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Infrastructure blog

Infrastructure investment welcome in an otherwise bleak UK Autumn Statement

Date
17 November 2022

Chancellor Jeremy Hunt confirmed that investment in infrastructure is one of the government’s growth priorities. 

Infrastructure investment welcome in an otherwise bleak UK Autumn Statement
Image credit: Shutterstock

Chancellor Jeremy Hunt has set out the UK government’s spending plans in the November 2022 Autumn Statement.

He does so in the midst of an extremely tough fiscal environment with high inflation and rising energy bills for households across the country.

The Office of Budget Responsibility (OBR) also published its latest update on the outlook for the economy and public finances alongside the Autumn Statement.

Its view is that the statement would keep the rise in unemployment down and make the forthcoming recession ‘shallower’.

Nevertheless, the recession will last for just over a year and the economy will shrink further in 2023.

The chancellor has significantly loosened fiscal rules, previously set by current Prime Minister Rishi Sunak when he was chancellor.

These include underlying debt falling as a percentage of GDP by the fifth year of a rolling five-year period, and public sector borrowing being below 3% of GDP.

The budget had been heavily trailed as potentially cutting infrastructure project funding.

However, there have been welcome, common-sense measures for the infrastructure sector:

  • Investment is expected to be maintained in line with the National Infrastructure Strategy.
  • The much-needed plan to increase energy efficiency.
  • A continued commitment to levelling up underperforming economic regions.

Infrastructure investment is critical

The critical role that infrastructure development plays in building a more sustainable nation cannot be viewed as an optional extra and the chancellor recognised this.

It was identified that there will not be spending cuts over the next two years to projects, and the government also confirmed its commitment to proceeding with Sizewell C and delivering:

  • HS2 to Manchester.
  • Core Northern Powerhouse rail links outlined in the Integrated Rail Plan.
  • East West Rail.
  • Broadband rollout through Project Gigabit, with plans to reach at least 85% gigabit-capable broadband coverage by 2025 and nationwide coverage by 2030.

These announcements were not new and retain commitments made in the National Infrastructure Strategy, sticking to the plan, as called for by ICE, to invest in our future through these major projects.

Furthermore, the seemingly random list of projects that were highlighted for “acceleration” in the Growth Plan have been dropped and the spectre of project reprioritisation in future is still a very real threat.

If the government wants to avoid delivering bad news on infrastructure investment further down the line, then it should become an ardent champion of everything the industry is doing to deliver infrastructure better and make investment go further.

For example, it should be supporting the initiatives outlined in the Construction Playbook and in Transforming Infrastructure Performance.

Other challenges posed by the Autumn Statement for the sector include the choice to freeze capital budgets in cash terms from 2025/6.

This is instead of increasing them in line with inflation, which effectively means a cut.

With inflation at over 11%, projects will have to do more with less.

Delivering energy efficiency and improving UK energy security

Energy independence and energy efficiency were highlighted as key areas of focus within this Autumn Statement.

This is due to the ongoing attempt by Russia to invade Ukraine and the ensuing impact on energy supply.

Reducing demand through energy efficiency measures, such as retrofitting buildings, comes with the benefit of being rapidly actionable in the short term while delivering social, economic and environmental benefits in the long term.

There is support for energy efficiency. However, much of this will not materialise until 2025.

Hunt confirmed the plan is to cut energy demand by 15%.

The government will be providing £6bn now and a further £6bn to come from 2025 onwards.

A new Energy Efficiency Taskforce (EETF) will be charged with delivering ‘energy efficiency across the economy’, which will be under the Department for Business, Energy and Industrial Strategy (BEIS).

National Policy Statements for transport, energy and water resources will also be updated during 2023.

ICE has previously called for the government to create a single National Policy Statement for infrastructure to help streamline planning across sectors.

The chancellor confirmed that UK energy costs are eight times higher than their historic average.

The OBR has said higher energy prices explain most of the downward revision for growth figures.

Poor rates of insulation installation over the past decade and our failure to plan strategically for energy have left us badly exposed to those price rises.

However, the additional flex on borrowing could be good news for public infrastructure projects given the vast scale of infrastructure required to meet our national objectives.

Renewable rhetoric continues – but is it matched by action?

The chancellor maintained commitment to ‘cheap, clean renewables, including wind and solar’ and to a net zero 2030 target that seems to be increasingly harder to reach.

The wider windfall tax introduced falls on renewable generators with a 45% levy on electricity generators, which will challenge the renewables sector at a time when further support is needed.

This could be seen as sending the wrong message to investors at a time when we need to ramp up renewables and rapidly decarbonise the grid for a more sustainable future.

Slowing down the EV transition?

As the OBR has forecast that half of all new cars will be electric vehicles (EVs) from 2025, tax breaks for EVs will end from then.

This could drive demand for EVs in the short term as people look to buy ahead of the price hike.

However, this does not go far enough to address the revenue gap that the transition to EVs will bring.

Only earlier this year, the OBR warned that the largest long-term fiscal cost of decarbonisation is the loss of revenue from fuel duty and Vehicle Excise Duty (VED).

ICE has estimated that the UK government has until the end of the decade to implement a fair, reliable and sustainable system which replaces fuel duty and VED.

ICE polling indicates there is strong public support for these measures.

Levelling up is back

The second tranche of the Levelling Up Fund is also going ahead.

The good news is that this funding for local projects across the UK has not been cut over the next two years in the face of economic headwinds.

Successful projects will be announced later this year, with at least £1.7bn of investment promised.

However, as ICE has previously called for, there still must be a clearer alignment between levelling up and net zero and clearer metrics to measure levelling up progress.

Devolution

This Autumn Statement also reinforced the government’s commitment to devolution.

It explored with Greater Manchester Combined Authority and West Midlands Combined Authority the potential to provide single departmental-style settlements at the next Spending Review.

This could give subnational governments more certainty, flexibility and accountability over funds, moving away from competitive bidding processes.

An announced mayoral devloution deal with Suffolk County Council and advanced discussions on mayoral devolution deals with local authorities in Cornwall, Norfolk and the North East of England were also used by Hunt as an exemplar of the government’s willingness to empower local authorities.

However, with tough economic times ahead and increased funding pressures on local authorities, the government will face intense scrutiny when it comes to delivery.


In case you missed it

  • Laura Cunliffe-Hall, interim lead policy manager at ICE