, ensuring that where opportunities emerge, competition exists to finance it.

• More commercial awareness and project management expertise in government capable of quickly moving opportunities through the pipeline to the point of construction.

• Reductions in regulatory burden, with one such burden in the form of delays and costs in the planning system, ranking highly in its own right.

Action on capital allowances can help boost the range of private investors in the UK… One major barrier identified by business for the attractiveness of UK investment is the UK’s capital allowances regime. The tax treatment of capital expenditure can have a significant impact on the overall cost of investment and plays a central role in making the UK a desirable investment location for internationally mobile capital. While cuts in corporation tax have boosted the UK’s broader tax competitiveness, the UK still has the lowest net present value of capital allowances in the G20.

CBI analysis has shown that if the UK were to improve its capital allowance regime in line with the G7 average29, the level of total investment could rise by around £50bn in the long-term, and the survey indicates that business agrees that with the right incentive, investment will grow. Asked what impact the introduction of capital allowances across all infrastructure assets (including structures and buildings) would have on infrastructure investment, 97% of businesses supported the view that this change would have an impact, with more than a third strongly supporting it (Exhibit 57). This figure increases further for infrastructure providers – those that understand what makes an attractive investment location, with 57% believing it would have a strong impact.

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

Exhibit 57 Support for extension of capital allowances to boost infrastructure investment (%)

All Oppose somewhat 3%

(Strongly oppose 0%)

Strongly support 36%

These changes are appreciated amongst UK infrastructure providers and business in general, as they want to see public sector skills more closely aligned with those found in the private sector when it comes to the procurement process for major infrastructure projects.

Support somewhat 61%

Providers Oppose somewhat 1%

efforts made in recent years by Infrastructure UK to boost commercial awareness across government departments is just what is needed. Led by Lord Deighton, these reforms have included the creation of a central team of commercial specialists within Infrastructure UK (IUK), deployed to infrastructure projects across government. The establishment of departmental infrastructure capacity plans is also welcome, ensuring that each Whitehall department has the skills required to make key decisions on infrastructure they are responsible for.

(Strongly oppose 0%)

Strongly support 57% Support somewhat 42%

‌while positive steps taken by Infrastructure UK to boost commercial awareness in Whitehall must become the norm That greater commercial expertise and project management inside government features so highly on the radar of business demonstrates that the

Business will want to see continued action on this front to ensure the commercial expertise of IUK is shared and reflected throughout the procurement teams of Whitehall departments. The transformation of the Highways Agency into a government-owned company, for example, offers an excellent chance to demonstrate that the concerns of businesses are well understood. By ensuring that from day one, the skills exist to provide a long-term financial settlement for businesses in the supply chain and a transparent and speedy process for procurement, confidence in the longer-term capabilities of the reformed Agency will be bolstered.

With planning still high on the agenda, there is more than can be done We have made great strides on planning for nationally significant infrastructure, through the introduction of the National Planning Policy Framework (NPPF) and changes to the Planning Inspectorate, but business is clear that we still fall short when infrastructure does not fall into this category. Businesses overwhelmingly agree (96%) that the UK’s planning system is a barrier to the delivery of new infrastructure projects and that there are a number of urgent improvements that can still be made (Exhibit 58 & 59, see page 56).

55

56

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

Exhibit 58 Businesses’ priorities to improve the

Exhibit 58 Business’ priorities UK planning system (%) to improve the UK planning system (%)

91

Longer-term infrastructure planning (eg 30-year horizon)

Whilst not top of the list, it is somewhat worrying that 67% of infrastructure providers believe reducing the scope for the Communities and Local Government Secretary of State to call in projects would significantly improve the planning system. Since 2011, the number cases which missed statutory targets at recovery or call in stage has increased year on year: from 3 to 2830.

86 Streamlining the process for obtaining non-planning consents 85 Boosting skills and capacity in local planning departments 79 Allowing developers to submit proposals to the Planning Inspectorate 76

Delivering up-to-date local plans

72 Increasing the use of planning performance agreements 70 Limiting the role of judicial review 68 Reducing consultation requirements 55 Reducing scope for secretary of state to ‘call in’ projects 53 Reforming the Community Infrastructure Levy 0

20

40

60

80

100

Exhibit 5959 Infrastructure providers’ priorities to improve Exhibit Infrastructure providers’ priorities to the UK planning system (%) system (%) improve the UK planning

97

Longer-term infrastructure planning (eg 30-year horizon) 90 Streamlining the process for obtaining non-planning consents 83 Limiting the role of judicial review 83 Boosting skills and capacity in local planning departments 81 Increasing the use of planning performance agreements 77 Allowing developers to submit proposals to the Planning Inspectorate

20

40

60

80

A number of called-in projects, particularly those related to renewables have faced serious delay in the last two years (Exhibit 60)31. High-profile cases such as Cory Environmental’s energy from waste plant in Norfolk have hit the headlines, but other applications, especially in onshore wind, have also been affected.

Calling in projects without a clear timetable for resolution has the potential to seriously damage not only the investment prospects in particular projects, but also the UK’s reputation as a place to invest. Local growth cannot be held hostage by political whim, and if we are serious about attracting investment, government needs to introduce a time-limit on these planning decisions. Even the most difficult decisions must be made sooner or later.

