Chancellor Philip Hammond's Spring Statement had a few, small surprises for the infrastructure sector.
Given that the Spring Statement had never been timetabled as a major fiscal event, there can be little surprise about the absence of any genuinely eyebrow-raising announcements. Sprinkle in the Brexit uncertainty that continues to grip Parliament and a damp squib was seemingly a foregone conclusion.
Or was it? Perhaps not, as far as the infrastructure sector is concerned.
Chancellor recognises the importance of EIB finance
A key concern for the infrastructure sector throughout the Brexit negotiation process has been the UK’s future relationship with the European Investment Bank (EIB).
Publicly-owned investment institutions, like the EIB, play an important role in plugging finance gaps left by the private markets.
Between 2015 and 2016, the EIB supplied €14.8bn of investment to the UK’s economy; acting as an anchor investor in many innovative infrastructure projects that would have otherwise struggled to raise sufficient capital from institutional investors alone.
Investment during 2017 and 2018 was €2.8bn, representing an 80% decrease.
Today, the Chancellor announced that the Treasury will begin consulting on a range of options for replacing the role that EIB currently plays in financing UK infrastructure projects, through the Infrastructure Finance Review.
This includes the possibility of setting up a dedicated UK finance institution, in the event that access is lost to EIB finance following Brexit.
ICE has been calling for a consultation of this nature for some time – both through its Brexit work and the recent publication of State of the Nation 2018: Infrastructure Investment – so this announcement is wholly welcome and we will respond in due course.
Details of potential Spending Review also announced
The Chancellor also used the Spring Statement to set out the details of the next Comprehensive Spending Review.
He confirmed that this would conclude alongside the Autumn Budget and would take the form of a zero-based analysis of all departmental spending for the three-year period thereafter.
However, in the same breath he went on to champion the commitments that the government has made for the next five-year funding periods in roads and rail i.e. RIS2 and CP6, respectively.
Are these major spending programmes in or out of scope? This is a fundamental question for large swathes of the infrastructure sector and without a clear answer it makes business planning an unenviable task.
Clarity on this is required urgently and at the latest should be set out in the more detailed plans that the government has committed to issuing before the summer recess.
Brexit uncertainty continues to reign
The important subtext to all of the announcements made in the Spring Statement, but in particular the Spending Review, is that their delivery is largely dependent on the completion of the Brexit process.
Events in Parliament this week seem to suggest a definitive end is not yet in sight. The uncertainty that this continues to create for the infrastructure sector is increasingly unsustainable.