Comprehensive Spending Review 2015: industry reaction

Autumn Statement and Spending Review

Infrastructure professionals broadly welcomed the Chancellor’s continued focus on investment in infrastructure but warned that while capital spending was maintained, cuts in operational budgets across department could have significant delivery implications. 

Comments on the CSR from across the sector:

Association for Consultancy and Engineering chief executive Nelson Ogunshakin.

“[That the budget for HS2 has now been finalised] is welcome news and provides a timely boost to the engineering industry which can now begin planning, developing its workforce, and allocating resources to the project with an additional sense of certainty. This is a hugely important project that will provide the regeneration opportunities, new job prospects, access to new markets, and extra rail capacity that will be of enormous benefit to the Northern Powerhouse, and the rest of the UK.

Inflationary changes are undoubtedly at the heart of the rise in cost that we have seen, and it will now be on the government and industry to engage effectively so that the project is brought in within the budget envelope and on time. Recent experiences on projects like Crossrail and the Olympics demonstrate that the UK can achieve results on schemes of this scale, and by beginning the cross-supply chain collaboration process early we can ensure the right lessons are learnt.”

Institution of Civil Engineers (ICE) director general, Nick Baveystock.

“The Chancellor’s commitment to capital investment for new infrastructure projects - combined with the drive to increase devolution, innovation and apprenticeships - provides a strong platform for the next five years. The recently established Infrastructure Commission will also ensure that plans for new infrastructure are based on unbiased analysis of our needs.

“We hope to see the same level of commitment from Government in maintaining our existing infrastructure – we await more detail on how the cuts to operational budgets will affect funding for the upkeep of flood defences and local roads. 

“We must maintain a balance between capital and maintenance budgets if we are to deliver infrastructure that gives the right level of service and connectivity, operates effectively for as long as possible, and helps to support a prosperous economy.”

Institution of Mechanical Engineers director of engineering, Dr Colin Brown.

“Although some of the proposals in today’s spending review are encouraging, the cuts and efficiency savings earmarked for transport, energy and healthcare are worrying. It also worrying that in his hour-long speech there was not one mention of the word ‘engineering’. It is only by the application of science and engineering that we will achieve the efficiency savings the Government is aiming for. If not managed carefully the proposed changes to turn more schools into academies will hamper our ability to produce enough people with Science Engineering Technology and Maths skills.”

“The £11bn support for transport infrastructure in London is welcome but given the airport capacity crunch we’re experiencing it is disappointing that there was no commitment or decision on runway expansion for the South East. 

“In addition we need clear direction from Government on plans for Crossrail 3 to ensure we have the investment and skills in place to make it a reality. With plans for major investment in the whole of the UK’s transport network, in particular rail, we need to ensure the UK is developing enough people with the right skills – like engineering.”

CBI director-general Carolyn Fairbairn.

“This was a good spending review for longer-term investment in the economy but there’s a sting in the tail in the size and scope of the Apprenticeship Levy. Standouts include maintaining spending on infrastructure; ramping up housebuilding; support for energy-intensive sectors and for advanced manufacturing.

“The Apprenticeship Levy, set at 0.5%, is a significant extra payroll tax on business and by widening the net it will now catch more smaller firms. Even those businesses most committed to training and development won't be able to recoup their outlay, and it looks like an additional payroll tax.”

“It’s good that the Government has increased capital spending and remains committed to road and rail investments, including the Trans-Pennine railway. Businesses will want to see promised projects breaking ground as early as possible in this Parliament to maintain momentum.”

Arcadis managing director, Infrastructure, Mac Alghita.

“[The] Comprehensive Spending Review announcement brought positive news, with capital spend for infrastructure set to increase by 50% to £61bn, underpinned by a reduction in the DfT operational budget by 37%. News of the largest road investment programme since the 1970s also provides certainty to the industry that the bold plans outlined by Highways England are funded and can now be delivered in full.

“The budget maintains the government’s commitment to HS2, however the £11bn funding for London simply does not go far enough. It is worrying that there was no mention of Crossrail 2, Network Rail’s CP5 programme or airport capacity in the South East. These are all essential for reducing the growing pressure on London transport while also providing key opportunities for development and regeneration across the UK. Some indication of support for these major investment programmes would have backed up the positive budgetary increases.

