Sunak’s spring statement will need to stimulate spending to stave off inflation effects

The industry’s advice to the chancellor as he prepares his spring statement is clear – stick to the government’s long-term infrastructure plans and move ahead with delivering them, says Infrastructure Intelligence editor Andy Walker.

Andy Walker
22 March 2022

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The Treasury is desperate for the media not to call the chancellor’s spring statement a budget to avoid raising expectations that can’t be met, but notwithstanding this, there can be no doubt that given the current economic storm clouds and unforeseen geopolitical crisis, Rishi Sunak faces one of the most significant tasks of his political career when he stands up at the dispatch box today.

Most economic commentators agree that the UK economy is facing a number of inflationary pressures which, if left unchecked, have the potential to derail Britain’s fledgling and fragile recovery. An economy which needed careful handling and support in a post-Covid environment is now being threatened by the spiralling cost of energy, which in turn is fuelling a cost-of-living crisis and rising inflation which will affect all sectors. And added to all that, we now have the war in Ukraine.

Rising inflation is a particular concern for the chancellor and our industry. The Bank of England is now projecting that inflation could be at double digit levels at the end of the year. That’s bad news for everyone, especially those involved in trying to manage costs for materials and goods. Contractors have already started to warn clients that they cannot fix prices on jobs over the coming months as materials costs fuelled by the war in Ukraine are going through the roof.

Worst inflation since 1970s

The double-whammy effect of already rising energy costs and Russia’s invasion of Ukraine could well be likely to usher in the worst inflationary period since the 1970s. Speaking to the BBC earlier this week, Mace CEO Mark Reynolds said that price rises were widespread across the industry. “Steel, concrete, cladding, aluminium, glass, M&E components and plasterboard. It’s pretty much across the board, combined with some wage inflation as well,” he said.

The chancellor will be under pressure to announce a cut in fuel duty on Wednesday to reduce the pressure on costs and help the already fragile haulage sector. Of course, with meeting net zero targets a political as well as an environmental imperative, cutting fuel duty is not where any government wants to be at the present time. With the Putin administration subject to increasing sanctions around the world, the UK is also seeking to reduce its reliance on Russian energy which could further threaten the net zero agenda. As ACE CEO Stephen Marcos Jones warned this week: “We need to ensure that any moves to promote energy independence do not come at the expense of national net zero targets.”

So, the chancellor is facing some significant challenges this week as he seeks to lessen the impact of rising inflation to keep the economy on track. Rather than take reactive measures he would be well advised to keep his eye on the net zero ball and invest in areas that will boost jobs, the economy and the environment by fast-tracking environmental measures like a comprehensive home insulation programme and green energy plans. With the National Infrastructure Commission (NIC) warning last week that the UK wasn’t moving quickly enough to meet its net zero obligations, now seems like a good time to move faster.

Industry needs to keep up the pressure

Our industry needs to keep up the pressure on this issue and in that light, it was good to see David Cole of Atkins arguing this week that the government’s soon to be announced energy security strategy should be used as an opportunity to fast-track the UK’s net zero plans, deliver transformational change and achieve a functioning energy system for decades to come. 

Also, Chris Richards, director of policy at the Institution of Civil Engineers, said this week: “We hope that in light of the National Infrastructure Commission report, which highlighted the urgent need for government’s infrastructure vision to translate into real-world implementation, that the chancellor will use the spring statement as an opportunity to respond publicly to the vital issues, such as decarbonising heat and figuring out how to pay for the transition to net-zero.”

It is to be hoped that the chancellor listens to voices like these to ensure that there is no let up on the net zero agenda. Sunak also has an opportunity to announce a significant increase in funding for the decarbonisation of the UK’s existing housing stock. A national retrofit strategy has never been more relevant and the chancellor should fund it without delay. Our industry has also argued on many occasions for the cutting of VAT rates on all energy efficient improvements to encourage more consumers to commission work to make their homes greener and more energy efficient. It’s another quick win that the chancellor should jump on.

Chancellor must stick to long-term infrastructure plans

The industry’s advice to the chancellor is clear – he should stick to the government’s previously announced long-term infrastructure plans and move ahead with all speed on implementing them. Rail is one area where the government needs to move faster as there has been slow progress on the Rail Network Enhancements Pipeline.

Darren Caplan, chief executive of the Railway Industry Association, said: “The Treasury’s Spring Statement next week comes at a critical time for the rail sector. With passengers clearly returning to the rail network, now is the time for government to support the railway industry and the economic growth, jobs and investment it provides both now, and in the longer-term.

“Crucially, this means supporting the sector in a number of ways. First, the Rail Network Enhancements Pipeline needs to be published now, to provide the sector with the visibility of upcoming work it needs to plan and invest. Secondly, there should be no hiatus in infrastructure and rolling stock work over the coming years, as the industry restructures to Great British Railways. Efforts to decarbonise the railway need to be accelerated, with a step-change in electrification and hydrogen and battery trains delivered to help the government meet its net zero 2050 deadline.”

So, Rishi Sunak has some decisions to make on Wednesday and he won’t be short of advice from the construction and infrastructure sector. In my view, he’d be well advised to take on board the sage words of National Infrastructure Commission chair Sir John Armitt, who said last week: “At a time of significant global volatility alongside concerns about rising living costs, we appreciate that sticking to a long-term strategy is not easy.  But it is the only way to address the stubbornly difficult problems that will not become any easier or cheaper to solve by delaying action – and the quicker we tackle them, the quicker society and our environment will reap the benefits.” 

Over to you, chancellor . . .