Chancellor George Osborne’s Budget has today revealed plans to claw back additional savings across government departments in the current spending period to divert £3bn per year into growth-stimulating infrastructure projects from 2015/16.
“We can provide the economy with the infrastructure it needs,” he said. “We’ve switched billions of pounds from current to capital spending since the spending review. But on existing plans, capital spending is still due to fall back in 2015/16.
“I don’t think that’s sensible. So by using our extra savings from government departments, we will boost our infrastructure plans by £3bn a year from 2015/16. That’s £15bn of extra capital spending over the next decade.”
Details were not forthcoming on how precisely the additional capital funding would be allocated. The Budget document states that this will be done at the 2015/16 spending review, which he said would “take a long term approach to capital planning”, including setting planning assumptions out to 2020/21 for key areas of capital expenditure.
The government today also offered an update on its Infrastructure Delivery plan (see attached file).
Triggering infrastructure growth
Osborne said that the government was already aiding infrastructure development by guaranteeing schemes from the Battersea Power Station regeneration plan through to new power stations.
He said that in addition to the major planning approval of Hinkley Point C, given yesterday, he intended to pursue additional low carbon energy schemes and pointed to his intention to take two major carbon capture and storage projects to next stage of development.
More prominent was his keenness for the UK to tap into shale gas and attract private sector interest, with the announcement of his attention to introduce a “generous” new tax regime to promote early investment in shale gas. “Shale gas is part of the future and we will make it happen,” he said.
Echoes of the CBI?
The announcement by the chancellor somewhat reflects the pre-Budget call from employers body the Confederation of British Industry for what it called a “modest shift” of £2.2bn into “high-growth spending”. However, it also suggested moving money into focusing on fast-tracking four or five of the government’s 40 priority infrastructure projects as well as stimulating delivery of new housing projects, which yield quicker benefits to the construction industry.
In a letter to the chancellor, CBI director general John Cridland highlighted the need to press ahead with road schemes such as the A14 upgrade, M4 relief road and the A303 upgrade. He also mentioned rail projects like the Northern Hub and the Heathrow link to the Great Western Main Line as well as the Thames sewer tunnel. These projects, he said, were examples of schemes of national significance whose delivery could be brought forward with government support.
The letter says that even those projects with explicit government support, such as the A14, would still be subject to a consultation process of at least two years with construction starting at least four or five years later. “Why won’t construction start [on the A14] until 2018?” asked CBI chief policy director Katja Hall ahead of the Budget. “Is there really no way we can bring that forward by one or two years?”
Infrastructure planning problems
The Budget refers to implementing a series of reforms to “effect a step change in its approach to infrastructure delivery”, following on from Lord Deighton’s assessment of Whitehall’s skills in that area, announced in the Autumn Statement.
“Using the experience of delivering the Olympic and Paralympic Games and drawing on private sector best practice, these reforms include creating an enhanced central cadre of commercial infrastructure specialists in IUK [Treasury body Infrastructure UK] who will be deployed into infrastructure projects across government, and the establishment by the summer of tough new Infrastructure Capacity Plans to drive forward progress in key government departments,” it said. “These reforms will be undertaken in conjunction with Cabinet Office-led efforts to strengthen Whitehall’s commercial capability and Lord Browne’s work to improve the government’s management of major projects including through an enhanced Major Projects Authority.
“The government is committed to ensuring that investors have the confidence to make long-term decisions on major infrastructure projects, based on a policy framework that is informed by an objective and evidence-based assessment of the UK’s infrastructure needs and priorities. The Government will therefore consider options for making more use of independent expertise in shaping its infrastructure strategy.”
The chancellor said that the Office for Budget Responsibility had cut by half its predicted growth for this year from 1.2% predicted in the Autumn Statement of four months ago to 0.6%. Recovery from there is expected to pick up to 1.8% in 2014, 2.3% in 2015, 2.7% in 2016 and 2.8% in 2017, he said.
Osborne said that he had no intention of changing tack on spending cuts or increasing debt. “We have a plan to cut our structural deficit and our credibility comes from sticking to that plan,” he said.