Plaid's Infrastructure Commission

(Pic : Plaid Cymru)

(Owen : It's funny how things turn out. I'm sure that counts as three correct predictions in a row. As for the recent controversial episode of Question Time this sums up what happens in pretty much every episode and why I don't watch political programmes. "Don't feed the trolls.")

On Monday, the Shadow Ministers for the Economy & Infrastructure – Adam Price AM (Plaid, Carms. E & Dinefwr) and Dai Lloyd AM (Plaid, South Wales West) respectively – launched a policy paper outlining their proposal to create a National Infrastructure Commission (pdf).

The creation of an infrastructure commission formed one part of the compact between Labour and Plaid Cymru following the Assembly election, and was a key manifesto commitment by Plaid. On September 14^th, the Assembly voted in favour of a motion calling for the establishment of a commission.

Why does Wales need a National Infrastructure Commission?

An over-concentration of UK-wide infrastructure spending in the south east of England and
limited borrowing powers are amongst the reasons.
(Pic : Crossrail)

• See also : A Cunning Infrastructure Plan

Plaid Cymru's argument boils down to:

• An over-concentration of UK infrastructure investment in London and SE England (i.e Crossrail and High Speed 2). While infrastructure investments are being made in Wales, our true potential isn't being explored as much as it should.
• Austerity and restrictions on forthcoming borrowing powers (£500million a year from 2018) has limited the amount of capital available to the Welsh Government for investment. Capital spending (spending on "new things") will be a third lower in real terms in 2020-21 than it was in 2009-10.
• The fallout from the EU referendum, historically low interest rates (and, subsequently, borrowing costs) and the Non Profit Distributing model make infrastructure investment all the more attractive.

The definition of what infrastructure actually is will vary but it generally means the physical structures needed to support the economy and make the country "go". This can be economic infrastructure (transport, utilities, communications) or social infrastructure (health, education, housing). The prevailing reality is that improved infrastructure boosts economic growth from both the investment in the projects themselves and the impact they have once completed.

How would the National Infrastructure Commission function?

Role

• "Identify, cost and prioritise" projects that would meet the goals of the Welsh infrastructure strategy – roads, housing, schools, hospitals etc.
• Arrange funding for large scale construction via borrowing and/or money from the Welsh Government's capital budget.
• Tender projects and monitor their delivery.
• Advise the Welsh Government on infrastructure matters, including skills requirements and supply chains.

Principles

• Accountability – It would be "fully accountable" to the Welsh Government and subject to scrutiny by the Senedd.
• Autonomy – It should have enough autonomy to deliver its project portfolio whilst remaining politically accountable.
• Delivery – It should be judged on its ability to deliver its portfolio with agreed financial and operational boundaries and should be staffed accordingly.
• Probity – It should demonstrate transparency and honesty in its work.
• Value for money – It should be "commercially informed" with a view to achieving the best possible value for money.

Governance & Accountability

• The National Infrastructure Commission would be an arms-length government owned enterprise run on a not-for-dividend basis, established by an Act of the Assembly (other examples include: Network Rail, Cardiff Airport).
• Any profits made would be re-invested in infrastructure projects.
• The relationship between the Commission and Welsh Government would be formally documented and include things like: remits, corporate plans, annual business plans, monitoring data.
• It would be subject to the Freedom of Information Act and held to account via the Assembly's committees and Wales Audit Office.
• The Commission would be controlled by a board of directors, mainly non-executive, appointed by the Welsh Government for a minimum of five-year terms. They should have experience in procurement, commercial finance and project management.
• The board would then appoint a Chief Executive, responsible for day-to-day operations.

Funding

• The Commission would use the Non-Profit Distributing (NPD) model. This means creating a special purpose company (SPV) for each project, raising finance from private and public investors, paying contractors to carry out the work, and the "tenant" of the project then paying back the costs over several years with a pre-agreed capped profit margin for the investors (and the Commission) - there's more information on how NPD works here (pdf).
• NPD isn't classed as public sector spending and is considered private sector activity – so it's "off the balance sheet" but isn't PFI.
• Potential investors include: capital markets, the Green Investment Bank, pension funds and unlisted UK infrastructure funds.
• The Commission would aim to raise/borrow £7.5billion over 10 years between 2017 and 2026. This would be paid back over 25 years, with repayments peaking in 2026 at 4% of the Welsh Government's budget (approximately £640-660million). The borrowing for this 10 year period would be completely paid off by 2051.

How would this work in practice?

The paper used a new school as an example scenario.

Firstly, the Welsh Government prioritises school construction and tasks the Commission with delivery. A local education authority then approaches the Commission with a proposal to build a new school, which the Commission will assess.

If the Commission approves the project, they'll begin design and procurement and start to raise the necessary finance (presumably as an SPV under the NPD model). Once that's done, they put the school project out to tender to private contractors.

The education authority then agrees a long-term lease for the school with the Commission (the Scottish average is around 30 years). Once the debt relating to the school is paid off through rental payments, ownership would transfer to the education authority.

Build for Wales+?

The underlying financial model of the proposed NIC has been proven to
work in Wales, but will doing it on this scale cause problems?
(Pic : Institute of Civil Engineers)

There are echos of Ieuan Wyn Jones' Build for Wales proposal from 2011, but with some very important differences.

One of the reasons Build for Wales was (wrongly) dismissed so easily was that even though it sounded perfectly reasonable, it was lacking substance. This paper avoids that as the process by which money would be borrowed is described in a more detail, while the NPD funding model has since been proven to work in Wales (A465 dualling).

Secondly, this is actually going to happen. As said, an infrastructure commission formed part of the Labour-Plaid compact, though that doesn't necessarily means it'll take this form.

Plaid seem to be proposing a hybrid infrastructure commission and domestic investment bank (possibly even a part-revival of the WDA); the closest comparison I can think of is the former National Roads Authority in the Republic of Ireland, which is now a general infrastructure body.

The problem here is Labour's definition of an infrastructure commission might not line up with Plaid's. The UK already has its own National Infrastructure Commission, but it's more a strategic planning authority than a commissioning/procurement authority.

Based on their track record of risk aversion I can see Labour preferring something along the lines of the UK commission - a strategic decision-making body without the borrowing elements; I suspect they'll argue the Welsh Government might as well directly control funding of projects instead of hiving it off, even if that limits access to private capital. If the two visions don't align with each other than that could cause political problems.

The clincher for me is the point Adam Price has made about borrowing being very cheap at the moment. You can see low interest rates lasting for quite some time, perhaps even turning negative – so I don't think this has to be rushed as such but we might not get a better opportunity.

There are other problems. Firstly, the timescale for borrowing and repayments is based on a single 10-year £7.5billion "splurge"; what happens at the end of that 10 years? Is the Infrastructure Commission time-limited, or would there be another 10-year round of borrowing from 2026-2036? If so the repayment costs would be inevitably be higher than those listed in the report.

Secondly, there may be areas where infrastructure commissions at UK and Welsh level would be treading on each other's toes. Rail infrastructure would be the main example because Network Rail functions are non-devolved, but it would include energy projects too. Who would have authority to sign off projects? Would the Infrastructure Commission be limited in what it could do?

All in all this is a creative (if not entirely original) solution to a real problem that's dogged Wales for decades and if we're going to drag our clunking, rusty infrastructure into the 21^st Century then it deserves to be taken seriously.