Armitt: ‘Now is not the time for caution’

The chairman of the National Infrastructure Commission talks to Denise Chevin about the risk-averse culture of government, why onshore wind should get more support and his views on renationalisation.

Sir John Armitt is the nearest the engineering profession has to a national treasure. Rail, nuclear, the London Olympics, there’s not much in transport, building and utility infrastructure that he’s not built, delivered, or sorted out in some capacity in his 50-year career – including just latterly a plan to shape the role of regulators to help meet net zero targets and safeguard long-term water supply. Heck, he’s even hoofed with aplomb to the Pharrell Williams song ‘Happiness’ for a video made to promote careers in civil engineering (worth a watch).

Combined with his smooth diplomacy, PR skills and clarity of vision, the chair of the National Infrastructure Commission is a round peg in a round hole.

But, like everyone else in Westminster and the country at large, at the time we meet in the basement café of the Institution of Civil Engineers where he’s a past president, Sir John is in limbo, waiting to see whether Brexit and an election is about to scupper the government’s long-awaited response to the NIC’s blue print for infrastructure.

He wasn’t expecting a meeting with his bosses over the road at the Treasury straight after our interview to give him the answer. Who knows if he got the heads up. Days later, as this article was being written Sajid Javid announced the November 6 budget had been scrapped and presumably with it government plans to issue the national infrastructure strategy, which acts as its formal response to the national infrastructure assessment.

Waiting is the name of the game these days. The NIA was unveiled more than 12 months ago – so response time is already more than double the norm. “If and when it happens, it’ll be the first time the government has said ‘here is a long term national infrastructure strategy’. That will be a big day.”

Crucially, the government’s NIA response would also provide the strongest signal yet of just how much ability the NIC has to loosen the Treasury’s purse strings, and for utility companies it would offer a crucial litmus test of the organisation’s clout. The NIC is still a relative new player in their orbit.

Measuring success

In his role as chairman of the Olympic Development Authority, which delivered the regeneration and venues for the London 2012 Games, success for Armitt was either black or white. But what form might it take at the NIC, which he has chaired since December 2017? “Success for the NIC is that our recommendations get picked up by government. So far, we’ve made 45 large scale recommendations, and of the 45, they’ve accepted 42 in principle.”

What it now needs, he says, is the money and the policies to turn these ‘warm words’ into deliverable action. “What they have to be careful of is not delivering a nice souffle, when everyone was looking for a steak pie,” he says and smiles wryly.

The steak pie would include a commitment of £43 billion over the next 20 years to the largest cities in the UK so they can plan and deliver their own infrastructure. “There has been quite a lot of talk recently about devolution. But you can’t just give political devolution without funding. The money is the important thing.”

There’s plenty more requests for a meaty filling: “We’d like to see a greater commitment to EVs, and the infrastructure required to support EVs. That requires more direction from government to the regulator, so the regulator can then sit down with the distribution companies and work out a way to upgrade the distribution network and provide sufficient power. Because it’s going to need fast chargers – people aren’t going to be interested in sitting at a petrol station for an hour.”

In utilities, there are already areas where NIC assessment recommendations have been taken on board. As he points out: “The Environment Agency and the water companies are in full agreement with us about the need to reduce leakage in all systems by 50 per cent by 2050, and the need to build more water capacity, by water transfer schemes and also extra storage.

“Coming up with a new energy policy is difficult. We’ve argued that the future, by 2050, can actually be no more expensive to the consumer if it is fundamentally a renewables policy, and with very little nuclear”. Unlike government he wouldn’t boycott onshore wind. “If people are prepared to accept it, it’s the cheapest form of renewables there is. And therefore, we would like more freedom for onshore wind to be deployed.”

Nuclear equation 

The NIC and BEIS are also at odds on nuclear. Sir John and his team have said there should be no further new stations after Hinkley C, at least for the moment, and he is certainly not convinced by the so called Regulated Asset Base model (RAB) that BEIS has been consulting on. It might make it more palatable for investors, but it won’t sweeten costs for the consumer.

“The RAB gives investors a guaranteed return. But the government is going to have to take some of the capital cost risk itself, and if that capital cost risk is realised, then the consumer pays.

“So it’s very difficult for EDF, or anyone else, to plausibly say the next one’s going to be cheaper. If you look at the track record of nuclear over the last 30 years, you won’t find much evidence to back that up.”

The Nuclear Industry Association has said the NIC’s one-new-station view is outdated in the light of the 2050 zero target. Had he read their recent statement to that effect?  “I hadn’t, but it doesn’t surprise me that they would argue that.

