Cost overruns could mean fewer infrastructure projects

16 January 2013

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16 January 2013 | Adam Leach

The government may not be able to proceed with all of its planned infrastructure projects or may be forced to place the burden on taxpayers, unless it keeps the costs under tight control.

A report by the National Audit Office (NAO) published today, Planning for economic infrastructure, identified five key factors which it believes could threaten the value-for-money case on the government’s infrastructure plans.

These were: inaccurate identification of the need for infrastructure; policy uncertainty; failure to assess the cumulative impact on consumers of funding infrastructure through user charges; taxpayer exposure to losses; and delivery costs higher than they should be.

The government has earmarked £310 billion to be spent on infrastructure, with £257 billion to be spent by 2020, but the NAO said if, as is historically the case, the costs continued to be higher than in other European countries, the number of projects might have to be trimmed.

“UK infrastructure costs have historically been higher than overseas. This could result in high costs for taxpayers and consumers and fewer projects going ahead than planned,” the study said.

It also identified “policy uncertainty” as a major risk, arguing unless there is clear and consistent policy, contractors, investors and sponsors might look elsewhere.

The NAO recommended when embarking on infrastructure projects, government departments should subject their forecasts of demand for users of the infrastaucture to rigorous testing. It also said the Treasury, departments and regulators should work with the private sector and project sponsors to develop and use ‘should cost’ models – where costs are estimated through discussions with partners and potential collaborators - to test or challenge forecasted project costs.

Amyas Morse, head of the NAO, said in a statement: “Economic infrastructure keeps the country running. Demand for infrastructure is set to increase, fuelled by population growth, technological progress, climate change and congestion. But there is a lot at stake in taking forward the national infrastructure plan in an environment of straitened resources, with real risks to value for money and uncertainty about the sustainability of piling costs on to consumers.”

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