“Although it is likely that some of the £11bn spend committed to London will fund these schemes in part, the more pressing question that must now be asked is whether HS2 can be successful without Crossrail 2? Let’s hope there is more to come following the long awaited announcement from the Davies Commission next week and from the publication of the National Infrastructure Commission’s first report in Spring.”

AECOM, director and UK head of government & public, John Hicks.

“The Chancellor’s rhetoric around ‘we are the builders’ didn’t appear to be accompanied by significant new money across the board. With transport at the sharp end of departmental revenue cuts, the challenge now is for government to play its part in delivery as the number of public servants further erodes. Are the right people with the right skills, governance and procurement tools in the right place within the public sector to allow the builders to move in? This could be an opportunity for new ways to engage and deliver.” 

“Accelerated home ownership must not come at the expense of the affordable rental sector. History shows that supply has only increased through a balanced, multi-tenure approach. We would therefore like to see greater focus on extending the breadth of development players and encouragement for new entrants. Importantly, homes must be built where there is demand. Building housing in line with infrastructure investment and development is the key to creating communities where people want to live and work. Greater emphasis on sustainable, long-term planning of infrastructure to underpin economic growth is now needed.”

KPMG head of infrastructure building and construction, Richard Threlfall

“Today's Spending Review is good news for infrastructure. The Government has again prioritised capital spending, and put serious money behind its commitments to HS2, the Northern Powerhouse and transport in London.

“However, this is tempered by the 37% cut in the Department for Transport’s operating budget which surely raises concerns over the Department's capacity to drive forward its substantial pipeline of projects.

“There also remains a huge inconsistency between the slick sound bite of devolution revolution and the reality that it is central Government is still signing the big cheques and deciding which schemes it wants to support. 

“Only when the Government transfers material control over tax revenue from the Treasury to the regions will we see real devolution of power and the ability of the UK's major cities to plan and deliver long-term programmes of infrastructure investment.”

Nathan Marsh, Northern Infrastructure Leader at EY.

“By boosting the Department of Transport’s budget by 50%, the Chancellor has freed up some capital to help address one of his biggest challenges for the ‘Northern Powerhouse’; directly financing its infrastructure, such as HS2 and Northern rail electrification. Many of the key projects in the North will fall under the £13bn earmarked specifically for Northern transport over this parliament, which was first announced in August.

“While clear funding for the Transport for the North body will help to drive plans closer to construction, it remains to be seen how the Government will raise even more capital for Northern infrastructure through alternative, innovative means. 

“The Chancellor said ‘we are the builders’. In the case of Northern and wider UK infrastructure, an appropriate question might be where are the builders? Skills shortages and the capacity of the UK construction industry could be challenging issues when it comes to delivering this much needed investment in infrastructure, and may be a question for the new National Infrastructure Commission to address.”

Turner & Townsend UK managing director of infrastructure Patricia Moore.

“To make a large injection into Britain’s strategic infrastructure in the face of cuts elsewhere is a bet on the power of infrastructure to drive broader economic growth.

“But this is no blank cheque. The Chancellor has thrown down the gauntlet to the infrastructure industry – with the big increase in the Department of Transport’s capital budget being matched by a 37% cut in its day-to-day spending.

“While the cash pledged to headline-grabbing new projects like Crossrail 2 and HS3 is welcome, it will be a different story for those charged with maintaining and upgrading Britain’s existing rail and road network.

“This gulf between rising capital spending and reduced operational spend raises the stakes for the infrastructure industry. Day-to-day it will have to do more with less.

“But with UK infrastructure already enjoying a global reputation for excellence, the challenge is now for it to deliver both domestic growth and continue to act as a beacon for UK Plc overseas.”

Temple Group managing director Chris Fry.

“The announcements provide a fantastic opportunity for infrastructure and housing to be progressed hand in hand at many key locations, an example of sustainable development which can deliver tangible social and economic benefits.  

