MICHAEL HARRISON: Here’s the less risky way to transform UK infrastructure

The late, great Sir Alastair Morton, whose pioneering achievement was to get the Channel Tunnel built, had a cute way of disarming media critics of the project. Just think, he would joke, of all the stories they would miss out on if the project did not go ahead: imagine, for instance, that the Brits began tunnelling from Folkestone and the French did likewise from Calais but then the two halves failed to join up?

Just about the only thing the Tunnel did succeed in was meeting in the middle. It failed spectacularly to meet either its in-service date or cost projections, opening one year late and £4 billion over budget. The joke, as it turned out, was on the thousands of small shareholders in Eurotunnel and scores of banks who got burnt in the process.

The lessons of Eurotunnel were not lost when it came to building HS1 — the High Speed Rail Link that today joins the tunnel to London. Plans to build the line with private finance were rapidly abandoned as successive cost and traffic projections went up in smoke. The minister in charge — John Prescott — decided instead to fund it with government grants and debt guarantees.

It was the smartest thing Prescott did in office: the debt was cheap and the taxpayer made £3 billion when the state’s shareholding in the link was sold off.

Today, the HS1 funding model is being applied to its bigger and much more ambitious brother, the HS2 link from London to north-west England, which is being financed by grant in aid from the government. Something similar is happening in the energy sector where ministers have agreed to take an equity stake in the Wylfa nuclear power station in Wales and underwrite the debt to encourage Hitachi of Japan to proceed with construction.

But we are in danger of missing a trick with Heathrow’s third runway. Let us not dwell too long on the insanity of siting the UK’s first new runway in more than 70 years in west London rather than Gatwick, where it properly belongs.

Although nearly half the project’s £14 billion cost will in effect be state-guaranteed by dint of the ownership structure of Heathrow Airport Holdings, allowing Heathrow to build the runway is asking for trouble since it will have a huge incentive to gold-plate the project to maximise returns on investment.

Willie Walsh, chief executive of British Airways’ parent company International Airlines Group, is trying to head Heathrow off by promoting the idea of a separate Buildco owned by BA and other airlines to take over construction and delivery of the runway. Good luck — Sir Michael Bishop, the chairman of BMI (now part of BA, incidentally) had an almost identical idea a decade ago and precisely nothing happened.

If Walsh succeeds where Bishop failed, he should go one step further and insist the new runway and the terminals that go with it are operated by an entirely separate company from Heathrow Airport Holdings. The last government did half the job when it broke up the old BAA monopoly. But Heathrow remains a monopoly in its own right and must be opened up to competition.

And if it can work in the airline sector, then it can work on the railways too. One of HS2’s three guiding principles is Value for Money. Therefore, why not create separate operating companies to manage the construction of phase one to the West Midlands and phase two northwards to Manchester and Leeds to reduce construction risks around the £56 billion project and introduce some comparative and competitive tension? Something very similar happened in the case of HS1.