Budget predictions: Rail clarity, nuclear commitments and net zero pledges

Posted on 01 March 2021

It’s that time of year again!

On Wednesday (3 March), Chancellor Rishi Sunak will dust off the world’s most famous red briefcase and outline where and how the UK government plans to spend its coffers.

One year on from Sunak’s pledge to kickstart an “infrastructure revolution”, this year’s Budget announcement is the most important in decades following a year of economic – and social – misery due to the Covid-19 pandemic, coupled with it being the first Budget announcement following the end of the Brexit transition period.

Education and healthcare plans will most likely take centre stage, but a Boris Johnson led government will always back construction and infrastructure, so expect plenty of rhetoric around “Building back better”.

And with COP26 around the corner also expect plenty of pledges to “Build Back Greener”.

Every sector has something to look out for, so here’s a speculative sector-by-sector guide at what might, or might not, appear from Sunak’s red briefcase.

Rail

There is plenty to look out for when it comes to rail announcements. We’re nearly a year on since the government committed to HS2 Phase One, while plans to extend the line to Crewe have now also got the go-ahead.

What comes next is anyone’s guess. What is for sure, is that the industry needs clarity in terms of the pipeline of mega-projects, with uncertainty also creeping in over the future of Northern Powerhouse Rail.

The much-anticipated Integrated Rail Plan was supposed to be published “early” this year but is yet to materialise and so fears that HS2, Northern Powerhouse Rail and the Midlands Rail Hub could be scaled back or mothballed have been allowed to fester.

In an ideal world the Integrated Rail Plan would be published alongside the Budget – and that could well happen. What may happen instead is that the Chancellor alludes to the plan and gives a clearer picture around development plans for both HS2 Phase 2b, the Midlands Rail Hub and Northern Powerhouse Rail.

Aecom chief executive for Europe Colin Wood is among those calling for major projects to be backed in the Budget.

He said: "With projects such as HS2 creating thousands of jobs, we are now seeing the impact investment in infrastructure can have to level-up our society.

"We need to continue this trend, investing in our rail network, reversing Beeching cuts, accelerating project speed and committing to regional plans such as Northern Powerhouse rail. Investments such as these will not only transform the way we travel, they will cut carbon emissions, unlock our regions and provide an economic boost for the whole of the UK."

But it is not all about the mega projects.

The rail industry also needs clarity over its enhancements pipeline and this is something which is far more likely to appear in the Budget.

Budget day actually marks exactly 500 days since the Rail Network Enhancement Projects – the list of planned rail upgrades – was last updated by the DfT.

The Railways Industry Association has issued a call “for the urgent publication of the list, in order to give UK rail businesses visibility to plan for work in the short to medium term, and invest in the necessary skills and capital required to deliver effectively”.

As Railways Industry Association chief executive Darren Caplan explains “rail [must be] at the heart of the recovery going forward”.

“This Budget is a great opportunity for the Government to provide much-needed certainty to the UK rail industry, after what has been an incredibly challenging 12 months for the country as a whole,” Caplan said.

Other potential things to look for:

  • Further announcements regarding the Restoring your Railways fund

  • Money to develop low carbon intensive technologies, such as hydrogen powered trains

  • Union connectivity links – money to develop proposals already submitted to as part of ongoing review

  • Project Speed backing for ‘shovel-ready’ projects such as rail links to Heathrow Airport

Roads

In last year’s Budget Sunak announced the UK’s “biggest ever road building programme” when he gave the green light to RIS2.

Since then flagship projects such as the Lower Thames Crossing and Stonehenge Tunnel have been hit by environmental objections and planning disputes while the entire £27bn road investment plan is subject to an ongoing legal challenge.

There is unlikely to be a massive pot of cash for road projects this year, however expect Sunak to recommit to RIS2. The Chancellor may even take the opportunity to bring forward planned work under RIS2 as he did in his autumn statement when the construction timeline for the £1bn A66 trans-Pennine road upgrade was cut in half following a review by the government’s Project Speed taskforce.

