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Multi-billion pound infrastructure pledge as Hammond ditches Osborne’s playbook

Philip Hammond

A MULTI-BILLION POUND infrastructure investment programme has been announced by chancellor Philip Hammond in his first Autumn Statement.

In a departure from previous chancellor George Osborne, the new ‘government finance director’ has responded to uncertainty by loosening the purse-strings.

Some £23bn will be spent through a new National Productivity Investment Fund. It will focus on core areas, such as housing, transport, telecoms and R&D.

Housing spend will equate to £8bn over the course of parliament (2021/22). Transport investment will be just shy of £3bn; Telecoms at £750m; and R&D at £4.7bn. A further £7bn is earmarked for the final year, but is yet to be allocated.

“The challenge we face is to protect the economy, build on the economy’s strengths yet at the same time respond appropriately to the warnings of a more difficult period ahead,” said Hammond in his speech to the house.

The Autumn Statement describes the housing investment as “the biggest affordable housebuilding programme since the 1970s”, while 80% of the “strategic” road network will be resurfaced.

The impact of the spending on Hammond’s budgeting is that the new, overall, investment will represent up to 1.2% of GDP every year, where current government spending on investment is 0.8% of GDP.

The key aims of the spending are to:

  • accelerate new housing supply
  • Tackle congestion on the roads and ensure the UK’s transport networks are fit for the future
  • Support the market to roll out full-fibre connections and future 5G communications, delivering a step change in broadband speed, security, and reliability
  • Enhance the UK’s position as a world leader in science and innovation

Broken down, the spending will include accelerating the construction of properties; investment in next generation vehicles; digital railway enhancements; 5G broadband and fibre; and £140m to improve the ‘corridor’ between Cambridge, Milton Keynes and Oxford.

“It can become a transformational tech-corridor, drawing on the world-class research strengths of our two best-known universities,” said Hammond.

Scottish, Welsh and Northern Ireland governments will receive several hundred million pounds each, under the plans.

Other announcements included an extra £400m from the British Business Bank into venture capital funds; a doubling of the UK Export Finance capacity; and a Treasury-led review into the barriers facing patient, or long-term, capital.

Peter Spencer, chief economic advisor to EY’s ITEM Club, was underwhelmed by Hammond’s overall direction of travel for corporates.

“The strength of the economy removed any pressure on the Chancellor to take aggressive action at this stage. However, in view of the risk to business location and investmentdecisions, it is surprising that there was not more support for companies.”

John Hawksworth, chief economist at PwC, said that the chancellor had allowed borrowing to “take the strain” of slower than expected growth, while “sensibly prioritising” additional investment.

“There is considerable uncertainty about the economic outlook, however, and it is therefore reasonable that the Chancellor has allowed some headroom by setting a new fiscal target of a cyclically-adjusted budget deficit of no more than 2% of GDP in 2020/21, or around £45bn, while forecasting a deficit of just under 1% of GDP in that year.

“This gives him some extra ammunition to combat any larger Brexit-related economic shock if he needs it.”

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