Spending Review 2020 – what it means for infrastructure

The Chancellor confirmed that capital spending on infrastructure in 2020-21 will total £100 billion, £27 billion of which will be allocated for economic infrastructure. Almost £19 billion of this is for transport investment, with £1.7 billion set aside for road maintenance.

This infrastructure investment is supported by a new National Infrastructure Strategy (NIS), which we discuss more in a separate blog here.

Has enough been done to support net-zero infrastructure?

The 2050 net-zero target gives government a once-in-a-generation opportunity to recalibrate the economy and build a net-zero future. But we need to ensure the right framework is in place to do this, with a clear focus on infrastructure. After all, transport and energy alone account for around 60% of the UK’s CO2 emissions.

While it’s positive that the net-zero target is a priority in the NIS and in the remit of the new National Infrastructure Bank, more long-term certainty on funding is required.

In this regard, the spending review did include £1.9 billion for electric vehicle charging infrastructure and consumer incentives, £1 billion allocated for a Carbon Capture and Storage Infrastructure Fund, £240 million for a Net Zero Hydrogen Fund and £81 million for hydrogen heating trials.

However, while this funding is welcome, a decarbonisation programme of the scale and complexity required for the net-zero transformation cannot be delivered without a robust net zero infrastructure plan and significant levels of funding to back it up.

Backing for ‘levelling-up’ – but how far does it go?

The Chancellor also announced that a £4 billion ‘levelling-up’ fund is being established that regions across England can bid into for helping to pay for infrastructure projects. In addition, £800 million will be available for Scotland, Wales and Northern Ireland for the same purpose.

If used effectively, this fund could deliver infrastructure improvements to local communities across the country while supporting economic recovery. This sits alongside the prior commitment announced in the 2020 Budget of £4.2 billion for five-year, consolidated intracity transport settlements for city regions across England. However, there is still more work to be done to develop the frameworks, governance and funding mechanisms that are necessary to improve regional infrastructure provision.

First, we need a clear definition of what ‘levelling-up’ is and what the government’s specific objectives from it are. Second, we need to improve the capability of regions to identify, finance and fund their own infrastructure priorities in order to deliver a more sustainable solution to fixing regional inequalities. We look forward to seeing further details on this in the government’s English Devolution and Local Government White Paper next year.

A greener Green Book

Alongside the Spending Review, the government also published its review of the Green Book, which is the guidance issued by the Treasury on how to appraise policies, programmes and projects.

ICE has previously called for the 2050 net-zero target to be embedded within the Green Book appraisal process to make sure investments decisions align with net zero, while a more recent ICE policy paper on the Green Book found that there are major gaps and inconsistencies between how it is applied by project promoters.

The review of the Green Book has concluded that current appraisal practice is likely to undermine the government’s ambition to level up poorer regions of the country and meet the net-zero target. As a result, the Treasury has revamped the Green Book to include a stronger requirement to establish clear objectives from the outset that will drive the appraisal process.

The Green Book also now contains a strengthened chapter on environmental appraisal and new guidance on how to assess local impacts that capture different impacts on different places and local employment effects.

This strongly aligns with ICE’s policy paper, which called for improved guidance and clarity on the detailed policy context in which the Green Book operates.

With better guidance on environmental appraisal and a requirement to factor in national objectives from the outset, this means interventions aimed at moving the UK towards the net zero target are appraised primarily in terms of their contribution to that target. It is more important than ever that investments demonstrably align with delivering net zero or explain very clearly why they do not.

However, this is only one part of the puzzle. Policy areas like net zero and ‘levelling-up’ must be broken down by government into more detail – such as the development of a net-zero infrastructure plan and, as above, a clear definition of ‘levelling-up’. This can then provide greater clarity to project promoters on how exactly those national objectives can be achieved.