Brexit means uncertain future for infrastructure projects
Brexit means uncertain future for infrastructure projects
Civil servants and business leaders calculate impact of Brexit on schemes
JUNE 26, 2016 by: Jim Pickard and Gill Plimmer
A new runway in south-east England, the sale of billions of pounds of Lloyds Banking Group shares, the rescue of Tata Steel UK and a new nuclear power plant are among the UK government’s projects thrown into doubt by the EU referendum.
The focus since Friday’s Brexit result has been on the financial markets, the political fallout and international reaction to Britain’s vote to leave the EU. But as Whitehall starts to focus on the coming exit negotiations, civil servants and business leaders are also trying to calculate the impact of Brexit on projects that a victory for David Cameron and the Remain campaign were meant to kick-start.
Several big announcements were scheduled for July, including a decision on where to build a new runway in the south-east — considered crucial to the UK’s attractiveness as a business destination — a vote on the Trident nuclear capability and the Chilcot report into the Iraq war.
Campaigners against a third runway at Heathrow said the rise of Boris Johnson, who was opposed to the scheme, could scupper it. “Brexit must cast doubts on whether a third runway at Heathrow will ever be given the green light,” said John Stewart, chairman of anti-Heathrow expansion group Hacan.
Ministers were meant to announce a decision on whether to expand Heathrow or Gatwick before the summer parliamentary break at the end of July. Mr Johnson, now in pole position to seize the Conservative leadership, has vowed to lie down “in front of the bulldozers” to stop a Heathrow third runway.
Richard Laudy, head of infrastructure at Pinsent Masons, the law firm, said: “Inevitably, some projects will be cancelled or at least delayed [but] further delay in the resolution of the UK’s chronic airport capacity problems will be a huge and damaging setback.”
Experts suggested the government could in theory rethink a number of other controversial projects, including the new £18bn nuclear power station at Hinkley Point, a crucial part of the UK’s future energy mix, and the High Speed 2 railway line, part of the government’s much-vaunted Northern Powerhouse project to revitalise the north’s economy.
Lord Berkeley, a Labour peer and transport expert, said that given the financial uncertainty caused by Brexit and the turmoil in the Tory party, “the priority for the government at this time will not be big sexy projects such as HS2 … or the new £4.2bn London super sewer.”
He suggested that such projects should be scaled back. In the case of HS2, for instance, this could mean slower trains, which were almost half the price, and some sections of the proposed line being dropped.
Another potential casualty of the referendum result is the government’s attempted rescue of Britain’s steel industry, with thousands of jobs in the balance.
After announcing in March that it planned to sell the business, the Indian steel company Tata had been close to changing its mind and staying in the UK after the business secretary Sajid Javid offered various incentives to do so.
Yet Tata had always made it clear it valued access to the EU single market, which is now up in the air. The future of Mr Javid as business secretary is also uncertain now after he picked the losing side in the referendum.
There will now be “recalibration” after the referendum result, said one person close to the company’s thinking. “This could change everything.”
Stephen Kinnock, the Labour MP in whose constituency the flagship Port Talbot steelworks lies, had warned that “chaos and uncertainty” unleashed by Brexit would weigh heavily on the UK steel industry.
There are also fears that bidders for the business will take a dimmer view of its prospects. Tata exports 40 per cent of its British-made steel, with a quarter of all UK sales to mainland Europe.
One prospective buyer of the UK operations said: “It’s hard to be as confident in forecasts for the next two years. The risk has definitely shifted to the downside. Tata say there is feedback tomorrow [on bids for the business] — but they have said that for the last five weeks.”
The person said they believed that Tata might decide to suspend the sale process, which has stalled in recent weeks.
Meanwhile, the sale of billions of pounds of taxpayer-owned shares in bailed-out UK banks has been shelved as a result of stock market turmoil following the vote to leave the EU.
Plans to start the sale of £2bn of retail shares in Lloyds Banking Group over the next six months have been dropped, according to government advisers, dealing a blow to UK taxpayers. Similar attempts to offload the 73 per cent stake in Royal Bank of Scotland as well as £17.5bn of loans issued by defunct lender Bradford & Bingley will also be pushed back, they said.
Banking sector shares plummeted on Friday on worries about their operations outside the EU. Shares in Lloyds dropped by a fifth, closing at 57p, well below the government’s break-even price of 73.5p.
Mr Javid insisted on Sunday that the government was carrying on as normal. “Business wants to see more certainty. There are concerns there about some of the changes that will take place. I’m sure others will see opportunities,” said Mr Javid, a Eurosceptic who supported his leadership’s Remain campaign.
“But the leadership is there. There is no vacuum here. Colleagues are getting on with the job. The government will stay in place, the cabinet is still in place.”
That means many of Mr Osborne’s initiatives face an uncertain future, not least his attempts to raise billions through a programme of sell-offs including the controversial privatisation of the Land Registry.
The chancellor’s plans to privatise the agency, which has recorded the ownership of all land and property in England and Wales since 1862, is understood to have received tens of thousands of objections to the consultation process.
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