ANALYSIS: No surprises, but Hunt’s plans raise hope for private finance

With major projects given the go-ahead and plans outlined for energy investment, Jeremy Hunt’s Autumn Statement has provided more optimism for the UK infrastructure sector

Chancellor Jeremy Hunt’s Autumn Statement has given a shot in the arm to the UK’s infrastructure private finance industry.

In giving the green light to the Sizewell C nuclear plant - one of the largest infrastructure projects in the UK - Hunt also confirmed the potential of the regulated asset base (RAB) to deliver on major government plans.

Previous governments have talked about the potential of creating Great British Nuclear, a public body that would oversee the development of a suite of new nuclear power stations, potentially all under the RAB model and attracting private finance to sit alongside public investment. There is now a growing belief that the current government also supports this agenda.

“This may be the start of a number of projects using the RAB model in the nuclear sector,” says one advisor.

It is not just the nuclear sector that had reason to be optimistic in the wake of the Autumn Statement, however. Overall, the industry has reacted positively to Hunt’s plans for the economy, welcoming his decision to place infrastructure as a key driver of his growth plan.

“Given the current fiscal, cost and supply chain challenges, it has never been more important to spend public money wisely and efficiently, and for the public and private sectors to work together in increasingly smart and aligned ways,” says Mark Elsey, partner at law firm Ashurst.

One area that could lead to more infrastructure development is the proposals for greater devolution. Hunt said the government is “making progress towards trailblazer devolution deals with the Greater Manchester Combined Authority and West Midlands Combined Authority”, adding that soon over half of England would be covered by devolution deals.

“Proper devolved budgets as part of greater devolution is a good idea, but more needs to be done to flesh out what it means,” says Tim Jones, partner at Deloitte. He adds that local authorities will have “the desire to do more, so they will relish having more autonomy around spending”.

Energy efficiency also formed a large part of Hunt’s growth agenda, with a plan for a further £6bn of government investment in retrofit schemes up and down the country. There was also a plan to establish a taskforce to help direct measures to deliver more retrofitting of public buildings.

Welcoming the energy efficiency focus, Turner & Townsend’s UK managing director, Patricia Moore, said such schemes can “bring benefits to the country and the climate, all without breaking the bank”.

She suggested that in the current economic environment, the industry would need to be “efficient and targeted despite the pressure on resources”.

She continued: “Focusing investment in the right way to build skills and expertise, and driving opportunities across the nation, including key schemes in the north, and priority areas like life sciences, advanced manufacturing and green industries, will be essential.”

While there may be a number of positives to take out of Hunt’s first major financial set-piece, perhaps the most important thing for the infrastructure market - and perhaps the UK in general - is that this statement did not rock the financial markets and offered a level of stability that was desperately needed.

Nonetheless, there are still areas where more clarity is needed. Hunt may have given the go-ahead to major rail scheme like East West Rail and HS2, but the wider ambition for the rail sector remains less certain.

One source describes it as being “in a holding pattern” at present as new ministers arrive and take time to consider what they want to deliver.

Added to this is the ongoing impact that the Covid-19 pandemic has had on transport infrastructure. “Passenger numbers have not returned to post-pandemic levels,” says Jones. “Rather than looking simply at cutting costs, the government should explore more ambitious reforms and technology investment that could generate the necessary savings while maintaining vital transport services for the public.”

Vital to any decisions here will be the future of the overarching organisations that will run the railways: Boris Johnson’s administration had planned to establish Great British Railways (GBR) to replace Network Rail as the operator of rail infrastructure. However, Anne-Marie Trevelyan, who was Transport Secretary during Liz Truss’s short tenure as prime minister, told a parliamentary committee that the legislation to bring forward the creation of GBR had been pushed down the priority list due to the current economic climate.

Whether Prime Minister Rishi Sunak’s administration will find more time for legislation on GBR, or shunt this concept down the line, remains unclear at present.

Meanwhile, the potential for private finance to help deliver the growth that Hunt is seeking remains in government thoughts.

It is understood that advisors are being requested to give their views on private finance models, with one source saying there is “a desire to look at that” again.

However, sources suggest this may simply be a result of new ministers settling in and asking for a range of views on how to get infrastructure projects moving, without too much impact on the public purse. One advisor points out that these kinds of discussions have emerged over recent year - often running into trouble when it becomes clear that any model (for social infrastructure especially) will end up looking similar to PFI if the government wants to keep such investment off its books.

Nonetheless, as the nuclear programme clearly shows, there remains government appetite to engage the private sector and work alongside investors where necessary to bring projects forward. There may not have been many rabbits pulled out of the Autumn Statement hat, but simply getting confirmation of the government’s direction of travel will have been an important positive for infrastructure investors to take away.

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