Analysis

Autumn Statement leaves industry wanting more

Measures to support housing, shale gas, small businesses, training and research and development, alongside the £15bn roads programme revealed on Monday meant the Government’s Autumn Statement delivered by Chancellor George Osborne on Wednesday was broadly welcomed by the infrastructure industry.

But concerns about a hiatus in investment created by the forthcoming General Election and lack of enough real meat around the Northern Powerhouse concept for growth in England’s northern cities did temper enthusiasm.

"The government needs to consider how to maximise the economic benefit for the UK. It could end up shooting itself in the foot if these projects are awarded to foreign contractors because the Government perceives that there is insufficient capacity or skills in the UK construction industry to deliver on the scale demanded." Manish Gupta, EY

“From an infrastructure point of view the Autumn Statement didn’t add much to what has already been announced in the National Infrastructure Plan,” said EC Harris head of infrastructure Mat Riley.  “However, an impending general election means these plans represent only an intention to spend rather than a formal legislative commitment. Government simply can’t commit investment when an election could wipe it all out. It is therefore proving difficult for the industry to trust in ‘commitments’ set out this week.”

According to Turner & Townsend UK managing director Jon White: “The stamp duty overhaul will further stoke demand for new homes, and together with the raft of infrastructure spending announced this week, this Autumn Statement is both a shot in the arm – and a call to arms – for the construction industry.”

But he warned that capacity issues will create problems.

“The Chancellor has fired the starting gun as the industry is already sprinting at close to top speed.

“With demand already outstripping capacity in infrastructure and housebuilding, the extra stimulus announced this week is to be welcomed – but it also offers a huge challenge.

“With cranes once again dotting the skyline of cities across the UK, the construction industry’s contribution to Britain’s economic resurgence is more tangible than ever.  But to continue the great strides it has made, it must do more to attract the brightest and best at all levels of the industry.”

The view for EY infrastructure partner Manish Gupta is that, given the importance of infrastructure to the UK’s economic competitiveness, the raft of projects announced over the last week is “long overdue”.



“It is now essential these projects receive long-term support across the political spectrum through the National Infrastructure Plan and the Armitt Review, which calls for an independent National Infrastructure Commission.



“However, there are two major issues that may prove to be stumbling blocks for the government in making this ambition a reality,” he said.

 “Firstly, the issue of funding still needs to be addressed. Public funds either need to be ring-fenced or the Chancellor and HM Treasury will need to continue to court industry, financing community and pension funds by developing incentives for the private sector to invest in.

“Without a greater degree of control over local taxes all talk of devolution, investing in our city regions, and rebalancing the UK economy is just hot air.” Richard Threlfall, KPMG

"PF2, the next iteration of Private Finance for social infrastructure, has yet to develop sufficient momentum and is unlikely to make a real difference to this issue. Hence, the focus might remain on investment into utilities, or by delivering some large landmark projects, such as Thames Tunnel, with some form or government support.



“The other major issue is with supply chain. The government needs to consider how to maximise the economic benefit for the UK. It could end up shooting itself in the foot if these projects are awarded to foreign contractors because the Government perceives that there is insufficient capacity or skills in the UK construction industry to deliver on the scale demanded. 

“There needs to be a renewed focus on supporting all industries in the infrastructure supply chain, from construction to engineering, to ensure the benefits are reaped for the UK plc.”

It was the lack of information on action on devolution for English cities that depressed KPMG UK head of infrastructure, building and construction Richard Threlfall.


“City leaders across the country will be drowning their sorrows after the Chancellor offered warm words but nothing of substance on devolution,” he said.


“It is deeply disappointing that the Government has failed to bring forward any proposals for fiscal devolution to England’s major city regions, as many had hoped.

“Compared to other countries, the buying power in the hands of UK local government is almost pointlessly small.


“Without a greater degree of control over local taxes all talk of devolution, investing in our city regions, and rebalancing the UK economy is just hot air.”

According to the Grant Thornton organisation businesses in the north of England had told them their priority for creating a Northern Powerhouse were a faster, more frequent and reliable Trans Pennine railway enabling them to access a bigger labour market.

“The announcement that new trains and carriages will be introduced as part of the new northern rail franchise will go some way towards that, but what businesses also want to see is more frequent services and network improvements to provide faster and more reliable services,” it said.

“Proposals to cut National Insurance for companies employing apprentices under 25 is encouraging,” said director of engineering at the Institution of Mechanical Engineers Dr Colin Brown “but we need to ensure that all apprenticeships meet the rigorous standards and really to provide people with the skills and knowledge to prosper.

“But plans to invest £20M to improve careers advice and support for young people, while positive, fall far short of what is needed. UK careers advice for teenagers is sorely lacking.”

“The extra finance for innovation will help the UK lead the next generation of technologies such as printable electronics, robotics and carbon fibre composites here in the UK,” said Institution of Engineering and Technology head of policy Paul Davies. “The investment will help around 250 companies get to market faster…and generate an additional £745M to the UK economy.” But he called for increased investment in innovation support in the years ahead.

Autumn Statement explained

The ACE policy and economics team has produced report on the Autumn Statement. According to ACE  the key announcements included:

 

Infrastructure

£15bn to improve the national road network

Government to start closer discussions with Tidal Lagoon Power on potential for the project in Swansea

Loan of £55M to support the extension of London Overground to Barking Riverside to unlock delivery of 11,000 homes

£2.3bn for flood schemes

 

R&D

£5.9bn for the UK’s research infrastructure

 

The North

Commitment for Government with Transport for the North to produce comprehensive transport strategy for the region including options, costs and a delivery timetable for HS3, with an interim report by March 2016

New trains and more carriages for the Trans Pennine Express

 

Shale Gas

Sovereign Wealth long term investment fund for the north to be set up from shale gas tax revenues

A £5M fund to provide independent evidence about the robustness of the existing regulatory regime

£31M of funding to create a world class sub-surface research test centre through the Natural Environment Research Council

 

Housing

Stamp Duty reform to leave 98% of households better off.  Tax changed from a slab rate system based on the whole value of property to a marginal rate system applying only to that portion of the property’s value above the required threshold like income tax

Recommitment to the Ebbsfleet Garden City and confirmation that Bicester will be the second

Homes and Communities Agency to trial a new housing delivery model for 10,000 homes at Northstowe with the agency leading on delivery

 

Small businesses

Extending doubling of Small Business Rate Relief to April 2016

 

Training

Abolishing National Insurance contributions for apprentices under 25

You can read the full ACE review here