The post-Brexit climate is the “ideal” time for government borrowing to ensure major projects are not delayed or scrapped, Balfour Beatty has said, in a report urging action on infrastructure.
The UK’s largest contractor said the government must take advantage of low interest rates and borrow more to fill the infrastructure investment black hole created by the UK’s vote to leave.
Question marks have been raised over infrastructure investment post-Brexit, with uncertainty over short-term private and public funding.
Balfour Beatty said the Brexit vote would see private investors postponing investment decisions until Britain’s relationship with the EU was renegotiated and said this would put major projects at risk.
Infrastructure such as Crossrail 2 and the London Underground upgrades were also likely to be affected by the UK leaving the European Investment Bank, it said.
The private sector is to provide 69 per cent (£260bn) of the UK’s planned infrastructure, while the EIB has invested more than £16bn in UK infrastructure projects over the last three years.
According to the report, these financing gaps could not be covered by the Treasury alone and other income streams would need to be found.
It said: “While a possible recession would mean lower tax receipts for the Treasury, the current low interest rates – predicted to sink even lower – mean that now is an ideal time for government to borrow money in order to finance projects.”
Prime minister Theresa May last week pledged more infrastructure bonds available to major projects in a bid to boost investment.
The Infrastructure 2050 report found skills shortages were a key area in which the government needed to act quickly to ensure the UK’s biggest projects could be built.
The report urged the government to ensure those workers who had migrated to the UK were able to continue to work here.
It said funds available for training the domestic workforce must be retained, despite the economic turbulence created by Brexit.
Failure to do so, the report said, would increase construction costs and result in delays to projects such as Hinkley and HS2.
The report also came up with a number of recommendations for the government and its various infrastructure operators to ensure the UK delivers the projects required by 2050.
These included calls for ensuring future transport investments were robust for automated vehicles, new long-term plans for future rail and aviation projects, and a long-term vision for energy policy to provide investors with greater certainty (see box).
Balfour Beatty recommendations include:
- Government action to maintain economic stability, provide a timeline for the UK’s exit from the EU and early answers to the many practical questions about doing business during and after Brexit.
- New transport investments must show that their business cases are robust to new automated technologies.
- Remove existing barriers to young people entering training, such as the cost of university and the unattractiveness of the sector to women and ethnic minorities.
- A vision for the national rail network, including plans for HS3, HS Scotland, HS South-west, the reinstatement of the HS2 link and Heathrow spur, another Channel Tunnel, a new East Coast line, Crossrail 3 and 4.
- A full review of aviation capacity review looking at additional runway capacity at Birmingham and Stansted airports.
- Clear long-term vision for energy policy to provide investors with certainty.
- Continued government support for the current 16 GW nuclear new-build programme, plus small modular reactor development.
- Government should update its nuclear decommissioning strategy post-Brexit to seize opportunities for economic growth in the area.
- Consideration of future flood impact when designing and installing new infrastructure.