Infrastructure spending on the right road

As congestion worsens on the road and rail networks, the case for more investment in infrastructure is emerging as a recurring theme in all the main party manifestos ahead of the General Election. Businesses are particularly keen to see more spent on infrastructure. A recent CBI report, Shaping Regional Infrastructure; Priorities for Growth, argues that improved infrastructure can play a key role in improving productivity across the country, with the potential to add £175 billion to the English economy over the next decade. Overall, only a quarter of businesses surveyed were satisfied with the state of the existing infrastructure. Shorter travel times, particularly in the North and improved links to international markets, through regional airports, are seen as priorities. With work set to start on High 2 following the recent granting of Royal Assent, approval for a third runway at Heathrow, new nuclear power stations at Hinkley Point C and Wylfa and more spending on roads all in prospect, civils contractors are set for a potential bonanza of work over coming years. The recent £2.1 billion bid for WS Atkins - the UK’s largest consulting engineers – from Canadian group SNC-Lavalin has underlined the promising outlook in the sector. Despite an encouraging picture, the civil engineering sector has got off to a mixed start in 2017. The Glenigan Index shows that although the value of seasonally adjusted civil engineering starts in the February-April quarter was up by 26% the previous three months - helped by an upturn in utilities work– they remained 7% down on the period a year previously. Yet the prospect of more government spending points to a brighter medium-term outlook for the sector. Glenigan data show that the value of detailed planning approvals for underlying infrastructure projects (valued from £0.25m -100 million) rose by 7% last year to £737 million, helped by sharp upturns in approvals in the East Midlands, North West, and West Midlands. Underlying starts for infrastructure projects are forecast to continue rising through this year and 2018. Increased government spending on roads will be a key driver of activity over coming years. Overall, the government’s Road Investment Strategy commits it to invest £15 billion between 2015-16 and 2020-21, although much of it will be spent towards the end of the period. Whilst Highways Agency spending on renewals and maintenance is set to rise modestly, spending on capital enhancements in the sector is set to rise from £1,101 million in 2016/17 to £1,509 million in the current financial year and to £2,230 million by 2019/20. Rail investment should also rise in the medium term. Although key projects such as Crossrail are nearing completion, work is set to start on some major new projects, including the Northern Line extension to Battersea. Overall, Network Rail’s CP5 programme should maintain the flow of new work through projects such as the Great Western electrification, the Great North Rail Project and £800 million of improvements planned for Waterloo Station. Work should also feed through from the bumper level of new orders placed in the railways' sector in 2016; ONS figures show that they were worth £2.93 billion in cash terms, up from £1.455 billion in the previous year.