“An integrated approach has to be more cost effective in the long run and should provide communities with 21st century transport and energy solutions built in.  The trick now will be in how these infrastructure and housing projects are planned and implemented so that they add to the quality, and also the resilience, of our towns and cities”.

 

Pinsent Masons head of infrastructure Richard Laudy. 

"The Chancellor has set a bold five year plan on the UK Government's fiscal policy – it is ambitious and welcomed but there still remains an elephant in the room, specifically, how are we going to pay for it?.

"The UK Government intends to raise capital through budget cuts and a lightweight asset sale programme recently announced to fund infrastructure projects.  However, capital raised by these measures are a mere drop in the ocean when set against the £500bn infrastructure deficit we currently have in Britain.

"Therefore, the infrastructure deficit will need to be plugged by private finance.  There are plenty of investors looking favourably at the UK, that is not the problem.  But they all have one thing in common:  they will all want a return on their investment and someone has to pay for that.  The challenge is not the finance, but the funding of the finance. 

“The interesting thing about the Autumn Statement is not so much what is said, but what is not said.  There is still no major announcement in respect of funding models and structures, despite the UK’s undoubted attractiveness as an investment destination. We expect there will be some tough and potentially unpopular decisions to be made by government over the next five years.”

Geoff Allister, HTMA (Highways Term Maintenance Association) Executive Director

“Recent increases in capital maintenance budgets are welcome however HTMA is concerned that the impact of continued revenue reductions on local authority staffing levels is putting delivery of this critical programme at risk.

“Ongoing revenue pressures will also result in reductions in the amount of essential routine maintenance that is carried out and will increase the risk of failure to deal with the impact of severe weather events.

A well maintained road network is critical to the economic and social development of our communities.  A long term asset management approach, allied to increased levels of funding, is required to bring our road network up to an acceptable standard and arrest the decline caused by years of under investment.

AIA (Asphalt Industries Alliance) chairman Alan Mackenzie. 

“Local authority roads carry two thirds of all traffic and account for 98 per cent of our entire road network yet only obtain a fraction of the funding received by the strategic road network.

“This year our Annual Local Authority Road Maintenance (ALARM) highlighted the annual shortfall between what highways engineers need to maintain their roads properly and what they actually receive annually remains at just over £3.2 million per authority, with over £12 billion still needed to bring the network up to scratch.

“Readdressing the funding imbalance will help local authorities in managing a backlog of repairs and in the implementation of proactive ‘invest-to-save’ maintenance strategies to improve our local roads.”

Claire Jakobsson, Head of Climate & Environment Policy at EEF, the manufacturers’ organisation.

“The cuts to the UK’s Carbon Capture and Storage (CCS) funding are extremely disappointing, whilst we understand that government has had to make some extremely tough decisions, this one is not in the long term interests of the UK economy or energy consumers.

“CCS has the potential to halve the costs of decarbonising the UK economy by 2050, which amounts to £32 billion a year by 2050. In choosing to save a relatively small sum of tax payer money in 2015, government is unnecessarily committing vast amount of future energy consumers’ money.”

RICS, head of policy, Jeremy Blackburn

“A push towards affordable home ownership should not come at the expense of affordable homes for rent. If cities such as London are to thrive, we need to ensure that housing can be provided for all of its workforce - home ownership can only go so far and even shared ownership may prove too expensive for some.  The Chancellor was short-sighted not to incentivise affordable homes for rent.

“George Osborne is essentially subsidising one sector of the housing market over all others, home buyers already benefit from significant Government funding. Many people struggle to afford to own their own homes and a large majority rely on the available supply of affordable rents. The Chancellor may feel that he is supporting the under-privileged by pushing up buy-to-let Stamp Duty, but we would argue that such an inflationary measure will discourage small landlords and reduce the rental supply – prices will inevitably rise. 

“In order to maintain our position on the world economic stage, Britain needs a first-class infrastructure system. The Chancellor has quite rightly made infrastructure a strategic priority, announcing a £61bn spend on transport alone this Parliament.  He has set up set up an independent commission to revamp the national infrastructure pipeline and plan. This should ensure the new money is prioritised.