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Chancellor protects infrastructure spending and promises housing retrofit drive

17 Nov 22 Despite the UK being now officially in recession, major infrastructure projects have survived the axe.

Chancellor of the exchequer Jeremy Hunt [Image from HM Treasury/Flickr]
Chancellor of the exchequer Jeremy Hunt [Image from HM Treasury/Flickr]

In his first budget statement today, chancellor of the exchequer Jeremy Hunt has promised to make no cuts in capital spending, although government departments will have to find savings if they are to protect projects from soaring inflation.

“When looking for cuts, capital is sometimes seen as an easy option,” he told the House of Commons. “But doing so limits not our budgets but our future. I am not cutting a penny from our capital budgets in the next two years and maintaining them at that level in cash terms for the following three years,”

“This means that although we are not growing our capital budget as planned, it will still increase from £63bn four years ago to £114 billion next year and £115 billion the year after – and remain at that level.”

He continued: “So today I confirm that because of this decision, alongside Sizewell C, we will deliver the core Northern Powerhouse Rail. HS2 to Manchester. East West Rail. The new hospitals programme. And gigabit broadband rollout. All these and more will be funded as promised.”

The government has committed £700m to the construction of the Sizewell C nuclear power plant in Suffolk and expects to sign a contract with French energy giant EDF at the end of this month, he said.

Also music to the ears of the construction industry, which has been pushing for a national retrofit strategy, the chancellor revealed a target of a 15% reduction in energy consumption from buildings and industry by 2030. This means investment in insulation and cleaner forms of heating.

“Reducing demand by this much means, in today’s prices, a £28 billion saving from our national energy bill or £450 off the average household bill,” he said. “This must be a shared mission with families and businesses playing their part – but so will the government. In this Parliament, we’re already planning to invest, in energy efficiency, a total of £6.6bn. Today, I’m announcing new funding, from 2025, of a further £6bn – doubling our annual investment to deliver this new national ambition.”

Business and energy secretary Grant Shapps will be publishing further details on these energy plans in due course, and launch a new energy efficiency taskforce.

To protect public spending, taxes are going up by around £25bn, including an increase in the energy profits levy and a new tax on the extraordinary profits of electricity generators.

“There is a global energy crisis, a global inflation crisis and a global economic crisis. But today with this plan for stability, growth and public services, we will face into the storm. We do so today with British resilience and British compassion,” the chancellor said. “Because of the difficult decisions we take in our plan, we strengthen our public finances, bring down inflation and protect jobs.”

The Office for Budget Responsibility said: “Over £100 billion of additional fiscal support over the next two years cushions the blow of higher energy prices – but the economy still falls into recession and living standards fall 7% over two years, wiping out eight years’ growth. Over the medium term, around £40bn in tax rises and spending cuts – in roughly equal measure – offsets higher debt interest and welfare costs and gets debt falling as a share of GDP. But at 99% of GDP at the forecast horizon, debt is roughly £400bn higher than forecast in March and interest costs close to historic highs.”

Industry reaction

Mark Reynolds, industry-side chair of the Construction Leadership Council and chief executive of Mace, was enthusiastic about the energy retrofit drive. He said: "One of our key asks going into today’s autumn statement was to avoid cuts to existing programmes of work that are providing jobs and growth across the country. We welcome the chancellor’s continuing commitment to major investment in our social and transport infrastructure.

"We welcome the chancellor’s commitment to invest billions of pounds to support people to retrofit their homes over the coming years. Delivering retrofit at scale is absolutely vital and the only route to a sustainable built environment and domestic energy security. This important decision comes after our calls for a national retrofit strategy to upgrade the UK’s 28 million houses, and we are pleased to see a number of the Construction Leadership Council’s asks taken up by the government, including a retrofit taskforce."

National Federation of Builders chief executive Richard Beresford said: “Two rabbits were pulled out of the hat, on which the NFB lobbied for. Capital and infrastructure budgets will be protected, and a new energy efficiency taskforce has been announced. These supply side strategies offer positive opportunities and work pipelines for construction, and we look forward to inputting into how an energy efficiency strategy can be sustained by business and consumers, rather than always requiring government funding.”

