Autumn Statement 2016: So how did infrastructure do?
Summary: The newspaper columns and radio interviews were dominated by talk of significant infrastructure investment. In the Chancellor’s last Autumn Statement there was an undoubted focus in getting the UK economy “match fit” with numerous smaller investments in economically productive infrastructure, in part to increase productivity, investment and house building.
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There is much uncertainty surrounding a post Brexit vote Britain, the infrastructure sector has been waiting on tenterhooks for the Autumn Statement to be published.
Today we finally found out the government's plans for UK infrastructure - BLP's Infrastructure Team comment on the announcements and the potential impacts:
It is Economy, Productivity and Homes “Stupid”
Against forecasts of lower growth, higher inflation and (Brexit-related) economic uncertainty, a Conservative Government was unlikely to be providing any massive giveaways. Pre-Statement briefings and market chatter suggested that infrastructure related programmes and projects would generally be: smaller in nature; largely focused outside London and the South East (and on the ‘Northern Powerhouse’ and ‘Midlands Engine’); and focus on roads, rail and housing.
Rather dull, but was predicted….‘Productivity’ was the keyword and the Chancellor reinforced this priority through policy announcements such as ￡1.1 billion for transport projects (including an ‘innovation corridor’ road between Oxford and Cambridge via Milton Keynes and ￡490 million for digital railway signalling) and ￡2.3 billion for a Housing Infrastructure Fund (to deliver infrastructure for up to 100,000 new homes in high demand areas of the UK).
Further commitments to the combined and devolved authorities pushed forward the regional agenda with potential for public debt to be issued by Mayoral authorities. There will be more City Deals and we expect a thriving market in local/municipal infrastructure procured by local authorities.
It’s all digital now…
Future-proofing the economy through investment in digital infrastructure – with the announcements of a ￡400 million digital infrastructure fund (which could rise to ￡1.5 billion by 2021 with private sector leverage) and ￡740 million to support the trialling of 5G with a view to making the UK a world leader in this technology – was also a key highlight. This reinforces our view that broadband will become an increasingly important infrastructure asset in the UK - as detailed in our recent article: Broadband in the UK: A new infrastructure asset class?
Another highlight was the ￡450 million on digital railway signalling - a potential game changer for capacity on the rail network.
￡23 billion…..The National What?
The creation of a new ￡23 billion National Productivity Investment Fund – this is a potentially massive pool of investment capital – the statement is light on detail, but there could be significant leveraging of private sector to generate opportunities for across the UK.
Pipeline 2020…..
The private sector will also undoubtedly welcome the certainty provided by the announcement that the “government will invest between 1% and 1.2% of GDP every year from 2020 in economic infrastructure covered by the [National Infrastructure] Commission” – a substantial increase from the current 0.8% of GDP. Is this the pipeline industry crave?
What did Hammond NOT say?
What the Chancellor did not say wasn’t surprising either – no infrastructure investment bank (as proposed by the shadow Chancellor), no infrastructure bonds and no wholesale increase in public spending.
AND finally…..PF2 and Guarantees
Buried away at page 29 of the Autumn Statement briefing paper were announcements that:
- the government will develop a new pipeline of projects suitable for delivery through the PF2 Public Private Partnership (it is likely that these projects will focus on roads, education, defence and primary care); and
- that the extension of the UK Guarantees Scheme until 2026 (which the Chancellor did mention) may, after consultation with industry, develop a form of construction-only guarantee, de-risking the construction phase of infrastructure investment and likely making infrastructure investment much more attractive to institutional investors .
Conclusion
The Chancellor admitted that he wasn’t pulling any rabbits out of the hat – he didn’t pull up any trees either. But the last Autumn Statement did signal an intent to invest more in boosting productivity, making the UK more resilient. The role of the devolved and combined authorities, Mayoral borrowing powers, infrastructure funding linked to new house building, local transport infrastructure and reviews of the retail energy market signal a distribution of “Jam” for the JAMs (Just about managing).
No infrastructure system is future proof so investors must welcome the 1%-1.2% of GDP commitment to infrastructure spend post 2020 – in terms of planning, along with 5G and railway digitalisation – a commitment to investment in high-tech solutions to drive capacity. Unfortunately the statement was light on low carbon initiatives and energy sector projects, beyond low carbon vehicles.
For those craving private sector investment into UK infrastructure, PF2 is making a welcome return.
The Chancellor’s last Autumn Statement was one set against a backdrop of uncertainty, his desire to see the UK economy “match fit” for Brexit has heralded some investment opportunities in the infrastructure sector. Whether this is enough for the UK to compete on the world stage remains uncertain.