Exhibit 60 The call-in record on wind projects Since June 2013 a total of 49 energy from wind projects have seen an intervention from the Communities and Local Government Secretary of State, with a total potential generating capacity of 506 MW and a total investment value of over £560m.

67 Reducing scope for secretary of state to ‘call in’ projects 66 Reducing consultation requirements 66 Delivering up-to-date local plans 53 Reforming the Community Infrastructure Levy 0

process for obtaining non-planning consents would help get projects built, while a more limited role for judicial review and action to boost skills and capacity in local planning departments also features highly.

100

Top of the list is a view from business that longer-term infrastructure planning could improve the UK’s entire planning system. The implication is that with clear guidance on what the UK needs, and when it needs it, an infrastructure commission could potentially have a trickle-down effect providing clearer justification for proposed projects.

Second on the list, 86% of businesses – and 90% of infrastructure providers – think streamlining the

So far, however, there have been 18 decisions, 16 refusals and two approvals, meaning that the refusal rate by project is currently 89%. The average time these projects have spent in the planning system is equal to 30 months for the 18 projects which have currently been decided from the beginning of the planning process.

The projects which are still undetermined have also so far spent an average of 30 months in the planning system and are still awaiting a decision, with further delays resulting from the call in process.

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

With a general election on the horizon, attention has turned to which of the political parties is capable of enacting a fundamental change in the way we deliver our infrastructure – meeting the UK’s long-term needs, taking the tough decisions that must be made and ensuring the UK stands out as a location for investment. The CBI is calling for all political parties to set out a comprehensive offering in party manifestos that sets us on course to catch up with our competitors.

CBI priorities for the next parliament and beyond: 1) Establish an independent body to determine future infrastructure needs and how they should be met, without delaying projects already underway.

2) Boost infrastructure investment by introducing capital allowances for structures and buildings.

3) Implement all elements of Electricity Market Reform to secure the necessary levels of investment in our power sector, and ensure energy efficiency is an infrastructure priority.

4) Commit to implementing the recommendations of the Airports Commission to bring an end to the hiatus over UK aviation capacity, with spades in the ground by 2020.

5) Spark a national debate on the future funding of the UK’s road network by conducting an audit of the network, providing a clearer picture of the current funding deficit.

6) Provide long-term investment certainty for digital infrastructure by committing to carry through the digital strategy currently being formulated.

Recommendations

Business expects commitments in party manifestos to improve UK infrastructure delivery

57

58

Taking the long view: a new approach to infrastructure CBI-URS infrastructure survey 2014

References

1 National Infrastructure Plan, Infrastructure UK, 2013 2 Global Competitiveness Report 2014-15, World Economic Forum, 2014 3 Electricity Capacity Assessment 2014, Ofgem, 2014 4 Infrastructure Announcement, RAC Foundation, 2013 5 United Kingdom National Accounts: The Blue Book, Office of National Statistics, July 2013 6 National Infrastructure Plan, Infrastructure UK, 2013 7 CBI economic forecast, September 2014 8 Improving Britain’s Railway, Association of Train Operating Companies, 2013 9 National passenger survey, Passenger Focus, 2014 10 Growth and prosperity, Association of Train Operating Companies, 2013 11 Building Trust, CBI, 2014 12 Intelligent Positioning survey, January 2014 13 Let’s Get Digital, CBI 2013 14 Investing in Britain’s future, HM Treasury 2013 15 Locally Grown, CBI 2013 16 The economic costs of gridlock, Centre for Economic and Business Research 2012 17 Speech by UK Prime Minister to the Institution of Civil Engineers, 19th March 2012 18 Bold Thinking, CBI 2012 19 Trading places, CBI, 2013 20 BRICS – Brazil, Russia, India, China, and South Africa MINT – Mexico, Indonesia, Nigeria, and Turkey Next 11 – Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, the Philippines, Turkey, South Korea and Vietnam 21 Ibid 22 The Nub is the Hub, CBI 2014 23 Investing in Britain’s Future, HM Treasury 2013 24 Ibid 25 Business and Public Attitudes towards UK energy priorities, CBI- YouGov Poll, May 2014 26 Industrial Electricity Prices in Europe, DECC, September 2014 27 Building Trust, CBI 2014 28 The Next Regeneration, CBI 2013 29 Invested Interest, CBI 2014 30 Compliance with statutory timetables for planning decisions 2010-2014, DCLG, July 2014 31 Written Evidence UKCLG Select Committee Inquiry into operation of NPPF, Renewables UK 2014

For further information on this report, or for a copy in large text format contact: Lois Robson Senior Policy Adviser Business Environment Directorate CBI Cannon Place 78 Cannon Street London EC4N 6HN T: +44 (0)20 7395 8094 E: lois.robson@cbi.org.uk

Š Copyright CBI 2014 The content may not be copied, distributed, reported or dealt with in whole or in part without prior consent of the CBI.

Printed by Colourscript on Revive 100 pure white silk, containing 100% recovered fibre certified by the FSCÂŽ.

Colourscript is certified to ISO 14001 and registered to EMAS environmental management systems NEZ052.

Product code: 10646

www.cbi.org.uk