May under pressure as big project spending slumps after Brexit vote
August 21, 2016
May under pressure as big project spending slumps after Brexit vote
Gill Plimmer
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Infrastructure spending in Britain has declined sharply since the vote to leave the EU, putting pressure on Theresa May to press ahead with pledges for new road, rail, energy, broadband and flood defence projects.
The value of contracts for July dropped to £1.5bn, a fall of 20 per cent against the previous month and 23 per cent lower than a year ago, according to Barbour ABI, the construction consultancy that supplies figures to the Office for National Statistics.
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Michael Dall, chief economist at Barbour ABI, said the public and private sector were putting projects on hold as the result of uncertainty surrounding Britain’s withdrawal from the EU.
Mrs May, the prime minister, has already put infrastructure at the heart of plans to rebuild the economy following Britain’s exit from the EU, pledging Treasury backing for new projects and the launch of infrastructure bonds. Last week Mrs May promised support for former chancellor George Osborne’s “Northern Powerhouse” project, backing proposals for a new trans-Pennine road tunnel linking Manchester and Sheffield.
But with plans for a new nuclear power plant at Hinkley Point on hold and additional airport capacity for London still uncertain, there are concerns that Mrs May is not acting quickly enough, especially after the previous administration failed to deliver on infrastructure investment.
Mr Dall has urged the government to take advantage of historically low interest rates after the Bank of England cut rates to a notch above zero this month. He said the UK should seize the moment and invest in big new infrastructure projects that could play a “pivotal role” in boosting economic performance and creating employment opportunities.
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“While this is at odds with the austerity agenda of the previous administration, it is one of the few tools the government has available to boost the economy,” he said.
But despite forecasts predicting an economic downturn and indications of poor business confidence, data published last week showed both UK retail sales and the labour market performing strongly in July. The infrastructure figures come ahead of ONS’s big data release in September.
According to the Office for Budget Responsibility, net public sector investment, which includes spending in addition to infrastructure investment, fell from £51.5bn in 2009 — or 3.4 per cent of gross domestic product — to £33.2bn, or 1.8 per cent of GDP, in 2015-16. Without decisive action, it is projected to fall further in the years until 2020, according to the government’s own forecasts.
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Industry lobby groups and construction companies including Balfour Beatty, Britain’s biggest contractor, are urging the government to move quickly. They are hoping that the government’s decision to abandon the previous administration’s austerity targets will allow Philip Hammond, the chancellor, to announce a change in policy in this autumn’s statement that will provide a new framework for infrastructure investment less dependent on private sector money.
Leo Quinn, chief executive of Balfour, told the FT last week that industry was “looking for a lead from government”.
He added: “Money is effectively free so it’s a good time for the government to be making long-term decisions on infrastructure.”
London continued to win the bulk of new infrastructure contracts awarded in July, accounting for 34.3 per cent of work awarded by value. The largest deal was a £170m contract to upgrade baggage handling facilities at Heathrow airport, which Balfour Beatty won.
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