Building Future Britain

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What can our cities learn in planning, funding and delivering their infrastructure needs?

The UK is on the cusp of a golden age of infrastructure spending with around £400bn of investment set out in the National Infrastructure Plan for the 10 years to 2022 alone. The case for this level of expenditure is strong and enjoys cross-party political support, some would say for the first time in generations, but this level of ambition comes with significant challenges.

The last time we had so much change was in the Victoria era. They built our railways, roads and sewers, planned our towns. Their industrial revolution changed society too. Now we are about to do the same building huge sewers, high speed rail, windfarms, a new grid, smart cities and airports, powering our electric cars on new roads, and we will build a digital country that better serves the public’s requirements and connects us to the rest of the globe. But how we will do all this, who will plan it, who will pay for it? How do we ensure we build in the right places so that all of the country benefits?

We need to think differently for Building Future Britain – as whether its new or existing infrastructures what is absolutely key is ensuring we drive the greatest value from our infrastructure.

The main obstacles to progressing significant infrastructure development are often cited as ‘funding’ or ‘planning’. However, in a recent report 'London Tomorrow: Shaping Future Cities' is a thought-leadership initiative facilitated by the London Chamber of Commerce and Industry in association with Ernst & Young (EY), with London City Airport as a supporting partner, talks about London's future infrastructure who pays and how do we deliver.  The reality with regards to strategic infrastructure projects is that political indecisiveness plays a major role in whether privately or publically financed major projects get the go-ahead or not. Prolonged uncertainty over our national infrastructure or expansion plans changes the perceptions of investors, shareholders and foreign governments about investing in UK major infrastructure.

All areas of our infrastructure require significant investment as the National Infrastructure Commission are indeed focusing on (i) Transport the north and the Northern Powerhouse, (ii) London and Crossrail 2, and (iii) Smart Energy. Their reports findings that emerged this month are clearly reflected too in the UK budget where infrastructure took central stage. But the question is, of course, what next?

Investment in infrastructure and confidence in the governments commitment to key programmes is essential to provide investor confidence and derisk infrastructure. There is obviously keen interest out there for UK infrastructure assets, as the recent purchase of London City Airport has clearly proven with a significant multiple of EBITDA achieved through the sale to a Canadian pension fund investor.

Delivering value

Value from infrastructure is derived from three lenses around –doing more with existing or new infrastructure, driving out value for money and delivering benefits. 

Essentially though value is seen through the key component of growth which is intrinsically linked with infrastructure and of course housing.

We need to drive value and investment in tube and rail services into the capital to housing and digital connectivity infrastructure – to cater for today, let alone meet future population needs. For example, how can London move with pace and certainty to secure the transport and housing infrastructure required for the city’s workers, the broadband infrastructure demanded by London’s companies and the utilities infrastructure needed by all?

As this year the UK devolves further powers and responsibilities through devolution there will be even more focus on our cities to drive value to compete on the global stage and consequently the importance of ‘place’ is therefore paramount. The opportunity for continuing growth in our cities with the desire for resilience and smart digital connectivity are key considerations in defining future value.

Devolution and city mayors

devolution is firmly on the political agenda, passing decisions on infrastructure down to the local level.  All the more important when we look at the potential mayoral agenda.

The new Mayor for London, along with the election of many city mayors around the country this year, will bring a new focus that builds on the strengths of the past and invigorates the future in terms of driving connectivity between growth aspirations, infrastructure innovation and housing demands – driving value, delivering capacity and determining collaboration. An important consideration as we grapple with maintaining our heritage and embracing the future high tech built environments is getting the balance right for growth, housing and infrastructure to deliver our city aspirations.

Growth

With economic growth comes value as the demand for more housing and better infrastructures increases. It is clear urbanisation is with us with 51% living in our global cities today and over 66% by 2030. Restraining that growth is impossible for any city, let alone a capital city where the natural pulls of work, lifestyle, plus an entertainment and recreational hub, will place increasing demands for more, and better, housing and better infrastructures – it’s not either or, but increasing demand for each. We clearly have to get more out of our existing infrastructure and plan new in order to secure future growth.

Housing

With 50,000 more homes needed each year in London housing is an undisputed issue that has to be addressed with planning at the centre of the debate in terms of brown field, green belt or satellite garden cities. In my view, we absolutely must protect our green belt for the generations to come.

So, there is no easy solution. Urban sprawl, refurbishment of social housing and tall tower developments are the obvious release valves. Generation Y and Z are known to be reluctant to do the daily commute, wanting their community and café cultures to exist in harmony with the workplace of today, at the heart of the city.

Our planning system needs to be effective to enable housing supply in the right places and guide us in developing the skyline of our cities through the appropriate allocation of land and resources. It is clear we are not delivering on those homes where planning permission has been granted (recent figures from the LGA show that, nationally there are there are 475,000 homes with planning permission granted and waiting to be built) suggests a more deep rooted problem in delivery of homes.

So how might infrastructure, particularly transport, act as the key enabler to unlock the housing through brownfield sites as ‘places’ and the new garden towns as ‘commuter hubs’? We need to think smart on delivering housing through infrastructure enablement.

Infrastructure

Infrastructure needs to keep up with the pace of change through transport, energy and assets (utilities and communications). The expected rise in population will also increase the demand on services – with a hefty infrastructure price tag for London alone being £1.3tn (GLA’s ‘London Infrastructure Plan 2050’).

The mayoral CIL and Business rates retention will give the mayor powers to fund projects, as will innovative tax taxes to potentially capture benefits, but the scale of investment required demands more than this. The key to this is the linkage with the ‘London Infrastructure Plan 2050’ and the National Infrastructure Commission’s (NIC) Delivery Plan to help provide a vision for London for investors to provide certainty and manage the risk profile.

