The government must do more to boost UK infrastructure

After a year of scraping along with almost zero economic growth, the UK entered recession in the final quarter of 2023. However, the Fixed-Term Parliament Act has decreed that a general election must take place before the end of January 2025.

>> Also read: Building’ s general election coverage starts here

This month’s Budget was therefore a potential Conservative manifesto precursor rather than a specific stimulus to growth. The cut in national insurance may have been the headline-grabber but, now that the dust has settled, what will be the Budget’s impact on some of the UK’s key infrastructure issues?

Housing and generation rent

The housebuilding market is still a tough one. The government may ostensibly  have a target of delivering 300,000 homes a year, but it only built around 235,000 per year between 2021 and 2023. In the private sector, nearly half of FTSE-listed housing sector firms issued profit warnings over 2023.

The Budget announced nearly £430m for major new housebuilding developments in Sheffield, Liverpool, Blackpool and Barking, and a vision for 20,000 homes in Leeds, but the industry reacted with some scepticism as to whether these new houses will really get built.

Jeremy Hunt made some tentative steps to unlock some of the root causes of the housebuilding challenges. He announced £3m for a skills and education programme to encourage more people to become local authority planners. A commitment was made to publishing the consultation on an accelerated planning service and a national energy system operator will be established in 2024 to support the accelerated, coordinated delivery of power to new sites.

But many will think that these measures did not go far enough to remove the barriers to delivery of the housebuilding ambition. The chancellor missed an opportunity for meaningful demand-side stimuli.

For example, the higher rate of capital gains tax on residential property was cut by 4% to 24% and intended as a stimulus to transactions. But this benefits those in the middle of the housing ladder, and is not a material cut, representing £9,000 on the average UK house price.

A stimulus measure like government-backed 99% mortgages or a revamped help-to-buy scheme could have boosted the first-time buyer pool, keeping the whole market moving.

Transport

The big recent announcement on transport priorities came in last October 2023’s Network North strategy and there was little by way of addition in the Budget, except for the commitment to the next phase of East West Rail. This will ultimately connect Oxford and Cambridge and is now planned to reach Bedford by 2030.

It was a pretty good day for Cambridge generally in the Budget; it got 14 specific mentions, emphasising its pivotal role in the government’s tech and life sciences growth strategy, with a big private sector funding boost from AstraZeneca announced to accompany the government’s own investment.

While the Budget reaffirmed the £8bn commitment to fixing potholes, it was silent on reducing driver reliance on fossil fuels. The decision to delay the ban on new petrol and diesel cars by five years to 2035 was somewhat overshadowed when it was confirmed last autumn, as it formed part of the same announcement as the cancellation of HS2’s northern leg.

Industry research has shown that upfront capital cost and range anxiety are two of the major barriers to consumer transition to electric vehicles. This Budget was silent on measures to address either of these issues, which might be by way of subsidy, incentivisation or government loan mechanism for purchase, or measures to catch up missed targets on expansion to the charger network.

Journey to net zero

The UK is committed to reaching net zero by 2050, meaning there must be major investment in renewable technologies. The Budget announced the sixth allocation round for contracts for difference, (the mechanism which funds renewable technology), which includes an £800m per year budget for offshore wind.

However in the September 2023 auction, the government received no interest from offshore wind developers due to an unrealistically-low price per mWh as part of the deal the government was offering. This indicates it must be realistic about market conditions if this funding commitment is to translate into increased capacity.

It was a better day for nuclear, with the announcement that the government had purchased two sites for potential large-scale reactors in Wales and south Gloucestershire. Addressing the issues of very long lead-in times to power generation from large-scale reactors, it was announced that Great British Nuclear is moving to the next stage of small modular reactor (SMR) development with six companies submitting initial tender responses by June this year.

This is pioneering for the UK, which currently has no operational small or micro reactors. It will require the government to take a leap of faith in investing in what is likely to be a brand-new technology.

Given its timing within the parliamentary cycle, this spring Budget was a step along the road towards the general election. So, while it did contain some Sunday newspaper issues such as abolition of the tax regime for non-UK domiciled individuals and an adjustment to the high income child benefit charge, it was light on major infrastructure announcements.

The coming months will see the publication of the party manifestos, which will detail the plans for the next parliamentary period, many of which should have material impacts on the construction and infrastructure sector if the recommendations of the National Infrastructure Commission are to be achieved.

Confidence in the market requires clarity and consistency from the government; business leaders need to know they can make decisions based on what they are hearing. Only then will real impact within the industry really start to be felt.

Holly Davis is infrastructure advisory director at KPMG. This article is written in a personal capacity