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Infrastructure blog

Where's the certainty? 3 takeaways for infrastructure from the 2023 UK Budget

15 March 2023

Against an improved economic outlook, the UK chancellor delivered his 2023 Budget, including announcements on net zero and devolved funding.

Where's the certainty? 3 takeaways for infrastructure from the 2023 UK Budget
The UK Budget committed £20 billion of funding for carbon capture usage and storage – but with no firm timeline. Image credit: HM Treasury/Flickr (license)

Chancellor Jeremy Hunt has set out the UK government’s spending plans for the year ahead in the 2023 Budget.

Hunt’s announcements came in a slightly more economically optimistic scenario than his 2022 Autumn Statement.

While inflation is still running at 10.1%, a technical recession – widely expected last year due to challenging economic conditions – is likely to be avoided.

The Office of Budget Responsibility (OBR) expects inflation to decrease to 2.9% by the end of 2023.

The OBR anticipates that the UK’s economy will contract by 0.2% over 2023, before returning to an average of 2% growth in the four following years.

We highlight three infrastructure-related announcements from the Budget below.

1. Support for carbon capture and storage

The chancellor confirmed that £20 billion would be allocated towards carbon capture usage and storage (CCUS) technology over the next 20 years.

This will support up to 50,000 jobs and capture 20-30 million tonnes of CO2 per year by 2030 – a target initially outlined in the government’s 2021 Net Zero Strategy.

A shortlist of projects for the first phase of CCUS deployment will be announced later this month.

However, the support for CCUS didn’t come with any firm date or funding commitments for the 2023/24 period, suggesting the investment is being deferred until after the next general election.

This doesn’t leave much time to build and scale up CCUS to the level required to meet the 2030 target.

On the path to net zero?

As the ICE has highlighted, the UK government’s pathway to net zero heavily relies on the success of CCUS.

A strong funding and financing framework for CCUS can give companies the confidence to innovate and scale up pilot projects.

While CCUS has an important role to play in meeting net zero by 2050, technological solutions are only one part of the overall picture.

The government’s updated Net Zero Strategy must give greater attention to reducing demand. At present, there is over-confidence in the ability of technology to transition the UK to net zero.

2. The nuclear option

The Budget contained additional support for new nuclear energy.

This includes launching a competition from Great British Nuclear to pitch designs for small modular reactors. The government’s ambition is to select the leading technologies by the end of this year.

Significantly, there’s a commitment, subject to consultation, for nuclear power generation to be reclassified as “environmentally sustainable” so that it qualifies under the UK’s green taxonomy.

This will make nuclear a more appealing sector for investors, which is particularly important as the planned Sizewell C nuclear power station is currently struggling to attract the private finance that the government desires.

The full Budget document confirms that further announcements are coming later this month on net zero.

Indeed, the document suggests the new Department for Energy Security and Net Zero (DESNZ) will see a larger-then-average increase in its departmental spending limit this year and next.

This may see some of the missing pieces of this Budget fall into place.

3. A revolution for devolution funding

Plans for two ‘trailblazer’ devolution deals handing more powers and funding to mayors were announced in the Budget.

The Greater Manchester and West Midlands mayoral combined authorities will be given spending powers over housing, transport and net zero.

This will take the form of multi-year financial settlements from 2025/26 and a long-term commitment to enable them to retain 100% of business rates.

The government outlines its intention for these types of deals to be extended to other mayoral authorities in due course.

Getting devolution right is essential to delivering on infrastructure ambitions.

Greater progress needed

The call for these types of funding deals isn’t new.

In 2018 the National Infrastructure Commission recommended additional powers for mayors to deliver “ambitious, integrated strategies for transport, employment and housing”, something that government has resisted until now.

It’s crucial that these devolution deals are rolled out further. Currently, funding from national government for regional and local infrastructure projects is highly fragmented and doesn’t prioritise long-term outcomes.

The ICE's view

For infrastructure, this Budget was overshadowed with the previous week’s announcement that a number of major transport projects were being delayed and reprioritised.

This uncertainty was a trend that continued. Many of the infrastructure announcements and decisions in today’s Budget had no concrete dates attached and, when they did, won’t come into effect until after the next election.

With the United States’ Inflation Reduction Act and EU’s Net Zero Industry Act incentivising huge levels of investment into new technology and the infrastructure needed to support the net zero transition, global competition for talent and resources has never been greater.

Overall, today’s Budget contained plenty of ambition but little certainty – and the UK risks getting left behind.

In case you missed it

Read our analysis on the UK government’s action plan for nationally significant infrastructure projects.

The UK isn't the only country to have held a Budget recently:

  • David Hawkes, head of policy at ICE