Doubts over infrastructure projects following EU referendum vote

The immediate aftermath of the Brexit vote has seen doubts cast over a number of major planned infrastructure projects. The weekend’s papers included speculation over a new runway in south-east England, the rescue of Tata Steel UK, the new nuclear power plant at Hinkley and the whole Northern Powerhouse agenda which has been heavily promoted by the chancellor George Osborne.

While much of the media’s attention has centred on the political fallout since the vote to leave the EU was announced on Friday morning, business leaders are beginning to focus on the infrastructure and key strategic projects that have been put in doubt by the Brexit vote.

George Osborne tried to reassure the markets and business this morning when he made his first public statement since the Brexit vote, saying the UK is ready to face the future "from a position of strength" and signalled that there will be no immediate emergency Budget. Despite the chancellor attempting to be reassuring with his statement, he repeated his warnings made during the referendum campaign about the implications of a Brexit on the economy and said that there would still need to be “an adjustment” in the UK economy.

The City has not reacted well. Barclays shares fell more than 12%, while Royal Bank of Scotland fell more than 14%. Easyjet's shares fell more than 18% after the airline admitted that Brexit would contribute to a fall in revenues. Sterling hit a 31-year low and property shares were also badly hit, amidst concerns that the decision to leave the EU would hit the housing market. Taylor Wimpey fell by 15% and Barratt Developments fell by around 13%.

It seems like some companies are likely to impose a hiring freeze post-Brexit. The Institute of Directors (IoD) has surveyed 1,000 of its members and found that a quarter planned to freeze recruitment. The survey indicated that almost a third would keep hiring at the same pace, with 5% planning to cut jobs. Almost two-thirds said the vote was bad news for their business.

While the political and economic reverberations of the Brexit vote continue, the infrastructure sector is calling for action to be taken to calm the instability in the markets. ACE chief executive Nelson Ogunshakin said: “Following the chancellor’s remarks today, which we welcome, there are clearly concerns around the volatility in the market place, the short to medium term health of the economy and the UK continuing to have an open market.

“If we are to maintain a business as usual approach then we need some certainty on current and planned infrastructure projects going forward. The sector needs this as do investors, many from abroad, who are considering entering the market. With organisations like the World Bank and the OECD on record as advocating investment in infrastructure as being key to the health of the economy in the UK and elsewhere, it is essential that the government continues along the path it has set and that key outstanding announcements are made as soon as possible to ensure that the industry can plan for the future,” he said.

A number of major announcements are due in July, not least the decision on where to build a new runway in the south-east. Illustrating the doubts caused by the Brexit vote over major projects, the London Evening Standard is reporting one senior minister saying that the Heathrow project is “dead in the water” following David Cameron’s resignation.

They say that opponents within government want the decision delayed until a new prime minister takes over. With leadership favourite Boris Johnson being a long-time opponent of the third runway plan, saying at one point that he would lie down “in front of the bulldozers” to stop a Heathrow third runway, and rival Theresa May expressing strong concerns about noise, there have to be doubts over whether Heathrow will get the nod over Gatwick. Gatwick’s chief executive has seized on the uncertainty arguing that “the time has come” to unite behind expansion of the UK’s second biggest airport, saying “In these uncertain times Gatwick can give the country certainty of delivery. And Britain cannot afford yet more delay.”

It looks inevitable that some key projects will be cancelled or delayed and there have been a number of reports over the weekend suggesting that the government could rethink a number of other controversial projects, including the £18bn nuclear power station at Hinkley Point and even HS2.

Speaking to the Financial Times, the Labour peer and transport expert Lord Berkeley, said that given the political and financial uncertainty caused by Brexit, “the priority for the government at this time will not be big sexy projects such as HS2?.?.?.?or the new £4.2bn London super sewer.” He suggested that such projects should be scaled back. In the case of HS2, for instance, this could mean slower trains, which were almost half the price, and some sections of the proposed line being dropped.

Clearly this is not what the infrastructure sector wants to hear and that’s why industry leaders have been queuing up to call on the government to continue with its plans to develop national infrastructure as a way of boosting the economy and maintaining the confidence of the financial markets.

The Department for Transport said that it remains “committed” to key projects. A statement from the DfT said: "The government remains fully committed to delivering the important infrastructure projects it has set out and will also continue to take forward important legislation put before Parliament in the Queen's Speech."

In a further hit to the government’s plans to improve its balance sheet, the sale of billions of pounds of taxpayer-owned shares in the bailed-out UK banks have been shelved as a result of the stock market upheaval following the vote to leave the EU.

The Financial Times is reporting that plans to start selling £2bn of shares in Lloyds Banking Group over the next six months have been shelved, which will deal a further blow to UK taxpayers. Similar attempts to offload the 73% stake in Royal Bank of Scotland as well as £17.5bn of loans issued by defunct lender Bradford & Bingley will also be delayed say government advisers.

With the current financial uncertainty and stormy economic turmoil looking set to continue, it is little wonder that infrastructure leaders will be looking on anxiously for some political leadership to steady the ship.