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Budget 2020: The knock-on effects for infrastructure projects

by Francesca March 12, 2020March 12, 2020
written by Francesca March 12, 2020March 12, 2020
Budget 2020: The knock-on effects for infrastructure projects

Mark Coates, Director of Strategic Industry Engagements at Bentley Systems

The chancellor has set the UK on course for the fastest increase in public sector investment since the financial crisis. Now comes the hard part: making sure it pays off.

The £100bn earmarked by the government for a capital injection over five years could boost economic output by around 0.3 to 0.4 per cent in the short term.

It’s focused on getting the whole country “match fit” for Brexit, which required a significant and sustained investment in transport and infrastructure in the North and Midlands, which the past administration admitted has been underfunded for decades.

However, the boost could be smaller if the sudden demand for labour and resources from the public sector pushes up inflation, forcing the Bank of England to keep monetary policy tighter than it would have been otherwise.

In the long term, better infrastructure could raise UK productivity by around 0.5 per cent, helping to narrow wage gaps between regions, with a similar boost to the level of gross domestic product.

In practice, the size of any boost to economic growth and living standards will depend on where the money is spent, whether investment is well-directed, and whether projects are managed well.

Contractors and their supply chain can leverage expected investment in the March budget into global transport infrastructure opportunities.

Fuelled by lower interest rates, the current economic environment has strongly enhanced the global appeal of investing in infrastructure as a way of generating a financial return and, more importantly, improving connectivity for businesses, people and communities.

This situation is encouraging participation by institutional and retail investors, as well as national infrastructure funds, which are attracting sovereign wealth and pension funds.

HS2 is slowly leaving the station on soon-to-be built rail lines leading to Manchester and Leeds via Birmingham, but it is leaving, and it will arrive. The first train might not pull into Manchester or Leeds for several years, but the demand for connectivity—and rebalancing the economy—is now more important than ever.

More uncertain, however, is the fate of the third runway at Heathrow. A recent ruling by the court of appeal has found the proposed project illegal because ministers did not adequately take into account the government’s climate change commitments. As one newspaper put it, the court put the planet ahead of the UK PLC.

Britain’s first post-Brexit budget has sent a clear signal on how this country embraces, invests in and delivers infrastructure projects.

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