Planning to fail

The UK’s infrastructure planning regime is showing some signs of improvement, but is still tough to navigate

“I believe we can make Britain the home of Asian investment and Asian finance in the West,” UK Chancellor George Osborne told a gathering of Asian financiers in Hong Kong in January 2012.

Although he was not restricting his comments to infrastructure, they were in keeping with Osborne’s previous insistence that foreign investors from Asia and elsewhere would be crucial to the delivery of Britain’s National Infrastructure Plan, comprising a raft of large infrastructure projects that would help to kickstart the UK’s flatlining economy.

Some of those in the room were no doubt prepared to give the Chancellor a fair hearing, with a small sample of these even willing to write cheques. The China Investment Corporation, for example, gave the speech the equivalent of a standing ovation when – within weeks – it had announced the purchase of a 9 percent stake in Thames Water, followed later in the year by a swoop for 10 percent of Heathrow Airport.

But these were long-established, relatively safe assets some way removed from the greenfield projects the Chancellor was keen to promote. For these kind of projects, evidence of success is hard to find. Earlier this month, the Office for National Statistics reported the latest depressing data on the UK construction industry, showing a 9 percent fall in output for December 2012 to February 2013 compared with the same period a year earlier. The sorry conclusion? Not much is getting built; in the infrastructure sector or anywhere else.

Part of the key to understanding this is to focus some attention on one of the much-neglected risks inherent in infrastructure: planning risk. It was through the 2008 Planning Act that the previous Labour administration established the Infrastructure Planning Commission (IPC) to take approval of large infrastructure projects out of the hands of ministers and thus sidestep government bureacracy.

Condemned as an undemocratic quango (quasi-autonomous non-governmental organisation) that aimed to ride roughshod over local objections to projects, the coalition government that was elected in 2010 pledged to abolish it. It duly did so: the functions of the IPC were transferred to a new National Infrastructure Directorate (NID) within the Planning Inspectorate (PINS) – putting decisions once again back in the hands of ministers.

Progress made to date, according to planning lawyers canvassed by Infrastructure Investor, has been reasonably respectable. Of 29 applications made to PINS and its forerunner by the end of February this year, seven had been approved and one refused. Post planning application, there is now a reasonably streamlined process with a number of different stages – and at each stage, there is a fairly tough deadline that must be met. From application to approval/rejection, the process normally takes 15 to 18 months. In sum, not too bad.

However, those familiar with the process say the pre-application phase is still far too complex, lengthy and costly. Many promoters simply won’t take the risk of putting time, effort and money into such a process with no ultimate guarantee of success. Those with experience of both the new and prior planning systems say that, overall, they are not really that different – with ‘back-loaded’ bottlenecks now ‘front-loaded’.

For domestic promoters and investors, the change of planning systems is undoubtedly confusing and some time will be needed before sufficient exposure to the new system begins to breed confidence. Foreign parties, meanwhile, could be in for a culture shock when introduced to the UK planning system for the first time – especially when contrasting it with what may be far more streamlined processes in their home markets.

Osborne’s dream of international investors flocking to a steady flow of large, greenfield infrastructure projects shows no immediate sign of becoming reality. When searching for the reason why, planning risk forms at least part of the answer.