Chancellor vows to go further and faster after years of sluggish growth but should we demand more?
Rachel Reeves has set out a series of major announcements on infrastructure projects, promising to go “further and faster” than previous governments after years of sluggish growth but does it go far enough?
The Backdrop - the UK as a “low investment” nation, maintenance backlogs, life safety risk and delays to social infrastructure programmes
In our Curshaw view the speech must be read carefully and in the context of the alarming analysis highlighted by Curshaw in November 2023 which identified:
The UK is now a comparatively “low investment nation”. Since 2000, UK Government investment has averaged 2.5% of GDP - almost two thirds of the OECD average
If the Government had wanted to keep capital expenditure in line with the average between 2004/05 and 2007/08 for all of the 2010s they would have needed an extra £24bn! Whether this accounts for population growth is unclear. On a per capita basis the figure would plainly be higher.
The total estimated maintenance backlog was £37bn in 2023 and has created and led to, “health and safety risk, catastrophic failure and major disruption.”
Technology is found in some parts of the public sector to be unfit for purpose with “slow loading computers and creaking internal systems” and internet connectivity afflicting places like the courts service.
The shortage of healthcare investment has put the UK fifth from bottom amongst the OECD on the number of CT, MRI and PET scanners per capita limiting the number of diagnostic tests, increasing the elective backlog and NHS waiting times.
Since then there has been more sobering analysis that lays bare the challenge before the government. The Darzi Review identified a shortfall of £37bn in capital investment in the Health sector relative to peer nations and on January 22 an NAO Report was published which identified that the UK government faces a significant maintenance backlog across its public estate, estimated at a minimum of £49, billion leaving the government vulnerable to disruptions. Added to this is the news that the New Hospitals Programme will be delayed with some hospital builds delayed by up to 14 years.
The Chancellor’s Announcements
For those that missed it the main announcements by the Chancellor on January 29 are as follows:
Heathrow Expansion: Backing a third runway, contingent on environmental approvals, with hopes of creating 100,000 jobs. Other airport expansions are also planned. A 2035 completion date is suggested, though some estimates are later.
"Europe's Silicon Valley": Plans to boost growth in the Oxford-Cambridge region with transport upgrades (East-West Rail, A428 upgrade), new homes, schools, and innovation hubs. Lord Vallance will oversee the project.
New Reservoirs: £7.9bn investment in nine new reservoirs, including one in the Fens and another near Abingdon, with completion targeted for 2050.
Infrastructure Rule Changes: Reviewing building guidance to support investment outside of southeast England.
Old Trafford Redevelopment: Potential public funding to support Manchester United's stadium redevelopment, potentially creating 5,000 homes and a "football campus."
Trade Trips: Government officials will undertake trade missions to India and engage with the EU and the US.
National Wealth Fund Investments: Funding for Connected Kerb (EV charging) and Cornish Metals (raw materials for green energy).
Lower Thames Crossing: A £9bn road tunnel project, potentially financed privately.
UK-wide Development: Working with devolved governments, including backing an investment zone in Wales and focused investment in Glasgow.
Overall, the announcements emphasize infrastructure investment, regional growth, and green energy initiatives, with a focus on job creation and economic development. Several projects have been in planning for some time and have faced previous setbacks.
Our Curshaw view
Whilst a great deal of this will come as welcome news in the wake of recent growth figures. It is not clear to us that it goes far enough and significant questions remain given the judgement being reserved around the fiscal headroom available to HM Treasury:
What is happening with the Canada-style plan to pool assets for the benefit of long-term investment and how will this plan be used to turbocharge infrastructure investment and growth? Some of our team worked on this in government in 2014 and back then the plan was to develop more common investment vehicles to spur infrastructure investment. The status of this initiative seems pretty unclear but should be of keen interest to anyone with an awareness of the imperative to increase investment.
What is the means of harnessing both private sector expertise and private capital given the clear need to address life safety risk and maintenance backlogs in the public sector estate?
Where is the coherent plan that links the wall of capital waiting to be deployed, that may very well be deployed overseas absent a clear plan in the UK, to the need for it?
Why is there no pipeline, despite the recognition that clarity of pipeline and certainty of pipeline avoids investment peaks and troughs and drives competitive bids and value for money. The recent publication of the 10 Year Infrastructure Strategy Working Paper on which there seems to have been limited coverage is very encouraging, setting out that:
Infrastructure is critical to the government missions and growth
A new approach is needed on the basis the current one is too costly, not planned/delivered in accordance with need
The lack of a pipeline generates peaks and troughs of investment thereby driving up the cost and diminishing the public acceptability of infrastructure projects
Planning is a challenge and has acted like a handbrake.
Infrastructure investment has been thwarted by a failure to provide stable policy environment and clear strategic direction.
For the first time the 10 year strategy will bring together economic, social and housing infrastructure planning in one place.
NISTA will be a conjugation of HM Treasury and Cabinet Office and will sit in HM Treasury and be accountable to the Chief Secretary
One of the 3 objectives is to ensure social infrastructure can support public services including hospitals and healthcare facilities, schools and colleges, prisons.
The strategy will consider the role of private investment and infrastructure related regulation to provide investors with greater clarity on government approaches and there will be a pipeline to convey long term infrastructure priorities.
The publication of this strategy cannot come soon enough and it is encouraging that HM Treasury are seeking industry views.