UK spending review: industry reactions

Edi Truell of the London Pension Fund Authority welcomed the investment initiatives, but reiterated calls for pension pooling.

While there was widespread approval for the infrastructure-related measures in the UK Spending Review, there was also some disquiet about the amount of time it would take for these measures to have a noticeable effect. This has been a recurrent theme of the Coalition’s infrastructure plans since they came to office – big on ideas, small on delivery (though it’s fair to point out that they’re not the first administration to be accused of this, either in the UK or elsewhere). 

Many of the industry comments we received in the aftermath of the Review reflected this. For example, Nick Prior, head of infrastructure at financial advisory firm Deloitte, said “the visibility over investment in road and rail projects is welcome and will allow for better economic planning” but Jon Hart, infrastructure partner at law firm Pinsent Masons, said the “post -2015” nature of most of the commitments was “very disappointing”.

In our round-up of industry views, however, we start with a less orthodox perspective from London Pension Fund Authority chairman Edi Truell, who took the opportunity to call for the pooling of UK pension fund capital as a way to “open up billions of pounds” for investment.

Edi Truell, chairman, London Pension Fund Authority:

“Clearly it is great news that the government is investing in this country’s infrastructure. Investment in much-needed areas such as housing, which the LPFA is already doing in joint venture with the Greater London Authority, is a win-win for all.

However, there is an additional missed opportunity. Creating pensions super pools – in effect UK sovereign wealth funds – would open up billions of pounds of capital for investment in this country’s future.

Infrastructure is an ideal long-term investment for pension funds, and local governments in England and Wales are sitting on schemes totalling £150 billion. Unfortunately, these are administered by 89 separate entities and as such are unable to invest heavily in UK infrastructure owing to a lack of scale.”

Jon Hart, infrastructure partner, Pinsent Masons:

“The Chief Secretary’s announcement has provided some good headlines in respect of new commitments to rail and road in particular. Some schemes may even enter procurement before next parliament.

However, in terms of a real boost for the sector, most of the commitments are likely to be post 2015, which for jobs and investments is very disappointing. There are some huge questions to be addressed too: the future of the Highways Agency and road pricing, revamping rail franchising and channelling funds to local authorities. In the case of energy, we still need firm commitments beyond the announced guarantees to enable the nuclear building programme to properly commence.

Today’s announcements could have been worse, but they could have been a whole lot better.”

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

“Extension of the Government’s guarantee scheme and the inclusion of a guarantee advancing Hinkley Point C is a welcome and sensible step, demonstrating Government’s commitment to the role of nuclear as part of a wider energy mix that can achieve a secure and decarbonised energy supply and meet the challenges of security and affordability.

Confirmation that guaranteed strike prices for renewable energy sources will be set out ahead of plan is also encouraging. As Government knows, to be a catalyst for increased certainty and clarity on long term strategic direction, swift agreement will be needed. Passage of the Energy Bill however, also remains crucial if we are to establish a stable policy environment and build greater confidence within industry and among investors.”

Nick Prior, head of infrastructure, Deloitte:

“The Chief Secretary’s announcements, particularly around energy and investment in the road network, are broadly positive. The visibility over investment in road and rail projects is welcome and will allow for better economic planning.

There is little here that we hadn’t heard already and there may be scepticism in the sector about turning this rhetoric into reality.

Most of the measures and money announced will not take effect until 2015 or beyond. The construction industry and the broader economy will be disappointed in today’s announcement as we will only see an economic boost when the shovels hit the ground on these projects.

Despite last year’s announcements on infrastructure, the construction industry lost 60,000 jobs, activity dropped by 12% and new infrastructure orders fell by nearly 40%.

If infrastructure is intended to halt the decline in the construction industry, and revive the wider economy, both projects and money must be bought forward as soon as possible.”

Mark Cowlard, head of rail, EC Harris:

“Today’s detail from the Government about its spending plans puts transportation infrastructure firmly at the centre of our future growth. The debate about road and rail being economic enablers are now over and it is accepted fact that we must invest in them to grow our economy which this spending round echoes.

For rail, many of the projects had already been announced, and many are too far off to deliver much needed short term growth, however the ongoing budget commitment to HS2 and first steps into Crossrail 2 are particularly welcome.

The focus now is how the Government delivers this infrastructure and takes it from a series of billion pound headlines into real live projects, generating the needed growth. In particular, the commitment that projects should be delivered by ‘specialist delivery units with commercial expertise, reflecting private sector best practice’ aligns with our own recent calls to Government and I look forward to seeing more detail about these delivery plans over the coming months.”