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Elevating Infrastructure | The 2017 Budget

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The 2017 Autumn Budget kicked off a series of government announcements that will have a huge impact on the civil engineering sector.

They have outlined the policy backdrop which will part-define if, and when, some major projects go-ahead, whether they get funding and how they will be built.

For those developing, designing and building the projects, it spells out what the public sector, as a client, wants to see engineers deliver.

Policy outcomes

The policies coming out of the Budget, the Industrial Strategy, the Department for Transport’s (DfT’s) Transport and Infrastructure Efficiency Strategy and the Infrastructure and Projects Authority’s (IPA) policy paper Transforming Infrastructure Performance are all aligned in the outcomes they want to achieve, and how they want them to be achieved.

The first sign of real change in the way the government, and its arm’s length bodies such as HS2 Ltd and Highways England, intend to work was in chancellor Philip Hammond’s Budget in November.  

It revealed a sober economic forecast and outlined a government drive to improve productivity, in part through infrastructure – revealing a firm policy commitment to investment and an acknowledgement of its importance in the wider economy.

Hammond’s Budget speech revealed that the Office of Budget Responsibility had downgraded Britain’s forecast 2017 gross domestic product (GDP) by 0.5% . It now expects the economy to grow 1.5% in 2017, 1.4% in 2018, 1.3% in 2019 and 2020.

Hammond made a clear link between increasing productivity and the work civil engineers do, through investment in infrastructure. Better infrastructure enables a more mobile workforce, a transport system that is better for business and skilled jobs for those people actually delivering the infrastructure.

I loved the early recognition that the world is on the cusp of a technology revolution and the UK needs to put itself at the front of that

Richard Threllfall, KPMG

Better infrastructure also goes hand in hand with the government’s ambition to build 300,000 houses each year. A clear example of this is the chancellor’s Budget commitment that the East to West road and rail schemes along the Oxford and Cambridge corridor will support house building.

“The key to raising the wages of British workers is raising investment – public and private. And we are investing in Britain’s future: half a trillion pounds since 2010,” he said.

“The biggest rail programme since Victorian times. The largest road building programme since the 1970s. The biggest increase in science and innovation funding in four decades. And the two largest infrastructure projects in Europe – Crossrail and High Speed 2 (HS2),” he said.

“When I took this job I committed to make the battle to raise Britain’s productivity. And thus the nation’s pay. The central mission of the Treasury.”

With Hammond spelling out how important infrastructure is to the future of the country’s economy, how is the government policy changing as a result of the infrastructure initiatives?

The upshot of the recently reported overspending and under delivery at Highways England and Network Rail, is that now major new road and rail projects have to come to the table better planned and in some cases with private funding.

Aligning project delivery to government policy will play an important part in getting new projects the green light. And there is a huge number of projects the public and private sectors would like to see get the green light.

The supply chain is quite immature and there isn’t currently enough offsite construction

James Totton, Arcadis

Highways England, for example, is hoping to get around 30 development consent orders pushed through by the end of RIS1.

Major infrastructure projects such as the Lower Thames Crossing will have to bid for funding outside the existing procurement frameworks.

Transport for London wants to see key projects such as the Silvertown Tunnel get off the ground and Network Rail will also have to bid for funding for new major enhancements outside the next financial control period. Getting public sector decision makers onside will be crucial.

So, what does public bodies now want to see from the civil engineers looking to plan and deliver new infrastructure projects?

Some of the biggest civil engineering contracts ever awarded have come out of government bodies this year, spearheaded by the £6.6bn awarded by HS2 Ltd for HS2’s civils work. There is a lot more to come with the publication of the £600bn infrastructure pipeline, but what are the factors driving whether the green light is given to a project?

The government not only wants transport to help improve the country’s productivity. It wants projects themselves to be more productive.

The DfT’s Transport Infrastructure Efficiency Strategy says investment decisions will be made on whole life costs and wider benefits such as building skills and capacity in the supply chain, innovation, regional re-balancing and clean growth.

Speaking at the strategy’s launch at the ICE in December, transport secretary Chris Grayling said: “Projects have to have a skills and technology footprint.”

The government has put an increasing emphasis on air quality through the decision to commit £220M to a Clean Air Fund

The public sector is trying to become a better client by improving its procurement through better cost estimating, using data from similar projects to benchmark what success means, and ensuring projects are better set up with clear objectives and defined delivery structures.

It wants to end the days of late and over budget projects. From the supply chain it wants to see much better collaboration so the project is got right from the start. By working with its contractors and suppliers, the government wants to see the supply chain maximise innovation and productivity.

A drive towards modern construction methods, in particular offsite construction, is one of the policies to come out of the Budget, and this is likely to have the biggest impact on the civil engineering sector and project delivery.

The policy is that the government will use its purchasing power to drive adoption of modern construction methods, such as offsite manufacturing. Government departments, including the DfT, will adopt a “presumption in favour of offsite construction by 2019 across suitable capital programmes, where it represents best value for money.” This presumption will extend to the DfT’s arm’s length bodies such as Highways England, Network Rail and HS2 Limited.

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The government is to use its purchasing power to promote more modular construction

So, expect to see more successful contract winners whose supply chains can deliver innovations such as Ramboll’s automated gantry design, which enables the structures to be fully fabricated and fitted out offsite, and put insitu in a matter of minutes.

