Chancellor Rishi Sunak delivered the UK’s first multi-year Spending Review since 2015 alongside the 2021 Budget. Here we take a look into the announcements and what they mean for infrastructure.
In a Budget set against the backdrop of rising inflation – estimated by the Office for Budget Responsibility (OBR)to average 4% over the next year - there were still a number of announcements made on infrastructure.
ICE’s submission ahead of the 2021 Spending Review and Budget set out how the UK’s infrastructure can be directed towards achieving national objectives, such as net zero and ‘levelling up’, while ensuring sustainable investment for infrastructure delivery and performance.
1. Spending Review sets out the direction of travel for infrastructure investment
The 2021 Spending Review (SR21) increased departmental spending by £150 billion over the course of the current Parliament, which represents the largest increase in overall departmental spending this century.
In large part this is due to upgraded growth forecasts, with the OBR predicting the UK economy to grow by 6.5% this year, up from the 4% growth predicted in 2020. This increased spending is good news for infrastructure, with SR21 confirming a total of £100 billion of investment in economic infrastructure up to 2024-25.
This includes £25.5 billion specifically on ‘emissions-reducing spending’, including electric vehicle charging infrastructure, improving energy efficiency in buildings and funding for active travel projects.
2. Support for city transport networks is welcome...
£6.9 billion for regional transport upgrades in eight city regions across England was allocated as part of the Budget, though only £1.5 billion of this represents new commitments.
Regardless, this uplift in city regional funding is encouraging, but it needs to be sustained over the coming years in order to make a real difference. As the National Infrastructure Commission (NIC)recommended in its first National Infrastructure Assessment, the UK requires £43 billion of stable long-term transport funding for regional cities up to 2050.
The Budget also allocated £1.7 billion to upgrade local infrastructure across 105 projects as part of the Levelling Up Fund, which primarily cover local transport improvements.
The government’s plans for sustainably funding public transport due to the impacts of Covid-19 were absent, however. An affordable, accessible public transport system is vital for achieving both net-zero and ‘levelling up’, so we need to avoid a car-led recovery on the transition to the ‘new normal’. The £710 million of new investment in active travel funding over the next three years supports this aim, but we may need to go further.
For example, future capital funding could come with conditions that stipulate transport authorities produce plans to reshape their networks with greater levels of active travel, shared and public transport.
3. ...But the wait for the Integrated Rail Plan goes on
The Integrated Rail Plan (IRP), first announced in February 2020, is now almost a year late.
This means we still lack the plans to deliver the promised connectivity improvements between cities and regions across the Midlands and North of England. On top of that, the delay is causing uncertainty for project promoters, investors and industry, while there are people and communities living in limbo across the potential route of the Eastern leg of HS2.
£23 million of new funding was confirmed in anticipation of the final recommendations of the upcoming Union Connectivity Review (UCR), in addition to £20 million already announced. Both the UCR and IRP will be important to enable investment and growth across the UK, while ensuring that transport networks can cope with future demand, and enable expansion as the population and economy grows.
4. Net zero and climate resilience added to the NIC’s remit
In line with ICE’s recommendation from earlier in the year, the transition to net zero has been included as the NIC’s fourth objective. The objective also includes supporting climate resilience, while the government has instructed the NIC to consider the interactions between its recommendations and the government’s legal target to halve biodiversity loss by 2030.
ICE will be exploring the changes to the NIC’s remit in more detail, which takes on renewed importance with the development of the second National Infrastructure Assessment, in a subsequent blog.
5. Borrowing not completely ruled out – but only to invest in future growth
The Chancellor set out a number of fiscal rules for the management of public finances in the wake of the impact of Covid-19. These included that debt must fall as a percentage of GDP, and that the state should only borrow to invest in future growth.
While the latter ‘rule’ has existed in some form across previous governments, it is important to note in the context of the recent Net Zero Review, which set out the Treasury’s scepticism about borrowing to invest in net-zero capital projects.
The OBR itself has said costs will be lower in the long run to act early and quickly on net zero. With estimates of the investment needed to meet net zero running as high as £50 billion a year by 2030, time will tell if the fiscal rules can continue to be met in cases where net-zero projects are not deemed to contribute to future growth, but are still crucial to meet national objectives.