The UK Chancellor today announced that the government would borrow £23 billion ($28 billion; €27 billion) to create a National Productivity Investment Fund that will spend the money on infrastructure and innovation.
In his Autumn Statement, the first fiscal-policy event on the government’s calendar since the EU referendum, Philip Hammond argued “high-value” investments in infrastructure were needed to boost the country’s productivity, which he said was lagging behind that of its European peers. The statement also came amid revised projections for UK economic growth, which is now expected to slow down to 1.4 percent next year compared to the 2.2 percent previously predicted.
Along with the fund announcement, the Chancellor made a number of pledges to transport infrastructure, including £1.1 billion to be spent on local transport networks, “where small investments can offer big wins”; £220 million to alleviate traffic pinch points on key motorways; £110 million for East West Rail; and a promise to deliver the Oxford to Cambridge Expressway.
There was also a resolute focus on digital infrastructure, in an effort to make the UK “a world leader in 5G”. Hammond said the government would earmark more than £1 billion to catalise private investment in fibre networks and 5G trials as well as a 100 percent business rates relief on new fibre infrastructure for a period of five years.
There was a nod to private investors, which the Chancellor said finance “half of our economic infrastructure”, through an extension of the UK Guarantees Scheme until at least 2026. Such government support has been used in the recent past to help channel private funds towards complex projects like London’s £4.2 billion Thames Tideway Tunnel.
Housing infrastructure was another focus of the statement, which unveiled plans to establish a £2.3 billion dedicated fund for up to 100,000 new homes in areas of high demand.
The announcements were not fully expected by industry insiders, some of which had set their eyes on other initiatives previously mooted by the government.
“At a time of historically low government borrowing costs and where there is a risk, post-Brexit, of losing European Investment Bank funding, the pre-Budget predictions of an infrastructure bank and a new infrastructure bond for private investors have not gained traction. But we await with interest the detailed mechanics of Phillip Hammond's National Productivity Investment Fund,” said Colin Wilson, a partner at law firm DLA Piper.
While welcoming the emphasis on innovation and infrastructure, a number of investors and financiers underlined that investment pledges did not automatically translate into concrete projects.
“It is disappointing that the Autumn Statement did not indicate any real signs of a properly-defined pipeline of core infrastructure projects, like schools and hospitals, which has been lacking in recent years,” noted Andrew Jameson, head of EMEA investment banking at Mitsubishi UFJ.
Some observers also felt the private sector was getting short changed. Jonathan Hart, an infrastructure partner at Pinsent Masons, said the announcement lacked new instruments tailored for insurers and pension funds, “which currently are either overheating the domestic secondary market or investing overseas”.
Yet others noted the Chancellor’s plan was fit for the times. “The Chancellor’s commitment to allocate £1 billion to small ‘shovel-ready’ schemes like local road improvements is a much-needed and welcome move,” said Neil Broadhead, head of UK infrastructure at PwC.
“Today's statement recognises the need for a variety of projects going forward – not only a handful of high profile, multi-billion pound mega projects that will deliver benefits in years and decades to come but also a plethora of smaller schemes dispersed around the country.”