A safety-first budget in uncertain economic times

Given that Phillip Hammond’s budget was widely trailed as being a make or break one for the chancellor himself and possibly the government if he got it wrong, it’s perhaps not surprising that it has ended up being neither. What the chancellor delivered in the House today was a reasonably safety-first budget, against a background of falling growth, designed to boost economic confidence at a time of continuing economic uncertainty.

The infrastructure sector will welcome the chancellor’s widely previewed announcement of a  £1.7bn Transforming Cities Fund for local infrastructure connectivity and the commitment that the National Productivity Investment Fund, which provides an additional £23bn of investment over five years to upgrade the UK's economic infrastructure for this century, is to be extended for another year and expanded to be worth more than £31bn.

Other pro-infrastructure measures include the allocation of a further £2.3bn for investment in R&D an increase the R&D Tax credit to 12%. The chancellor also announced a further £500m for a range of initiatives from artificial intelligence, to 5G and full fibre broadband. He also announced that £34m would be provided to develop construction skills across the country.

Local transport gets a boost with £300m for HS2 northern rail improvements, plans for a new local industrial strategy in Manchester and a new deal for the Midlands and also £337m to replace the rolling stock on the Tyne and Wear Metro. The chancellor also said that there will be additional investment for the Tees Valley to develop the former Corus steelworks site and an extra £30m to improve digital connectivity on the trans-Pennine route.

The chancellor’s commitment to putting Britain “at the forefront of the technological revolution” is a good headline but businesses will want to see what this means in reality, especially at a time when the Office for Budget Responsibility is predicting economic growth of closer to 1% than 2% for the next five years. 

Nick Ogden, infrastructure expert and partner at Pinsent Masons, said: “A drive to improve digital and construction skills is very positive for infrastructure, particularly as we increasingly move towards a technology heavy sector. However, with around one in ten construction workers coming from the EU and low unemployment levels, the industry desperately needs answers on access to EU labour.”

Earmarking £44bn for housing over next five years will be welcomed by the construction industry, but as ever the devil will be in the detail. New money will be made available for the Home Building fund, with £635m for the Small Sites Fund, £2.7bn for the Housing Infrastructure Fund, £1.1bn to unlock strategic sites for building, and £8bn of guarantees for private house building.

Hammond said that councils in high-demand areas would be expected to provide more houses for local first-time buyers and renters, but highlighting the differential between the number of planning permissions granted and the amount of housing being built, the chancellor announced an urgent review to examine this issue, led by Conservative MP Oliver Letwin.

In response to the roll out of the Transforming Cities Fund and further backing for UK regions, Peter Hogg, UK Cities Director at Arcadis, said: “Regional connectivity has to be key, but a truly effective transport system isn’t just about enabling mobility; it also needs to create major economic opportunity and improve the lives of those who rely on it every day. 

“Central government, devolved administrations and city leaders all around the country are embarking on ambitious plans to upgrade our networks and redress decades of previous underinvestment, and we’re already seeing the impact of better integrated transport links thanks to initiatives such as the Northern Powerhouse. But the rest of the UK’s regional cities urgently need to catch up. 

“Improving connectivity, reducing congestion and introducing new technology can all massively improve a city’s potential, but it can’t be expenditure for its own sake; the improvements have to enable better housing, greater economic and environmental resilience and enhanced productivity for the city in question. The Transforming Cities Fund is a major step in the right direction, but the real question is going to be how this is going to feed into the launch of the Modern Industrial Strategy next week?” 

On the planning reforms intended to get the housing market moving, James Knight, head of residential at Arcadis, said: “The gap in numbers between planning permissions and housing starts is often down to additional red-tape and bureaucracy created in Section 106 agreements and pre-commencement conditions. The government needs to focus on reducing this burden.”

Knight questioned the rationale behind the chancellor’s headline-grabbing announcement of the abolition of stamp duty for first time buyers on properties of up to £300,000. “The problem with the abolition of stamp duty is that it could maintain and increase house prices - is this fixing the market?” Knight asked.

Overall, Phillip Hammond has delivered a budget with few surprises. The news headlines will inevitably concentrate on the abolition of stamp duty for first time buyers, but whether this measure will provide a much-needed boost for house building remains to be seen. Further announcements later this week and next on the details of the government’s industrial strategy will perhaps have more impact on the infrastructure sector and the businesses that work within it.

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