Eddie Tuttle, director of policy and external affairs at the Chartered Institute of Building, said: “While the cost of living and energy crisis are rightly priorities for government, the role of the construction industry in addressing both of them is, in our view, being underestimated and this has been evident in today’s autumn statement.

“We look forward to seeing the government’s plans for the funding it has today allocated to improving energy efficiency and hearing more of the detail, which is currently lacking. Representatives from the built environment must be included in the taskforce the chancellor has announced if any plans to meet energy efficiency targets are to be successful, and we would welcome the opportunity to share our expertise.

“The built environment sector is without doubt, pivotal in reducing carbon emissions, not only during the construction of new buildings and critical infrastructure, but also in the retrofitting of existing homes to make them more energy efficient. Without this, government will not meet its target of reducing the carbon emissions from buildings by 15 per cent by 2030 and reduce household energy bills, which continue to be one of the biggest concerns for the UK population.

“Continuing investment and forward planning from a stable government is critical to enable the construction sector to properly plan ahead with confidence and play its part in addressing net zero, levelling up and ultimately the cost of living and energy issues faced by millions.”

But some – perhaps recalling two previous failed attempts at a ‘green deal’ for householders by recent Conservative governments – thought it might be too little, too late. Avinav Nigan, co-founder of real estate investment platform IMMO, which plans to spend £1bn retrofitting over 3,000 homes for rent, said: "For years we have seen inaction on retrofitting Britain's housing stock, which is some of the oldest and leakiest in Europe. There is a big question mark over whether today's announcements on driving energy efficiency are enough. The leaky and old nature of Britain's housing stock has obvious sustainability and personal finance implications, and the situation is particularly dire in the private rented sector, which has the greatest proportion of homes built before 1919.

"Modernising the UK's rental housing to accommodate the fast-growing ‘generation rent’ should be the priority of any government, yet it seems to have fallen by the wayside, with a weakening house sales market seeming to suck up all the media and political attention.

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"In addition to the funding committed today, the government should be looking to take advantage of the growing weight of institutional capital wanting to enter the UK rental market in search of liability-matching income streams with counter-cyclical, inflation-hedging qualities. No better time than now for a public-private partnership, with the intention to modernise housing and alleviate pressure on  consumers and landlords, while resetting standards in the sector.

"The criticality of the ESG [environmental, social and governance] agenda means institutional investors such as pension funds and insurers are increasingly keen to make sure their investments 'do green and do good' and the chancellor should take advantage of that investor demand to improve the quality and safety of Britain's rental homes keeping sustainability at its core."

Railway interests were delighted to have escaped the axe that many Conservative backbenchers would have been glad to see swung. The High Speed Rail Group (HSRG) said: “We welcome the government’s renewed commitment to delivering HS2 to Manchester, as set out in the autumn statement. HS2 is vital for creating better connected, modern infrastructure, benefiting the UK and growing the economy for decades to come, as well as supporting 34,000 jobs, and driving the transformation towards net zero transport. HS2 also forms the backbone of the government’s levelling up agenda.

 “HSRG fully understands the significance of the public investment granted to the HS2 project, and we are steadfast in our commitment to delivering cost-effectively. We will continue to work with the government to ensure every penny spent goes toward maximising public benefit and delivering returns for the whole UK.”

Brendan Sharkey, head of construction and real estate with accountancy group MHA, said: “The big thing the construction sector hoped for from the autumn statement was for infrastructure spending to be protected from swinging cuts. As the chancellor finished speaking many in the industry will have breathed a sigh of relief that there were no reductions to existing infrastructure spending. The decision on Sizewell C was especially heartening. It will not only give a boost to the economy but will also bring to the fore technical developments in nuclear energy.

“The construction industry needs governments to be committed to infrastructure decisions that have been made. They should not be subject to the vagaries of different governments or chancellors and Jeremy Hunt stuck to existing plans today. Well done Jeremy.”

Others were more measured.

Construction Products Association economics director Noble Francis said: “The commitment to infrastructure projects at both a local and national level will be welcome news to the industry, given some calls to reduce HS2 to Birmingham to help avoid tax increases. However, the announcement that funding for infrastructure would be ‘maintained in cash terms’ in times of double-digit construction cost inflation means that we will see less activity down on the ground, particularly for financially constrained councils.”