The government’s drive to use its purchasing power to increase use of the most modern construction methods is also laid out in the sister policies to the Budget from the DfT and IPA and the Industrial Strategy.

The move is welcomed by the industry, with some saying the announcement will drive an increase in scale and pace of offsite construction. The benefits of offsite can be huge, potentially cutting years off projects, and building elements faster, greener and of higher quality. However, engineers say the supply chain will now need to catch up with the policy.

“The supply chain is quite immature and there isn’t currently enough offsite. There has to be investment by private firms setting up their own factories. A lot of companies in the architecture and engineering consultancies are ready to do it, the supply chain just needs to be developed,” says Arcadis head of modular James Totton.

Another of the Budget’s main policy agendas is to put Britain at forefront of tech and digital industries such as Artificial Intelligence (AI), immersive technology and driverless cars.

“Because we will harness this potential and turn it into the high paid, high productivity jobs of tomorrow,” said Hammond in his speech.

This translates into an increase in funding for the National Productivity Investment Fund (NPIF) from £23bn to £31bn and extending it into 2022/23. This money will be spent on a combination of these technology initiatives and also on infrastructure.

The Fund includes £500M for a range of initiatives from AI to 5G mobile networks and full fibre broadband. It also includes a £400M driverless vehicle charging infrastructure research and development fund; plus £40M for research and development into vehicle battery charging.

There were also announcements about 5G, tax breaks for research and development and improving STEM teaching in school  to help combat skills’ shortages.

KPMG partner and UK sector head for infrastructure, building and construction Richard Threlfall says the tone of the Budget from an infrastructure point of view was “really positive”.

“Right from the outset, the chancellor reaffirmed the belief that investment in infrastructure was critical for the country’s future,” he says. “I loved the early recognition that the world is on the cusp of a technology revolution and the UK needs to put itself at the front of that and clearly lots of that does relate to our world of infrastructure.”

The main infrastructure announcement from the NPIF was the £1.7bn Transforming Cities Fund. This will be spent on driving forward projects including £243M for Greater Manchester which will, in part, help develop its own industrial strategy.

For the Midlands Engine, £270M is for intra-city transport priorities. In the Midlands some of the money will be spent on a new extension to the Midland Metro Alliance (MMA). Money will also include £300M to ensure HS2 infrastructure can accommodate future Northern Powerhouse and Midlands Engine rail improvements and £30M to explore digital connectivity on the trans-Pennine route.

Air quality is behind quite a lot of the delays that are going on generally 

Angus Walker, BDB Law

We know from the Budget that the government has an increasing emphasis on air quality through the decision to commit £220M to the Clean Air Fund.

With the Heathrow Airport expansion plans and the Silvertown Tunnel project still in consultation over air quality concerns, air quality and the impact on it from project builds and usage is an issue civil engineers need to address.

The National Air Quality Plan launched in July requires local authorities in England to draw up plans to improve air quality, and this is where engineers designing and building schemes will need to factor in emission levels.

The plans are likely to also contain further transport design work, for example they might require road layouts at congestion and air pollution pinch points to be changed or projects to drive an increase in public transport use.

In this Budget, the Clean Air Fund, paid for by an increase on Vehicle Excise Duty on new diesel cars, is to help support businesses and individuals adapt to measures to reduce pollution.

These pollution-reducing measures are being consulted on, but could be areas such as diesel scrappage schemes or schemes to drive people to use cleaner transport methods, such as cycling or public transport.

“Air quality is behind quite a lot of the delays that are going on generally,” said BDB Law partner Angus Walker, talking about major projects.

He cited bodies such as Client Earth and its challenge of the government’s National Air Quality Plan, as well as possible challenges ahead to the Airports National Policy Statement on Heathrow.

On the issue of clean energy, a side Budget document called Control for Low Carbon Levies, confirms the government’s short term shift away from subsidising new low carbon energy schemes until 2025, Commitments such as Hinckley Point C nuclear power station will continue.

This document says there will be a halt to the introduction of new low-carbon levies until 2025. This effectively means the government will not subsidise any new clean energy projects before 2025.

 It does not mean that agreements for projects cannot be signed before then or that construction can’t begin, it means that projects won’t be commissioned before 2025.

This, the government said, was to protect consumers from the costs as there is already enough money spent on the levies such as the deal for Hinckley Point C, which has come in for recent criticism from the Public Accounts Committee for not being in consumers’ interests.

New Civil Engineer understands that there is a hope within the sector that Swansea’s tidal lagoon could be subsidised via another government funding mechanism.

As the civil engineering faces a new year, the policy landscape within which they operate becomes ever more complex but relevant.

However, as the Budget and associated strategies put the emphasis on better productivity and project delivery, there are still many who would like to see the same applied to the Westminster decision making process, ending the long wait to put spades in the ground for some major projects.

National Infrastructure Pipeline

The government has underlined its commitment to infrastructure spending with the publication of the latest version of the National Infrastructure pipeline. The size of the programme is why ministers are keen to improve construction productivity. Here are some highlights.

£600bn investment of public and private money over next 10 years

£240bn of pipeline investment to be delivered by 2021, of which £75bn is for transport

694 projects in total including:

241 transport projects

108 energy projects

97 utilities projects

29 flood defence projects

Per capita spend

Public and private per capita spend 2017/18 to 2020/21

Highest: London at £4,033

Lowest: Yorkshire & Humberside at £2,962

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