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Budget 2013: Industry welcomes additional money but pleads for greater clarity

Industry responded with vigour to chancellor George Osborne’s 2013 Budget statement, swaying somewhere between welcoming the extra annual £3bn spend on infrastructure from 2015/16 and pleading for more detail on where the money will go.

ICE director general Nick Baveystock said that although it was not available until 2015, the chancellor’s £3bn boost for public infrastructure investment was “a positive and welcome move”, as were plans to boost Whitehall’s capability to deliver major infrastructure projects. “If we are to deliver existing projects more effectively and generate short term growth quickly, this is vital,” he said. “However, as Government itself acknowledges, 70% of investment in UK infrastructure will come from private investors and owners and Government must not lose sight of the scale of this challenge.” Baveystock also warned that the “drawn out process” of the Electricity Market Reform, and the “scaled down” hopes for investment from sources such as pension funds, mean there is an “urgent need for government to improve its role as a facilitator of investment”. “We therefore welcome Government’s commitment to consider options for using independent expertise to help shape its strategy – and urge them to engage with the work of Sir John Armitt’s independent review which is looking at this issue,” he added. “We would also like to see real, visible progress and fewer re-announcements on existing initiatives – such as the projects identified as receiving assistance under the infrastructure guarantees scheme and the level of funding available through the Pensions Investment Platform.”

The Civil Engineering Contractors Association (CECA) described it as the “Jam Tomorrow” Budget, which delays significant spending commitments until after the next election. Director of external affairs Alasdair Reisner called for “activity on the ground now” and observed that there appeared to be no new support in the short term for infrastructure construction as well as a lack of information about the UK Guarantees scheme. “The chancellor rightly describes the UK’s infrastructure as the ‘economic arteries’ of the country, and that investment in the sector will ‘get growth flowing’ to every part of the country,” said Reisner. “CECA believes that the chancellor has arrived at the correct diagnosis, but has yet to administer a cure. CECA believes that there are thousands of smaller infrastructure projects across the country that could be ‘unlocked’, which would spur growth in the economy in the next eighteen months. By delaying significant infrastructure spending until after the next election, the Chancellor has offered a ‘jam tomorrow’ Budget, that will do little to boost growth through infrastructure provision before 2015.”

The Association for Consultancy and Engineering (ACE) sought further clarity from the chancellor. It said there was little detail on house-building or on the further delivery of infrastructure projects. “It was not mentioned how the increase in capital spend would be allocated, and it will not come in until after the next general election, contributing to uncertainty as a new government may seek to change it,” said ACE chief executive Nelson Ogunshakin. Osborne made little mention of the UK Guarantees scheme progress, it said, adding that although projects have gone largely unnamed due to commercial sensitivities, industry faces a greater need for clarity on what types of projects are able to secure a guarantee. The lack of mention for private finance 2 progress (PF2) amounted to a “missed opportunity” to offer greater certainty of its role, it added.

WSP deputy managing director Mark Naysmith said he did not think anyone from the industry was expecting major announcements but that it was still disappointing to see the lack of detail behind the chancellor’s commitments to infrastructure and the delay with which it will materialise. “What industry needs more than ever is clarity and assurance that the government’s plans are being progressed,” he said. UK head of infrastructure Duncan Symonds added: “There also needs to be recognition that while the big red tape projects are important, the smaller, less sexy projects, like flood defences, electrification and maintenance and repair programmes are equally important and in some cases can have more immediate impact on the economy, creating jobs and building asset value. Commitment to commence construction of the Lower Thames Crossing before planning powers have been secured is a bold statement from the government and this is exactly the sort of leadership the industry needs to see more of. These kinds of assertions will give investors the confidence to invest.” Commenting on the lack of a strike price agreement for EDF’s Hinkley Point C power sector director Scot Parkhurst said that there were “dozens of projects” that have been “stalled until there is a guarantee on pricing”.

