Why infrastructure delivery costs so much in the UK – and how to fix it

The cost of infrastructure delivery in the UK is too high.

That’s a problem for the ambitious new Labour government that's set a series of missions, including decarbonising electricity by 2030. This requires a huge amount of new infrastructure.

To get there, the government must somehow reduce the cost of delivery.

A new report by the National Infrastructure Commission (NIC) explores what it should do.

The scale of the problem

Since 2007, construction costs have risen by 30% more than GDP per capita in the UK. Infrastructure seems to be getting more unaffordable just as the government needs to build much more of it.

It’s not the only country facing higher costs and worse delivery.

But in some sectors the UK performs noticeably poorly. These include nuclear power, high speed rail and rail electrification.

It means high profile projects, like High Speed 2 (HS2), gain attention for the wrong reasons.

Their benefits are underplayed, and they’re seen as poor value for money.

Why costs rise

There are many reasons costs increase on major infrastructure projects. The NIC highlights failures to:

• align designs with affordable budgets
• plan projects well and build them fast
• enable learning, standardisation and repeatability across similar projects
• invest in innovation

Its report looks at how different parts of the UK’s planning and prioritisation system combine to cause these failures.

It identifies four root causes:

1. A lack of clear strategic direction

Many factors are important, but the role of government in setting clear strategic direction is “foundational”.

The lack of stable policy making has been a particular problem under recent governments.

It means there’s no long-term strategy, pipeline or funding commitments for infrastructure projects.

The supply chain needs that certainty to have the confidence to invest in skills and materials.

And other opportunities to drive down costs are missed. These include the benefits of a more programmatic pipeline, which would enable repeatability, standardisation and lower unit costs.

2. Challenges with project clients and sponsors

In the public sector, project sponsors (usually a government department) set the overall budget range and objectives for projects.

A sponsor should let the client deliver the project while providing an appropriate level of oversight.

There are many examples where this has worked well – such as National Grid’s London Power Tunnels project.

But there are often problems that impact delivery in the public sector, including:

• overlapping roles where sponsoring departments become too involved in delivery
• not recruiting people with expertise in delivering complex projects
• not ensuring rigorous early-stage design to explore options and trade-offs
• procurement and not knowing how to secure effective prices, package contracts and allocate risk

3. Inefficient consenting and compliance

Public consent for new infrastructure is key in a democracy.

But the UK’s current planning system is too complex. It’s causing delays and cost rises without improving outcomes.

A key problem has been uncertainty about what the government’s infrastructure priorities are and how projects should manage trade-offs between national needs and local impacts.

It means developers tend to be too risk averse to get planning approval. Excessive design changes are made to reduce opposition or the risk of legal challenge.

The NIC has previously made recommendations for speeding up planning – which the previous and current governments have begun implementing.

There also needs to be more clarity on the standards projects need to comply with.

Regulation is important for protecting workers, the public and the environment. But standards that change too quickly, are unclear or are too cautious push up costs.

4. A constrained supply chain

Construction sector productivity has flatlined since the 2008 global financial crisis.

The UK isn't alone in having a long-term construction productivity challenge.

But it does have a highly fragmented industry. Large firms rely on many smaller subcontractors to deliver projects. This creates inefficiencies

The government needs to provide long-term certainty and a favourable investment environment.

Then the sector must invest in skills, innovation and capacity building.

What’s the opportunity

Improving how infrastructure projects are budgeted, designed and delivered would have significant benefits.

The NIC says that harnessing these opportunities could reduce final construction costs by 10-25% across a portfolio of enhancement projects.

But only a system-wide effort to tackle the root causes – rather than piecemeal interventions – will enable the UK government to enjoy those rewards.

In case you missed it

• The ICE has been gathering key infrastructure takeaways from the party conferences including Labour, the Liberal Democrats and Conservatives.
• The latest EBI Live session showed how engaging all stakeholders leads to better infrastructure decision-making in New Zealand.
• What does South Africa need to do to put its infrastructure plans into practice?