Autumn Statement - what will it mean for the industry?

Julian Francis
22 November 2016

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Autumn Statement

On the eve of the Autumn Statement, Julian Francis examines what the chancellor might have in store for the industry.

Today sees the first major policy announcement of this government since it assumed office in the summer. The Autumn Statement this year will take on a much larger significance than is usual as what the chancellor says and where he places the fiscal priorities will  tell us a considerable amount about how this government sees the world, how it thinks that Brexit will affect the country and what it wants to achieve.

We have already been prepared for the fact that this statement will be different from the all-singing, all-dancing announcements of the past with the chancellor merely outlining the general points and allowing individual ministers to take the credit for the specific announcements. The chancellor will map out the economic big picture on Wednesday but the new narrative is that Mr Hammond will downgrade his key moment and instead share it around with the statement being just one of five big economic announcements between now and January 2017.

This means that Hammond himself will outline the big picture numbers but leave the details of the precise tax movements until March's Budget when everything is clearer. He's also leaving the spending decisions to departmental ministers, rather than stealing the best announcements as he predecessors used to do. Much of the policy work going on in Whitehall will only see the light of day in papers on industrial strategy, corporate governance and housing that will follow.

So what does this leave for our industry on the day?

Given the amount of chatter going around and how many meetings I have had this year on infrastructure bonds, I would argue that this may be a high level announcement that we could see made this week. Since the financial crisis, structural debt has become a rather tarnished concept in the eyes of many in this country and abroad. This has led to an increased appetite amongst investors for another form of structured debt - the infrastructure bond.  

Given the fact that UK infrastructure challenges are increasingly front page news, with politicians and businesses lining up to support new projects, practical solutions on how we  pay for new bridges, roads, airports, schools, water, and other assets are often lagging far behind. Faced with similar problems, America has turned to new types of bonds to bridge the gap from the qualified public infrastructure bonds (QPIBs) through to two different versions of America Fast Forward (AFF) bonds. These new instruments can point the way for the chancellor should he be amenable. 

QPIBs are designed to let the private sector take a more active role in designing, building, financing, operating, and maintaining public infrastructure assets. AFF bonds, on the other hand, are aimed at attracting new types of investors into the infrastructure market, particularly public pension funds, corporate pensions, sovereign wealth funds, insurance companies, and taxpayers in lower income brackets.

As both types of investors have been sought after for UK schemes the appeal of new bond instruments in this country is high. It is, therefore, not surprising that it has emerged in the press that Downing Street and the Treasury are supposedly drawing up proposals to raise billions of pounds through new infrastructure bonds. Flagged up a week before the Autumn Statement, this is clearly aimed at the financial markets to gauge their appetite for this announcement. 

The creation of infrastructure bonds has been on the government's mind for some time but was not noticed as much as it should have been due to the way in which the new government came about. Theresa May said in the summer when campaigning for the leadership that she wanted to boost infrastructure spending to help build an economy “that works for everyone”. She promised to launch new Treasury-backed bonds to fund infrastructure projects but did not at the time give any details of how the plan might work.   

The Infrastructure Projects Authority, the relevant quango, has been sounding out the industry on how the new bonds might work in practice over the last couple of months but its seems that Treasury officials are not sure how to structure the programme as they are not aware of what the PM wants to achieve. The Treasury is also concerned that the government would have to pay a higher coupon than ordinary government gilts.

With the political need to come up with a new way of paying for all the infrastructure that the government wants to build so acute, it is a good bet that some form of infrastructure bond will be announced by the chancellor either in the Autumn Statement or pretty soon after. 

Julian Francis is the director of policy and external affairs at the Association for Consultancy and Engineering.