Transcript
The Chancellor has delivered his first – and last – Autumn Statement. In future years an annual budget announcement each Autumn will replace the Autumn Statement.
The government's plans to invest £1.3 billion in road infrastructure had been heavily trailed, so came as no surprise. Although a step in the right direction, this level of investment is unlikely to reshape the economic future of the country. Of greater magnitude is the Chancellor's announcement that he has written to the National Infrastructure Commission increasing the financial envelope for any recommendations they may make for infrastructure spending over the next 30 years to between 1% and 1.2% of GDP. While this increased figure still remains below the G7 average, it does represent an annual increase in spend of between thirty five to seventy billion pounds. The question is where the additional money to pay for this is to come from.
One indicator is the continuing commitment to the UK Guarantees Scheme, extended to at least 2026. There is also an interesting mention of the government "working with industry to understand the demand for construction-only guarantees". Given that the construction phase of a project is generally considered its riskiest stage, which can make potential investors – pension schemes in particular – nervous about investing in infrastructure projects, a government wrap of the construction risk could prove to be a cost-efficient measure for increasing private sector investment in infrastructure.
The statement also mentions the government developing a new pipeline of projects which are suitable for delivery through PF2, and commits to publishing an initial list of such projects "in early 2017". As well as this, the Chief Secretary to the Treasury is to chair a new ministerial group which will oversee the delivery of priority infrastructure projects.
The other major infrastructure announcement is the increased devolution of infrastructure decisions, such as the government's proposal to award £1.8 billion to Local Enterprise Partnerships – LEPs – across England to, among other things, improve transport links and boost house building. In addition, mayoral combined authorities are to be given powers to borrow to invest in economically productive infrastructure, subject to an agreed borrowing cap. The success or otherwise of these devolution plans will depend to a large extent on the capability of these devolved administrations to take on and make use of these new powers, and on the willingness of the Treasury to give them the support and flexibility to use them.
In summary, the government's infrastructure ambitions have increased. But the funding and delivery challenges remain the same. It appear likely that the government will look increasingly to the private sector to help bridge the infrastructure investment gap and to the wider public sector to help formulate and deliver projects on the ground.
If you would like to discuss this briefing in more detail please contact me – Mark Elsey – or your usual Ashurst contact.
