How far can we trust government spending commitments?

Mat Riley, head of infrastructure at EC Harris, welcomes this week’s government spending plans – but would be far happier if they were genuine spending commitments.

The announcements made this week around infrastructure in the UK – both in the National Infrastructure Plan and the Autumn Statement – have all seemed positive at first glance, with promises of project deliveries and investment. But delve deeper into the specifics and it’s clear that the impending general election means these plans represent only an “intention to spend”, rather than a formal legislative commitment.

The problem lies in the fact that if the coalition is not in government after the election, then any future regime could cancel or change these plans, which scuppers one of the key purposes of the National Infrastructure Plan: to provide a secure pipeline of work for the construction industry.

The government’s pledge to put £15bn into funding 80 new road projects is the most promising news to come out of the announcements this week. Historically, similar programmes have been cancelled due to political inactivity but this announcement seems to show that the scale of behind-the-scenes activity by the government has been genuine. The challenge will be to ensure that the £15bn can be delivered efficiently and effectively for the driving public. The development and timing of these schemes is critical, and the impact of schemes on drivers needs to be managed sensitively.

The successful transformation of the Highways Agency into a Government Owned Company will be critical to the success of the plan. The Highways Agency as it stands will become a smarter, thinner organisation with strategic responsibility for operations, which will in turn mean a transfer of innovation (and risk) to private operators in the supply chain. As is the case elsewhere in Europe, this will lead to new ways of owning, operating and maintaining the strategic road network.

One major issue is that with a £4bn cut to local authority funding, as announced in the Autumn Statement, there will be considerable unease about how local highways authorities will cope with increased traffic, and potentially reduced resources. This is something that will need to be addressed if the plan is to succeed. 

In terms of rail, the Autumn Statement didn’t present anything particularly new. The commitment to refranchise Northern Rail and the TransPennine Express, along with additional electric trains is not new news – this process is already well underway. While passengers are likely to benefit from the franchise process, disappointingly this is just electioneering, playing to the “Northern Powerhouse” ideal.

On the energy front, the new announcements are welcome but are rather thin. The National Infrastructure Plan’s acknowledgment of the historic underinvestment in energy infrastructure is right. However, much of the remainder was a restatement of existing commitments, although now framed as priorities. It did, however, elevate the concept of energy efficiency and saving, together with a focus on heat, to a sensible place in the hierarchy. It will be interesting to see how this plays out in the forthcoming regime, given that investors are acutely aware that much is dependent on the outcome of the election next year.

Investment decisions for future projects need to be made now, but bank lending figures suggest this is not happening. Yet the government is criticising the industry for not recruiting and investing in new talent to meet demand. With this approach, the government has effectively created its own state of “purdah” for the construction industry as nobody believes, or is prepared to invest, on the back of these announcements. 

Underpinning all of this is a lack of confidence – the government simply can’t commit investment when a general election could wipe it all out. It is, therefore, proving difficult for the industry to trust in the various “commitments” set out this week.