Chris Richards, director of policy at the Institution of Civil Engineers, said: “In today’s autumn statement the chancellor needed to uphold confidence in long-term infrastructure projects. His commitment to maintaining investment in line with the National Infrastructure Strategy, the much-needed plan to increase energy efficiency, and the continued commitment to levelling up underperforming economic regions are all common-sense measures that acknowledge the critical role infrastructure development plays in building a more sustainable nation.

“However, there were a few cans kicked down the road. The choice to maintain capital budgets in cash terms from 2025/6, rather than increase them in line with inflation effectively means a cut.

“With inflation at over 11%, we will have to do more with less, and the spectre of project reprioritisation still looms large. If the government wants to avoid delivering bad news on infrastructure investment further down the line, then it should become an ardent champion of everything the industry is doing to deliver infrastructure better, like the initiatives outlined in the Construction Playbook and in Transforming Infrastructure Performance. These best-practice approaches will help the industry, and the country, get more from every pound of investment.”

Association for Project Management (APM) chief executive Adam Boddison said: “The key words the chancellor used when presenting this budget were ‘balance’, ‘stability’ and ‘growth’ and it is clear to see that the power of projects to deliver economic and social benefit has been recognised. The emphasis of the Budget is very much on achieving growth through projects in energy, infrastructure and innovation. We welcome this recognition and the investment that accompanies it. However, it must be remembered that policy announcements don’t deliver projects; people do. Investing in people, as well as material resources, will create the skills necessary to deliver projects now and in the future.

“We acknowledge that the UK remains in the midst of challenging economic times and that people across the country are facing hardship and difficulties. We believe that projects will be the key to unlocking economic growth and delivering benefits for society. The success of this budget must therefore be judged not against tomorrow’s headlines but on its impacts on projects and programmes delivering real benefits to people, at both local and national level.”

Turner & Townsend UK managing director Patricia Moore said: “There will be a sense of relief today from those who feared cuts to capital spending.  The chancellor's commitment to a pipeline of much-needed rail and nuclear investment in particular brings certainty that can allow these schemes to continue in earnest. But the reality of inflation means that government departments will need to do more with less.

“Growth doesn't need to be expensive, but it will fall to our industry to ensure that we are efficient and targeted despite the pressure on resources.  Focusing investment in the right way to build skills and expertise, and driving opportunities across the nation, including key schemes in the north, and priority areas like life sciences, advanced manufacturing and green industries, will be essential. Digitalisation has a huge role to play in transforming performance and efficiency, recognised by the chancellor as he spoke of the UK becoming the next Silicon Valley - and our sector needs to heed that call.

“We welcome the further £6bn of planned investment in the mission to reduce the UK’s energy consumption, and the taskforce to retrofit the UK’s homes, offices and public buildings. The strategic approach taken to retrofit, already exemplified by the successes of the existing accelerator schemes, can set an example of how targeted spending can stimulate private investment and innovation. They bring benefits to the country and the climate, all without breaking the bank.”

Rick Green, chair of the Asphalt Industry Alliance (AIA), was concerned about the seemingly inevitable prospect of cuts to local road maintenance budgets. “It’s promising that the chancellor’s speech today recognised the importance of sustained investment in infrastructure to keep the country connected, drive economic prosperity and support levelling-up,” he said. “What remains to be seen is the level of funding that maintaining existing assets, including our vital local road network will receive – as a real term cut still appears inevitable due to inflation.

“Everyone relies on local roads, they underpin our communities and support goods and services, but our Annual Local Authority Road Maintenance (ALARM) survey 2022 highlighted that there was a funding gap of £1bn last year to stop local road conditions from further decline and £12bn is still needed to bring them up to scratch.

“The ongoing underfunding of roads maintenance is recognised by the public – with recent reports from both the AA and RAC highlighting increasing concern about declining conditions. We appreciate the chancellor has difficult choices to make, but not investing in local road maintenance funding will lead to worsening conditions, which impact on other locally provided public services, and only lead to a rising bill to fix the problem.

“What would help in these challenging times is a longer-term stable and sustained funding horizon for maintenance budgets, as this would help local authority engineers plan effectively and be able to implement more efficient works to enhance the resilience of the local road network.”  

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