Highways Agency reforms - the unknowns which may hold back supply chain investment

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The planned Highways Agency reforms are a set of changes which will help to address decade's worth of underinvestment in the UK road network. The measures include, funding certainty, a forward pipeline of projects and an increase in the levels of capital investment in the road network.

What the Department for Transport wants is for the infrastructure supply chain sector to invest in capital and skills. This is because from 2015 significant levels of new capital expenditure will come flowing into the market as, this capital expenditure, known as Investing in Britain's Future (IIBF) becomes a reality (see graph below).

Based on current levels of investment by the infrastructure supply chain, the strain could lead to supply side inflation, as machinery and skills are procured (or subcontracted) at short notice at a higher cost. Even the use of international contractors to plug the gap may not help to keep the costs down in the short term.

For the infrastructure industry to invest however, it needs greater certainty and stability and advance warning from the supplier (Government).

As stated above, the Highways Agency reforms are designed to address this, by providing five year funding certainty and a list of projects that will be funded. EEF see these reform as neccesary, but

There are still some unknowns.

First, despite turning the Highways Agency into a Government owned company and giving it greater freedoms, the reforms leave a great deal of control in the hands of the Secretary of State - thus retaining some of the political uncertainty which has dogged the current set up.

As an example, the user watchdog and efficiency monitor roles, as envisaged, will advise the Secretary of State on the performance of the Highways Agency, but will have no formal role in holding the Agency to account directly, relying instead on the Secretary of State to take action.

The concern by some, including EEF, that the user watchdog will be merely a division of Passenger Focus is a case in point of the low level of importance attached to making the Agency truly independent of political machinations.

A more pre-eminent user watchdog could win the trust of road users, which will be a crucial element in getting these reforms to work.

Secondly, if supply side inflation becomes an issue, the purchasing power of the Investing in Britain's Future planned capital expenditure may decline, causing even greater uncertainty as the Highways Agency may be forced to cancel future projects to stay within budget.

This isn't as unlikely as it may seem, the Audit Commission's study into local authority road maintenance spending (where uncertainty in projects is rife) shows that despite an increase in cash spending from 2000 to 2008, there was no real terms increase in purchasing power.

Source: Going the Distrance, Audit Commission, May 2011

These are just some of the issues the Department for Transport are working to resolve in order to give confidence to the infrastructure supply chain to invest in the required skills and machinery now.

Author

Head of Business Environment Policy

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