Warning over infrastructure schemes

News Shopper: The Government is offering guarantees on some infrastructure projects as a way of securing private investment The Government is offering guarantees on some infrastructure projects as a way of securing private investment

Taxpayers face being exposed to "substantial losses" by coalition attempts to drive through major road, rail and energy schemes with minimal state funding, a public spending watchdog has warned.

The Government is offering guarantees on some infrastructure projects as a way of securing private investment - but that is leaving it open to increased risk of having to meet significant costs if anything goes wrong, according to the National Audit Office (NAO), which also urged ministers to be "realistic" about project risks, particularly the possibility of cost overruns.

In a report on infrastructure planning, the watchdog also warned that uncertainty over Government policy might lead project sponsors, lenders and contractors to defer or abandon projects in the UK for international alternatives.

Around £310 billion is expected to be spent on energy, rail, roads, water, waste, flood defences and digital communications by 2015 and beyond - and 64% of that cash will come from private companies. But reducing reliance on state funding can increase the burden on the public as consumers rather than taxpayers, the report suggested.

It warns of a possible failure to take into account the impact on consumers of schemes that are funded by hiking up bills or costs for users, such as on key transport or energy projects. That can increase the risk of financial hardship and potentially the need for unplanned taxpayer support, the report said.

It calls on the Government and regulators to provide greater clarity for consumers on the financial impact of planned infrastructure. The NAO also urges Whitehall to subject its infrastructure plans to rigorous testing and warns that the Government may need to prioritise its infrastructure programme.

Amyas Morse, head of the NAO, said: "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.

"I have made a number of recommendations which look to the Treasury, departments and regulators to provide greater clarity on the costs which taxpayers and consumers will bear. Work is already in hand to drive down the costs of delivering new infrastructure and this should continue."

Responding to the NAO report, the chair of the House of Commons Public Accounts Committee, Margaret Hodge, said: "The Government expects £310 billion of investment in new infrastructure projects to be taken forward to 2015 and beyond. The Government is pinning its hopes on persuading private investment to wholly own and finance 63% of this sum.

"However, the Government's indecision over infrastructure policy deters investors who seek certainty in exchange for long-term financial commitments. The Government needs to provide certainty to encourage investors and clarity about the impact on consumers."

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