In his first budget, Chancellor Rishi Sunak (who, let’s remember, has been in the job for less than a month) unveiled a series of exciting spending promises, designed to increase infrastructure spending to a level not seen for decades. Overall, the Chancellor’s plans involve investing a massive £640bn for capital spending on infrastructure by 2025 – a generational change in the level of spending on public infrastructure.
The announcements raise the stakes on the previous Chancellor’s promise to deliver an “infrastructure revolution”, which was a prominent feature of the Conservative Party’s election campaign last year. The Budget was full of bold spending promises, by a Government that seems hell-bent on doing things differently and “getting it done”. “Getting it done” was the Chancellor’s rallying call for his first Budget and the headline-grabbing spending plans certainly suggest that we have a Government that is serious about doing just that.
Under Theresa May, previous Chancellor Philip Hammond had planned to spend £600bn on public and private infrastructure over a 10-year period, so the latest plans not only involve spending more money overall, but also spending it more quickly than the previous Government had planned to.
While much of the important detail has yet to be confirmed, and the publication of the long-awaited national infrastructure strategy has been delayed, the Chancellor’s spending announcements are likely to be well received by business, especially those in the community of infrastructure developers and investors. After Prime Minister Boris Johnson’s announcement last month that the controversial HS2 high-speed rail link will go ahead, the Budget is a further positive sign that this Government is prepared to make use of historically low interest rates to end the tendency of previous Governments to talk a lot about infrastructure investment, but to deliver very little.
The current Chancellor seems to be of the view that the very low interest rates that we have seen since the financial crisis will continue for some time, so has rejected assertions that his aggressive borrowing plans are irresponsible. His argument is that while overall Government borrowing may be higher than it has been in previous times, the cost of servicing the Government debt is actually lower.
While some in the industry will remain sceptical about how real, or new, some of the announcements are likely to be in practice, others will see the latest plans as being just what the industry has been waiting for.
As expected, many of the plans unveiled in the Budget are measures designed to rebalance opportunities in all parts of the UK and to lay the foundations for what the Chancellor has promised to be “a decade of growth for everybody”. The massive boost in infrastructure spending apparently includes:
- £27 billion of strategic investment in roads and motorways;
- £5 billion for new gigabit-capable broadband in the hardest to reach parts of the country;
- £800 million for new carbon capture and storage clusters in the English regions and Scotland;
- £500 million for the deployment of rapid charging hubs for electric vehicles; and
- £12 billion of extra funding for building affordable homes.
Looking at these plans from a broader policy perspective, it is undoubtedly the case that infrastructure spending by Government serves many policy objectives (such as increasing prosperity, delivering visual regional investment, enabling other sectors), but for this Government right now, it can also be seen as supporting the investment case in global Britain and showing that Britain is thriving post-Brexit. The timing of this is obvious, but with pressure on infrastructure in the South East and a shortage of new mega projects that are already in development, it seems that the Government is keen to show the strength of UK engineering and innovation to the world, as well as to bulking up the engineering sector for activation by inward investors.
A question that has been raised by a number of industry-insiders is how the Government actually plans to deliver and fund the huge expansion in infrastructure spending that it has announced. The Chancellor made no mention of the potential use of private infrastructure finance models, so there is a concern among many that private sector investors may have a limited role in delivering the pipeline of new work.
Further concerns have been raised about the lack of specific measures designed to deliver on the Governments commitments to reduce carbon emissions and to reach net zero greenhouse gas emissions by 2050. The UK was the first major economy to legislate for net zero greenhouse gas emissions by this date and has since launched a Net Zero Review to help determine how the UK can maximise economic growth opportunities as it transforms into a green economy. Perhaps understandably at this stage (when you consider the other critical issues that the Government has to deal with at the moment), there was almost nothing in the Budget to indicate how real that commitment is and how the Government intends to achieve it.
We’re looking forward to learning more about precisely how the Chancellor’s spending promises will be delivered, and what other projects the Government plans to prioritise, when the national infrastructure strategy is published later in the spring.
It remains to be seen as to whether the Chancellor, and the Government, will deliver on its promises to “get it done” and deliver an “infrastructure revolution”, but this Budget certainly shows ambition.
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