With COP26 at the end of the year, and following on from Boris Johnson 10 Point Plan to decarbonising the UK, a substantial amount of cash is likely to go towards developing electric vehicles and more importantly rolling out the infrastructure needed to charge those vehicles.

Funding for local roads is always worth a look at in the Budget, with the state of the UK’s road bridges and tunnels in a poor state.

Energy

The government has already set out plans to clean up the energy system and drive the transition to net zero in its Energy White Paper, which was released in December.

Key elements in the white paper include a £1bn investment in carbon capture storage and a £1.3bn investment in the rollout of electric vehicle charging infrastructure.

In addition to this, it considers how to achieve the government's commitment to 40GW of offshore wind by 2030, including 1GW of floating wind, while attracting new offshore wind manufacturers to the UK. It also details possible funding mechanisms for EDF’s £20bn Sizewell C nuclear plant, with the government confirming it is entering into negotiations with EDF regarding the scheme.

With this in mind, key areas to watch in the Budget include further clarification on funding for nuclear schemes – including small nuclear – along with more detail on plans for renewables and wind projects in the year of the COP26 climate conference.

However while the industry would no doubt welcome a list of potential future schemes, it seems unlikely that Sunak will make this sort of commitment this week.

The government has, however, set the target of ending sales of petrol and diesel cars by 2030. As such, further plans to facilitate the uptake of electric vehicles are required, with Energy and Climate Intelligence Unit head of analysis Dr Jonathan Marshall emphasising the need to “deliver the charging infrastructure and tax incentives that can underpin the move away from petrol and diesel cars”.

More generally, Marshall added that the industry will be looking for “long-term, fully-funded measures to achieve decarbonisation of our power grid within a decade-or-so” and “to rapidly accelerate sluggish progress in cutting carbon from heavy industry”.

The ECIU also emphasises that without more policies and interventions from government, the UK will “neither meet its legal carbon targets nor will it achieve net zero emissions”.

Aviation

There has been much debate surrounding the future of airports given environmental concerns and the drop in passenger demand as a result of the Covid-19 pandemic.

The industry has called for support following the impact of the pandemic, with Airport Operators Association chief executive Karen Dee emphasising that since international aviation is not expected to restart before 17 May, support for airports in this week's Budget is “vital”.

She said current programmes such as furlough and business rates relief for airports should be extended for the full financial year and also called for the Budget to set out an Aviation Recovery Package “with crisis funding for the short term and connectivity boosting measures for the long term”.

A number of airport expansion schemes - at Heathrow, Gatwick and Stanstead, among others - are currently in limbo and while clarity on these is unlikely to be given next week, the government could announce further new funding for greening aviation.

This all comes against the backdrop of the Committee on Climate Change’s Sixth Carbon Budget, which advises the government that any increase in UK airport capacity would need to be matched by restrictions at other airports to ensure no ‘net increase’.

Miscellaneous

National Infrastructure Bank

In November the Chancellor announced that a new infrastructure bank would be set up by Spring. The new bank will ‘support the Government’s ambitions on levelling up and net zero’, with a mandate expected soon. The bank is expected to support projects that are in development so expect some more specifics in this year’s Budget.

R&D tax breaks

Rather than raising corporate taxes, the Chancellor should be using his first post-Brexit Budget to establish a tax regime that incentivizes spending on infrastructure programmes and other capital projects, while helping to position the UK as a place that companies and individuals want to stay, invest and grow, according to Menzies LLP tax partner Lucy Mangan. Among the tax reliefs that the Chancellor is now free to change, without EU approval, are R&D tax relief and the Patent Box regime.

Carbon taxes

On top of existing targeted carbon prices, Government is reported to be considering implementing carbon taxes across areas of the economy where emissions are currently under-priced, explains the ECIU. Carbon pricing remains a politically difficult concept, with a balance to be struck between raising revenue and incentivising a shift to lower carbon activities. New carbon taxes and prices also need to be backed by policies to ensure that costs do not fall unfairly across the population, and that businesses in global industries are not penalised.

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