Atkins UK chief executive David Tonkin welcomed the extra spending. “The chancellor said that it was vital for the UK to invest in its economic arteries to get growth flowing. That means backing companies working in the infrastructure sector, especially those working internationally and bringing tax revenues back to this country. This is welcome news for companies such as ours that are working hard to spread our worldwide footprint and create jobs, especially at home in the UK.

“Public sector infrastructure spending should not be an indiscriminate spraying of investment around the country,” said Turner & Townsend public sector director Jon Poore. “Without focus and carefully costed plans, the Chancellor might as well send a fleet of RAF helicopters to drop bundles of banknotes. There was more clarity on the government’s support for shale gas, with the Chancellor giving his most full-throated endorsement yet of the controversial energy source. By offering tax breaks and incentives to the industry, the government is determined that shale should play a key part in Britain’s future energy mix. The prospect of a huge new source of gas and the lure of energy independence are clearly too strong for the government to ignore.”

The Campaign for Better Transport warned that spending cuts to pay for large capital schemes could result in more potholes and worse bus services. Chief executive Stephen Joseph said the chancellor was “promising more wasteful big road schemes rather than fixing potholes and supporting better bus and rail services”. “This would create jobs now, help all road users and give more people access to jobs,” he added.

Greenpeace energy campaigner Lawrence Carter accused the chancellor of “slashing public services with one hand while gifting tax breaks to the fossil fuel industry with the other” with regards to the announcement for shale gas developers. “This is unfair on struggling households, especially when everyone from the energy regulator Ofgem to BP to the energy secretary say UK fracking won’t bring down bills,” he added.

Lafarge Tarmac Contracting managing director Paul Fleetham welcomed the extra funding but warned it would not “provide the catalyst that the economy needs now”. “It is also disappointing that we must wait until the 2015/16 spending review to understand how this funding will be allocated,” he added. “The chancellor has missed an opportunity to use smaller schemes such as highways maintenance to drive immediate economic growth. Investing in local road maintenance would provide a boost to the national and regional economies, without the protracted planning delays that continue to stall progress on many of the larger infrastructure projects on the government’s long wish-list. Crucially, investment in local roads, which account for 95% of the UK’s network, would also help to renew our deteriorating road asset and tackle the £830M maintenance shortfall that exists across England.” 

KPMG UK head of infrastructure, building and construction Richard Threlfall said that the Budget was “disappointing” from an infrastructure perspective and said while the extra funding was welcome it would “make little difference in solving the UK’s infrastructure challenge”. “Experts estimate that the UK needs at least £400bn investment into our ailing infrastructure over the next 10 years,” he said. “What is clear is that the UK must now look to private stimulus for infrastructure investment after the chancellor today turned his back on additional borrowing. Around 65% of the UK’s infrastructure is already privately financed but we won’t unlock new development spend from the private sector without action and a consistent message from the government, to build confidence amongst developers and investors.” He added, however, that “tucked away” in the speech was “an intriguing reference” to UK Guarantee support for “the new power stations of tomorrow”.  “This could be a game-changer for new nuclear if the Government is really serious about debt support as well as fixing the strike price,” he said.

Deloitte head of infrastructure Nick Prior welcomed the extra money but called on the government to back it up by “action and delivery”. “The fact remains that the construction sector has contracted in each month since October last year and new orders are down by nearly 40% from their peak in 2007,” he said. “This is despite many announcements and initiatives that have not been able to arrest this decline. If infrastructure is to be the silver bullet for economic recovery, we need to see shovels hitting the ground on projects that have a real impact in driving growth sooner rather than later.”

PwC global head of infrastructure Richard Abadie also welcomed the extra infrastructure pounds but added: “Regrettably the announced sum is insignificant relative to the infrastructure backlog… The reality is it won’t make a significant impact on economic growth as it comprises less than 0.2% of GDP.”

Thomas Eggar partner Mark Clinton said the money was very welcome and called the amounts “very significant”.  “However, with construction output still shrinking, 2015 seems a long way off when the industry has been suffering for more than five years,” he added. “Much will depend upon where and on what the money is spent as that will determine how many of the UK’s 200,000 construction firms feel the benefit directly.”

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