UK government reveals infrastructure budget

A £23 billion (€27.11 billion) fund has been announced by the UK’s Chancellor of the Exchequer to provide additional spending in areas that he said were key to boosting productivity – including transport, housing, digital communications, and research and development (R&D).

The Chancellor, Philip Hammond, announced the fund in his Autumn Statement this week, and it includes £2.3 billion (€2.71 billion) for a new Housing Infrastructure Fund.

He said the fund would be used for projects such as roads and water connections that would support the construction of up to 100,000 new homes in the areas where they were needed most.

A further £1.4 billion (€1.65 billion) will be used to provide 40,000 new affordable homes.

He announced new investment in transport infrastructure which will feature £1.1 billion (€1.30 billion) to reduce congestion and upgrade local roads and public transport.

‘Challenges’

Contractor Skanska welcomed the Chancellor’s commitment to secure future investment in UK infrastructure by increasing it to 1 to 1.2% of GDP (gross domestic product).

Mike Putnam, Skanska UK’s president and CEO, said, “Clearly, the government’s pledge to focus investment on improving the country’s infrastructure is good news for the construction sector and good for employment.

“But the industry also faces some challenges if it is to deliver on the government’s promises.”

He said skills training had to be improved, recruiting people with the skills relevant to new technologies, and that the industry had to work hard to build a more diverse and inclusive workforce.

“Also, we welcome the National Productivity Investment Fund, in which infrastructure and research and innovation are seen as pivotal to addressing the UK’s productivity challenge.

“But the industry has a responsibility to ensure that innovation is really targeted at achieving the productivity gains and return on investment that will justify government support in years to come.”

Guidance

Richard Threlfall, head of infrastructure, building and construction at accountants KPMG UK, said, “One number matters more than any other in what the Chancellor said on infrastructure investment in the autumn statement – 1.2%. It is, as a percentage of GDP, the guidance to the National Infrastructure Commission on UK spending on economic infrastructure from 2020 to 2050.”

He said that while the Chancellor pointed out that it represented an increase on the current 0.8%, it was still low by international standards.

“The continued focus on economic infrastructure in isolation, ignoring both social infrastructure and housing, is another missed opportunity to grasp the bigger picture. Overall, the UK spends about 2.7% of GDP on infrastructure today. Canada spends more than 4% and China at least double that.

Patricia Moore, UK head of Infrastructure for global construction consultancy Turner & Townsend, said, “Infrastructure is clearly still a priority, with Philip Hammond reaffirming that it’s a powerful way of driving broad-based economic growth.

“We were never expecting a blank cheque, given the huge pressures of Britain’s debt, but to have an outline of funding for specific projects together with the establishment of a working assumption of 1 to 1.2% GDP for investment planning is a positive move to provide the longer term certainty that our industry craves.”

She said the successive green lights for infrastructure mega-projects such as the Hinkley Point C power station, Heathrow Airport’s third runway, and HS2 (High Speed Rail 2) gave a shot in the arm to Britain’s construction industry and demonstrated “official treasury acceptance that infrastructure really means jobs and trade”.

Moore said, “Regardless of project size however, our industry must now focus on getting these projects set up for success, to ensure economic and community value.”

She said that Turner & Townsend welcomed the announcement that more funding was to be allocated to research and development.

“As infrastructure programmes increase in scale and become more complex, innovative management of programmes and advancement of project delivery through big data needs advancing at an unprecedented rate.

“The infrastructure sector must benefit from the announced R&D funding in the future and we look forward to working with our clients to develop their responses to this as well as seeing further details on the government’s industrial strategy.”

‘Upside down’

However, Christopher Mahon, investment manager and director of asset allocation research at investment management firm Barings, said, “The Chancellor's infrastructure plan is upside down.

“The treasury has already committed eye watering sums of money to programmes such as HS2, Heathrow and Hinkley that won't be completed for another 20 years.”

He said “billions upon billions have been promised”, with HS2 costing £56 billion, (€66.08 billion), Heathrow £19 billion (€22.42 billion), and Hinkley £18 billion (€21.24 billion).

“Meanwhile,” he said, “only token amounts of money are being spent on practical projects that are needed today such as easing rail and road bottlenecks. For example, the £2 billion announced today is 50 times smaller than the amounts committed to the three mega projects alone.”

David Hawkes, policy manager at the UK’s Chartered Institute of Building (CIOB), said, “In the face of rising government debt, the temptation is to cut capital spending. The CIOB welcomes the Chancellor’s announcement to commit greater levels of investment in the built environment, as well as further funding for improving productivity and innovation.”

He said it was clear that the Chancellor recognised that improving productivity was vital to economic prosperity.

“In construction,” said Hawkes, “we know what can be done to improve productivity, but require certainty for firms to invest in innovation, skills and training in order to support it. For this reason, we welcome the £23 billion National Productivity Investment Fund, to be spent on improving innovation and infrastructure over the next five years.”

He added that a report from the CIOB looking at productivity and published earlier this year found strong support from industry and MPs for the public sector to invest in construction to help increase productivity.

“Given this view, we are keen to ensure the fund recognises the contribution that the industry makes to improving productivity in the wider economy.”