“Ideally, you should deliver energy as cleanly, cheaply, and efficiently as possible. What we actually said was that the government needs to identify, by 2025 what the alternatives might be, and in that period, don’t order more than one new nuclear plant. At the end of that period, you should have a better view on the storage technology going forward.

“We’re just saying, don’t put all the eggs in the nuclear basket, there’s no need to yet. Renewables policy in the long run could be more effective, but we’ve not really had a response from government on that.”

The decarbonisation of heat, which represents 20 per cent of carbon emissions, is certainly a pressing priority, he says, if we have any chance of meeting the 2050 target: “We’re still moving too slowly – we need to decide what we’re going to do by the mid-2020s.”

He adds: “What I would like to hear from government is that they support industry in at least addressing what we’re going to do about heat, and also giving more financial support to industry to look at hydrogen and carbon capture storage, and heat pumps, to work out what to do on that front.”

And where is that ingredient on the steak pie scale, one wonders? “I’m not that optimistic. I’m fearful of them not having the courage to actually make some decisions, for fear of getting it wrong. But in these situations, you really need more of an industry-based risk approach. Industry, being entrepreneurs, are very good at saying ‘I’m going to take some risk here, in the interest of really cracking something’, and we need a bit more of that from the government. Better that than running around being cautious, terrified of making the wrong decision for fear of being criticised by a select committee in three years’ time.”

We talk briefly about the other big controversial infrastructure projects du jour – HS2, for example, where a trifle bizarrely, the NIC has ‘no view’. Its input has been excused because the project had gone live before NIC was set up in 2015 by then Chancellor George Osborne. Though Sir John would appear to back HS2, he manages to answer without being entirely explicit.

His views on the zero carbon target are rather more direct and sit in line with the government and the CCC: “I don’t believe you could speed it up, which is where I part company with Extinction Rebellion. I can agree with what they’re trying to say, and what they’d like, but the idea that you could do it in the next 10 years is unrealistic.”

Regulating the regulators

Coming up with a set of recommendations that ensure the economic regulators have a formal remit to balance climate change considerations with cost was at the heart of the NICS review of strategic investment and public confidence published two weeks ago. “It’s been pretty well received by everyone, although the government hasn’t responded to it yet. If you were to say ‘who are the group in all of this who are required to take action?’ it’s more the government than the regulator or the water companies. Because what we’ve asked is that government be more specific about the challenges, and the direction it asks the regulator to take forward in making determinations on what the utility companies should be doing.”

How decarbonisation should be paid for is inevitably a thorny political issue – should it be through consumer bills or taxation? “That’s no different to the argument that the government has been pursuing over the last 20 years on who pays for rail. Do I pay because I’m consuming something, or do we all pay, and those of us who aren’t consuming are still contributing to that wider cost?

“It’s going to have to be a balance between the two. And that’s why I don’t pretend for a minute that the challenge for the regulators is an easy one. They are the ones who have got to cut the Gordian knots in all of this.”

Ditto with water, he says. “The interesting thing when discussing water with the public is that they will say ‘if we’re really honest, our water bills are not that high, and if we’ve got to pay a bit more in order to avoid the risk of drought, then probably we should be prepared to’.

“Of course, somebody who is trying to scrape by on £15,000 a year would not say that. So, the challenge always for the regulators is how do they deal with the costs for people who are at a disadvantage.”

Tough negotiations 

Sir John has little sympathy with the water companies stamping their feet over the tougher line being taken by Ofwat in its PR19 determinations. “They would say that, wouldn’t they? This is a negotiation after all, and none of us likes being given bigger and bigger efficiency targets to achieve.

Sir John agrees that some water companies have lost the public’s trust. To win it back requires “demonstrating that more of their returns are going back into investment, rather than them going back as dividends, and then borrowing to pay for the investment.

“Their argument would be that borrowing is so cheap at the moment that now is the time to borrow, but if you completely lose public confidence and trust, you make it very easy for a government, particularly a left-wing government, to come along and renationalise.”

With a public service ethos running through his six foot four inch frame, and as the author of Labour’s infrastructure review in 2013, might he have sympathy with taking companies back into public ownership?

“I can understand why people feel that way. What we’ve said in our report on regulation is that if you nationalise utilities, you’re still faced with the same problems. Are you likely to get more efficiency and innovation out of a public body than a private sector body? I don’t believe you are.

“I think the biggest challenge that all people involved in utilities and provision of engineering services face is helping the public to understand what it is, the challenge of providing it, what happens if you don’t keep improving it, and that therefore there is a cost.

Before he slips across the road to meet his political masters, he looks around at the venerable ICE building and encapsulates much of our discussion when he muses: “The definition of this place is harnessing the resources of nature for the benefit of mankind. That’s what it’s all about.”

To see how far this government, or the next, will harness those resources, however, we must still just wait and see.