The first Labour-led Budget in over 14 years placed a heavy focus on infrastructure investment.
Chancellor Rachel Reeves has set out the new UK government’s spending plans in its first Budget.
The chancellor’s announcements placed a heavy emphasis on infrastructure investment.
Relaxed fiscal rules – the government’s self-appointed restrictions to reduce debt and not overspend – could pave the way for greater potential public sector borrowing.
The economic outlook
The Office of Budget Responsibility (OBR) also published its latest update on public finances.
Economic growth is expected to be 1.1% in 2024, 0.3% higher than forecast in the March Budget. Projected growth in 2025 is also slightly higher.
But the longer-term picture is gloomier.
The OBR has downgraded growth by 0.7% across the next five years, with average annual growth of 1.68% – well off the government's 2.5% target.
But what of the outlook for infrastructure?
Here are five takeaways from the 2024 Budget.
1. Changes to fiscal rules could see growth in infrastructure investment
Perhaps the biggest story for infrastructure was changes to the fiscal rules.
These changes included two new rules:
- The ‘stability rule’: to meet day-to-day spending with government revenues (funded at this Budget by tax rises of £40 billion) and only borrow for investment.
- The ‘investment rule’: to reduce net debt as a proportion of GDP. This rule recognises infrastructure as generating future returns, not just as debt.
This gives wriggle room for greater public sector borrowing for infrastructure investment.
It potentially means projects previously deemed as unfunded or underfunded become affordable.
Overall, the chancellor said the changes will boost capital spending by £100 billion over the next five years.
The OBR says this will increase GDP by 1.4% in the longer term.
Both fiscal rules must be met by 2029-30, and after that, every third year of a rolling five-year forecast period.
Next Steps panel debate
An ICE online panel debate will explore alternative options for funding Britain’s infrastructure system.
Experts will discuss the models and questions set out in this briefing paper.
2. “An end to short-termism”
The chancellor remarked that the Budget “marks an end to short-termism”.
This was backed up in several ways.
Five-year capital budgets for government departments will be set at the upcoming spending review.
These capital budgets will be rolling, with reviews at the three-year point in the middle. This is to avoid funding 'cliff edges' and provide greater certainty.
The OBR has also modelled the Budget’s impact on growth over a 10-year period, instead of five.
The fiscal rules are set out in a new Charter for Budget Responsibility. This includes committing to one major fiscal event a year, more regular spending reviews, and improved visibility of departmental spending.
The National Audit Office and a new Office for Value for Money will offer ongoing assessments of projects and departmental spending.
3. A new infrastructure strategy is on its way
The Budget confirmed that the government’s 10-year infrastructure strategy will be published with the spending review in spring 2025.
As previously announced, the new National Infrastructure and Service Transformation Authority (NISTA) will oversee the strategy.
NISTA is planned to be operational by spring 2025.
NISTA will have a bigger role in supporting major projects, including approving business cases before they get funding.
This is similar to how Infrastructure Australia operates.
4. HS2 will run to Euston
The government will fund the tunnelling to complete the High Speed 2 line from Old Oak Common to Euston in central London.
It hopes this will attract the private investment needed to redevelop the station and the local area.
But there were no new plans for how it would fix the gap in connectivity following the cancellation of HS2’s northern leg last year.
On roads, the government has already cancelled several projects as part of its capital projects review.
However, it will increase investment next year in road maintenance and renewal up to £1.6 billion.
It will also spend £200 million to speed up the rollout of electric vehicle charge points, and another £100 million for cycling and walking infrastructure in 2025-26.
The chancellor also froze fuel duty and extended the 5p temporary cut for a year – effectively kicking the can down the road on any changes to the UK’s road tax regime.
The tax take from fuel duty will continue to fall as more people switch to electric vehicles.
5. Devolution, energy, and flood resilience
The Greater Manchester and West Midlands Combined Authorities will get integrated funding settlements – first announced by the last government – in 2025-26.
The government will also reform local growth funding at next year’s spending review – something the ICE has long called for.
These two measures should streamline the number of funds available for local authorities and move away from competitive bidding, supporting local leaders to better meet local needs.
The Warm Homes Plan will get £3.4 billion to deliver energy efficiency upgrades for 350,000 homes and support fuel poverty schemes.
Following high demand for heat pumps, the government will also increase funding for the Boiler Upgrade Scheme in England and Wales this year and next.
There were announcements on carbon capture, usage, and storage (CCUS) and green hydrogen projects.
£2.7bn was allocated to continue the development of the Sizewell C nuclear power station in 2025/26.
The government confirmed a final investment decision on Sizewell C will be taken at the spending review next year.
The government will also invest £2.4 billion over two years to build new flood defences and maintain existing assets.
The ICE’s view
The change in the fiscal rules to focus on the value of public investment, and not just for the costs, is a welcome move. It’s something the ICE has repeatedly called for.
Other positive measures include modelling the Budget’s impact for 10 years instead of five. Long-term thinking is key to achieving the country’s goals.
It's also positive to see support for regional leaders to drive growth in their areas.
Now the question is, will the investment announced today be enough for the UK to meet its economic, social, and environmental objectives?
While additional borrowing and capital spending are one tool to achieve this, private finance must be mobilised. This is why ICE is running a next steps programme on paying for Britain’s infrastructure system.
In its forthcoming 10-year infrastructure strategy, the government must present a vision for infrastructure investment, including how projects will be prioritised.
Ahead of that, it must also clarify how the new National Infrastructure and Service Transformation Authority (NISTA) will improve delivery.
In case you missed it
- The ICE is seeking views on paying for Britain’s infrastructure system as part of a new policy programme.
- What is the new government doing about infrastructure? Stay up to date on the latest announcements.
- The ICE looks at how Norway’s infrastructure planning regime empowers the public to have their say.
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