It's that time of year once again! On Wednesday, March 3rd, Chancellor Rishi Sunak will unveil the UK government's spending plans using the world's most renowned red briefcase. This year's budget announcement is particularly significant as it follows a year of economic and social hardship due to the Covid-19 pandemic, as well as the end of the Brexit transition period.
While education and healthcare are expected to take centre stage, the government, led by Boris Johnson, has always prioritised construction and infrastructure. There will be a lot of anticipation to talk about "Building back better." With COP26 quickly approaching, there will undoubtedly be a lot of promises to "Build Back Greener."
Each sector has something to anticipate, so here is a sector-by-sector guide on what may or may not emerge from Rishi Sunak's red briefcase.
Rail
The rail sector is eagerly anticipating announcements in the upcoming Budget. Almost a year has passed since the government's commitment to HS2 Phase One and plans to extend the line to Crewe have also been approved. Uncertainty looms over the future of Northern Powerhouse Rail, as the much-awaited Integrated Rail Plan has yet to be published, leading to concerns of potential scaling back or mothballing of major projects.
In an ideal scenario, the Integrated Rail Plan would be released alongside the Budget, providing a clearer picture of development plans for HS2 Phase 2b, the Midlands Rail Hub, and Northern Powerhouse Rail. Industry leaders, such as Colin Wood, CEO for Europe at Aecom, are urging for support for these major projects in the Budget, highlighting their job creation potential and impact on societal levelling-up.
It’s not just about the mega projects. The rail industry also needs clarity on its enhancements pipeline, which is more likely to be addressed in the Budget. Budget day coincides with the 500-day mark since the last update of the Rail Network Enhancement Projects, which outlines planned rail upgrades. The Railways Industry Association has called for urgent publication of the list to provide visibility for rail businesses to plan and invest accordingly.
Other potential announcements to watch for in the Budget include further details on the Restoring your Railways fund, funding for low-carbon technologies like hydrogen-powered trains, union connectivity links, and support for "shovel-ready" projects such as rail links to Heathrow Airport. The rail industry is hopeful that the Budget will provide much-needed certainty and support for its recovery and growth moving forward.
Roads
In last year's Budget, Chancellor Sunak unveiled the UK's "biggest ever road building programme" with the approval of RIS2 (Road Investment Strategy 2). Since then, flagship projects like the Lower Thames Crossing and Stonehenge Tunnel have faced environmental objections and planning disputes, while the entire £27 billion road investment plan is under ongoing legal challenge.
While it is unlikely that there will be a substantial allocation of funds for road projects in this year's Budget, it is expected that Chancellor Sunak will recommit to RIS2. He may even consider bringing forward planned work under RIS2, as he did in his autumn statement when the construction timeline for the £1 billion A66 trans-Pennine Road upgrade was halved following a review by the government's Project Speed taskforce.
Given the upcoming COP26 summit and the UK government's focus on decarbonisation, a significant portion of funding is likely to be allocated towards the development of electric vehicles and the necessary infrastructure for EV charging.
Local road funding is also worth keeping an eye on in the Budget, as the state of the UK's road bridges and tunnels has been widely acknowledged to be in poor condition. Addressing these infrastructure challenges may be a priority in the Budget to ensure the safet and efficiency of local road networks.
Energy
The UK government's Energy White Paper, released in December, outlined plans to transition to net zero and clean up the energy system. The paper includes a £1bn investment in carbon capture storage and a £1.3bn investment in electric vehicle charging infrastructure. It aims to achieve 40GW of offshore wind by 2030, including 1GW of floating wind, while attracting new offshore wind manufacturers to the UK.
The Budget may provide further clarification on funding for nuclear schemes, including small nuclear, and plans for renewables and wind projects, in the year of the COP26 climate conference. However, it is unlikely that Sunak will commit to new schemes this week.
The government's target of ending sales of petrol and diesel cars by 2030 will require further plans to facilitate the uptake of electric vehicles, including charging infrastructure and tax incentives. The industry is also seeking long-term, fully-funded measures to achieve decarbonisation of the power grid within a decade or so and to accelerate progress in cutting carbon from heavy industry. Without further policies and interventions from the government, the UK may not meet its legal carbon targets or achieve net zero emissions.
Aviation
The future of airports is uncertain due to environmental concerns and the drop in passenger demand caused by the Covid-19 pandemic. The industry has been calling for support, with the Airport Operators Association highlighting that since international aviation is not expected to restart before May 17th, the Budget needs to provide vital support for airports. The Association has requested that current programmes such as furlough and business rates relief for airports be extended for the entire financial year. They have also called for an Aviation Recovery Package with crisis funding for the short term and connectivity-boosting measures for the long term.
Clarity on expansion schemes for airports at Heathrow, Gatwick, and Stanstead is unlikely to be given in the Budget, the government could announce new funding for greening aviation. This move comes in the wake of the Sixth Carbon Budget from the Committee on Climate Change, which advises that any increase in UK airport capacity must be balanced by restrictions at other airports to ensure no "net increase."
Miscellaneous
The Chancellor announced in November that a new National Infrastructure Bank would be established by Spring to support the Government's ambitions on levelling up and net zero. Specifics on the bank's mandate are expected in this year's Budget, with a focus on supporting projects in development.
Tax partner Lucy Mangan suggests that the Chancellor should use the Budget to establish a tax regime that incentivises spending on infrastructure and other capital projects, while positioning the UK as an attractive place for investment and growth. Among the tax reliefs that the Chancellor is now free to change without EU approval are R&D tax relief and the Patent Box regime.
The government is also reportedly considering implementing carbon taxes across areas of the economy where emissions are currently under-priced. Carbon pricing remains a politically difficult concept that requires a balance between raising revenue and incentivising a shift to lower carbon activities. Any new carbon taxes or prices should be backed by policies to ensure that costs are not unfairly borne by the population and that businesses in global industries are not penalised.