UK Budget 2021: Comments on the Government's infrastructure spending plans
A budget to deliver an infrastructure revolution?
In the days leading up to chancellor Rishi Sunak’s 2021 budget speech, much of the news coverage focused on the fact that the Treasury made a number of pre-budget funding announcements, covering the Government’s spending plans in a number of key sectors, including health, education and transport.
By releasing details of these spending plans ahead of the chancellor’s budget speech, the Treasury and the chancellor himself attracted strong criticism from many quarters, including from the Speaker of the House of Commons, who accused the Government of behaving in a "discourteous manner". It also made for a budget that contained relatively few new spending plans and very few surprises.
Mr Sunak promised that the budget, his second since becoming chancellor, was a budget for investment in an innovative, high-skilled economy, with world-class public services; a budget designed to give the British people the tools required to build a better life for themselves.
Before going on to explain how, the chancellor acknowledged that inflation is rising. However, he explained that this was mostly due to the economy waking up from a period of historical disruption caused by the COVID-19 pandemic, the pressures on international supply chains and rising energy prices – all of which were affecting the global economy, rather than the UK economy alone.
On a more positive note, the chancellor was keen to outline the relative strengths of the UK economy. He emphasised that employment is up, wages are rising, public finance is stabilising and Government debt is under control. The economy, he reported, is growing at a rate which is faster than expected and, according to OBR forecasts, at a rate that is faster than for many other countries. Annual growth is expected to rebound by 6.5% this year and 6% in 2022.
In terms of the budget, while many of tomorrow’s headlines are likely to focus on the chancellor’s proposed changes to business rates, universal credit and alcohol duties, from an infrastructure perspective, there were very few announcements that will have generated any excitement for those involved in the industry. While the chancellor stated that his budget would deliver an infrastructure revolution (a key policy promise made by the prime minister last year), there was little announced today to support that statement.
The chancellor’s budget speech confirmed £3.8 billion of investment in community diagnostic centres and surgical hubs (to support the COVID-19 recovery) and made reference to the much-quoted (and much-disputed) Government plans to build 40 new hospitals and its plans to invest in the country’s prison sector (which the chancellor described as the “largest prison building programme for a generation”), but apart from these previously-announced plans, the main infrastructure-related content was limited to the Government’s plans to invest in roads and in the railways sector. These plans, we understand, include £21billion of investment in roads, £35billion for the rail industry and £5.7billion for “London-style transport systems” across city regions.
The Government had previously announced that England's city regions can expect to receive £6.9billion to spend on train, tram, bus and cycle projects (including £1.07billion for Greater Manchester, £1.05billion for the West Midlands and £830million for West Yorkshire). However, as many commentators have been quick to point out already, only £1.5billion of that actually appears to be new spending, because the £6.9billion figure includes £4.2billion promised in 2019 and additional funding for buses announced by the prime minister last year.
These local investments are all part of the Government’s policy to “Level-up” the country and to address the country’s “uneven economic geography”. The Government intends to do this by investing in economic infrastructure. The chancellor confirmed that he would soon be allocating £1.7bn of Government spending to more than 100 projects in local areas, with the Government backing projects in the Midlands, the North of England, Scotland and Wales. Again, few details were announced today, but at least some of this money will be spent on new state-of-the-art community football pitches, regional libraries, museums and theatres.
Today’s budget speech included no mention of the Government’s plans for the eastern leg of HS2, which, it is rumoured, may be delayed, modified or even cancelled altogether. For more details of what the Government has planned, we will need to wait until its Integrated Rail Plan is published. The chancellor mentioned the Integrated Rail Plan in his speech, but didn’t disclose when it would be published, other than to say that it would be “soon”.
Nor did the chancellor say much in his speech about the Government’s Net Zero strategy, although he did unveil some increased funding for the EV charging and manufacturing sectors, limited business rates relief for onsite renewable energy and storage and £1.7bn to enable a final investment decision on a new large-scale nuclear project. Overall, the budget and spending review contained an increase from £26billion to £30billion in public capital investment under the Government’s Net Zero Strategy. The relative paucity of new green spending commitments, together with the announcement of plans to reduce air passenger duties on domestic flights, is likely to upset those calling for more bold and decisive Government action to bring about the necessary reductions to carbon emissions ahead of COP26, rather than providing evidence that the Government is serious about its Net Zero ambitions. Of course, the Government may be waiting for the COP26 summit to start next week before unveiling further plans in this critical policy area. There will certainly be many people hoping that is the case.
If you would like to talk about the opportunities (and challenges) arising from the Budget announcement, contact Scott Tindall.