So how do we actually deliver value?

At EY we have been doing some key research on what is needed to help drive value. We believe there are five key areas:

• The Intelligent Client;

• Smart Cities;

• Delivering Mega Projects;

• Asset Management;

• Innovation – through Systems, Processes, Digital, and Data;

Our Points of View are due to be published on these key mega trends for Building Future Britain.

We look at refining the sponsorship model for complex programme delivery. With US$682bn wasted annually on underperforming projects across the globe, what can be done to increase the likelihood of success and drive greater value?

Strategic Infrastructure Client

Aside from the obvious question marks around the availability of funding and supply chain capacity, there are wide-spread questions around the ability of government and private sector organisations to act as effective clients in their sponsorship and control of the investment to ensure value for public money and effective outcomes. There are good examples of the UK getting it right in recent history on major infrastructure programmes such as Heathrow T5, the London Olympics and Crossrail. However, according to the National Audit Office, one third of government funded programmes and two thirds of all programmes still suffer overruns in budget and schedule. The next big challenges include HS2, Thames Tideway, the New Nuclear and Roads Investment programmes.

The government recognises the need for driving greater value from infrastructure, which is why it has established the National Infrastructure Commission, and the Infrastructure and Projects Authority to strengthen central oversight and monitoring in addition to existing bodies such as the Major Projects Authority and various regulators. However there have been recent calls for government to become a more Intelligent Client, from both within political circles and leading independent professional bodies.

The Strategic Infrastructure Client is EY’s response to the calls for infrastructure clients to become more intelligent and informed to help enable the effective delivery of the infrastructure ambition. We discuss the context and challenge, the benefits of Intelligent Clienting, the conditions for success, commercial imperatives while introducing EY’s model to enable rapid programme mobilisation and fast start-up, followed by a suggested roadmap for how to achieve the standing of an Intelligent Client.

Smart Cities

More people. Bigger cities. Fewer resources. How will infrastructure protect our future? Will cities or citizens shape our infrastructure future? The megatrends of the urban world are putting cities and their infrastructure under increasing pressure. These stresses are exacerbated by a changing climate where the resiliency and sustainability of urban systems is tested. There are however opportunities for new ways of managing the urban environment and infrastructure through the megatrend of our generation — digital. These challenges need to be addressed by considering the interface between human, physical, and digital assets. The future shape of our cities and infrastructure depends on how citizens connect with their cities, and how cities connect with each other.

We have been working with a number of cities and the Rockefeller Foundation to see how the UK’s cities – mostly existing, but also new, can help embrace the concept of ‘smart’ to drive greater value from infrastructures within, or to drive ‘place’ through economic, politic and social drivers for change.

Delivering Mega Projects

So, value is realised ultimately by successfully delivering a Mega Project — but at what cost? The global investment in infrastructure, estimated to be up to $57 trillion by 2030 (McKinsey), has led to a pipeline of greater numbers of Mega Projects. Delivery of Mega Projects is a high stakes, complex endeavour, which is costly and often runs over budget and late.

The likelihood of successfully delivering Mega Projects globally has not significantly changed as long as data has been collected. Therefore, it is crucial for all stakeholders involved in the planning and delivery of Mega Projects to fundamentally improve their performance.

Unlocking the potential of Mega Projects requires having access to the right information to decide what projects to develop, alignment with vision and strategy, together with the ability to execute and the capacity to absorb the changes to the full effect. Obtaining the right information begins with asking better questions and in doing so, equipping senior management with the right information and confidence to pursue a leadership approach which is proactive, strategic and comprehensive. The journey to unlocking the potential within your Mega Projects begins with asking a set of five basic, but important, questions:

1. Are you doing the right project?
2. Are you ready to run a Mega Project?
3. Is your Mega Project set up for success?
4. How well are your important Projects performing?
5. Are your people aligned toward success?

Asset Management

Asset Management looks at the whole lifecycle of driving greater value from inception, design, construction, use, operation and maintenance. With infrastructure projects being significantly longer term in construction and ultimately life, thinking about driving value ultimately ends in a fine line between initial construction cost and post completion costs!

Innovation

As the recent RICS Futures Report – Our Changing World: Lets Be Ready says there is a strong case to fund innovative business practices that can drive efficiency and manage the challenges faced in the built environment sectors. Infrastructure is likely to see innovation in its design, construction, operation and maintenance. Much is happening already but the pace of change will be exponential.

Design using CAD, BIM and GIS are the norm. Construction productivity improvements are key to help profitability and we are already looking outside of the industry at automation, modelling on other sectors like retail and manufacturing for leading practice on how to get more for less in terms of driving out value.  Personally I think innovation then systems, process, digital, technology and data.

So in terms of driving greater value from infrastructure our cities need to learn from one another in planning, funding and delivering their infrastructure needs:

• by taking on the empowerment of localised decision making through the devolution agenda and role of mayors;
• providing confidence in decision making and collaboration over the longer term infrastructure programmes that set the agenda not necessarily cut the ribbons!;
• deliver value through a growth agenda that delivers both housing and provides the right infrastructure for the future.

Britain is facing a decisive moment in history as the Victorians did in the 19th Century. It’s the first time in 200 years that the UK has had a proliferation of infrastructural projects in the pipeline that consider the longer term impact for our country.  EY is committed to enabling us to compete on the international stage, and acknowledge that the strength of our economy rests on making the right long-term investment decisions now.

 EY Infrastructure UK&I is enabling this through our Building Future Britain campaign – a series of debates, thought leadership and points of view to help our clients realise the potential. For more information  see: ey.com/uk/infrastructure