Budget 2016: Infrastructure

George Osborne has always paid lip service to the idea of the government increasing its investment in infrastructure but often this has not followed through. Vanity projects like HS2 and a third runway at Heathrow Airport have often dominated the discussion of infrastructure and, although investment has increased, often enables the Chancellor to kick any serious decision-making down the road. It’s also worth point out that because of his inane Fiscal Charter, Osborne has limited the amount he can spend on infrastructure because he has bound himself to reach a surplus by 2020. The Budget was largely decent when it comes to infrastructure spending, however I would argue that much of what he suggests does not go far enough.

The main piece of infrastructure news to come out of the Budget was that the Hs3 link between Manchester and Leeds, and the Crossrail 2 project in London have been given the green-light. I want to take each of these in turn because they speak to slightly different points.
The Crossrail 2 project is marketed as an important investment in London’s infrastructure in order to keep the city’s other transport networks from being excessively overcrowded. Whilst I agree that the project would probably do that I disagree with the way that the project is being pursued. The North-South divide is a key topic that is never really spoken about when Crossrail 2 is mentioned but it desperately should be.
If investment keeps getting focussed on London and the South East of England, jobs will be created in London and the South East. As a result people from other parts of the country will move to these areas, thus increasing demands on infrastructure and forcing the government to invest more. Investment in the South East must be matched with investment elsewhere in the country otherwise London will continue to grow economically at the expense of the Wales, Scotland, and the North of England. If I were in Osborne’s position I would have made rebalancing the UK economy away from London the basis of my Chancellorship, rather than mentioning it now and then. For every £1 invested in London I would have invested £2 in other parts of the country to make sure that Manchester, Sheffield, Newcastle, Birmingham etc. were all benefiting from infrastructure projects.
As if I wasn’t right already, read what is in the bottom right-hand corner of the picture. (London First)
This leads me onto the second thing: HS3. I support high-speed rail projects because they create jobs, increase the railway network’s capacity, and can be used to rebalance the economy. I’ve previously written a piece about HS2 which outlines how I would go about investing in the railway network but I’ll briefly summarise what the Chancellor should do. Rather than having HS3 linking up Manchester and Leeds, they should have HS2 link up northern cities. There is no point building a high-speed rail link between London and Birmingham, before extending it up further northwards because that will mean that capital will flow southwards to London. If HS2 began in Liverpool and ended up in Hull via Manchester, Leeds and York, jobs would be created in the North of England and there would be no risk of capital flight to London. Increased economic activity in the North would begin to act as a counterweight to the dominance of the South East.
In regards to an HS3 link my suggestion in the same article was to have it begin in Truro, go through Plymouth, Exeter, and Bristol before splitting to have one line go to Cardiff and Swansea, and another going up to Birmingham via Gloucester. Once again this would ensure that economic growth would stay away from London and build up other parts of the country. Don’t get me wrong I love London, even though the people refuse to acknowledge your existence unless you’re on fire, but there is no rational reason why a national economy should be based on the success of one city whilst other parts of that country stagnate.
Osborne decided to keep the level of fuel duty frozen at its current rate which is illustrative of this government’s approach toward climate change. Fuel duty in recent years has been successfully used to encourage people to switch to more fuel-efficient vehicles or to find alternative transport like cycling. Oil prices are currently at a relatively low point and increasing the oil price would not be as impactful on people’s finances as in previous years.
The Chancellor also announced that £230 million worth of investment will go into improving road networks in the North of England, and it is this kind of tokenism that I am complaining about. According to their own figures the Crossrail 2 project, which will service London and the South East, is estimated to cost between £27 billion and £32 billion, yet the Chancellor can only afford to spend £230 million (which is less than 1% of Crossrail 2’s budget) on road upgrades in the North. By doing this kind of investment the Chancellor can talk about how the Tories ‘care about the entire country’ even though these figures show that this is clearly bullshit. Whilst on the subject of road improvements, the Budget also provided an extra £50 million of funds for councils to fill in potholes which is a good step forward. Unfortunately this money is supposed to cover the entirety of the county and therefore will leave some roads, probably in rural areas, without the money they need.
This pothole is in London, so will probably get fixed. Good luck if you’re in the Brecon Beacons. (BBC)
Another policy unveiled by Osborne was that the Severn crossings will have their tolls halved. I am aware that the two crossings are set to be brought back into public hands next year so won’t argue for immediate nationalisation as there would be no point. Toll roads should be abolished because people who pay road tax and car tax have surely already paid for the maintaining of Britain’s road network. Instead of tolls on road users, the UK government and the Welsh government should jointly pay for the maintenance of the two crossings. Wales should be treated as an actual country and not as an extension of England. Full responsibility for finances and transport is a bit of a way off because there is no demand for secession in Wales to drive the conversation. This is a prime example of where the UK government could work together with the Welsh government rather than just dictating what should happen with tolls and maintenance from Whitehall.
The final infrastructure policy I want to address is that flood defences are going to be improved with an additional investment of £700 million. This is once again a piece of political messaging in order to give the impression of the Chancellor being in touch with people’s concerns. In 2011 the flood defences budget was cut by 8%, which in actual figures is around £95 million. That cut resulted in flood defence schemes in York, Leeds, and Thirsk not being built, and over Christmas those places were partially underwater.
KPMG, the corporate accountancy firm, found that as a result of the flooding over Christmas the economy lost £5.8 billion. I’m not criticising the fact that an extra £700 million is being spent by the government, that should be welcomed. But it should also be remembered that because of Osborne’s short-termism the country lost a huge amount of money because of cuts to flood defences. The Chancellor shouldn’t be allowed to go unchallenged when he inevitably tries to spin his decision as evidence of his wisdom.
Capital investment in infrastructure is one of those things that is always popular and very rarely economically detrimental (unless it’s part of a PFI contract). Because of this fact it becomes slightly more difficult to critique a Chancellor when he’s making all these promises about investment in roads, bridges, railways etc. but it’s not impossible. Osborne is pursuing policies in this area that will disproportionately benefit the South-East and London, thus not rebalancing the economy as he constantly says he wants to do. By investing small of amounts of money in the North he is seeking to pacify his critics whilst maintain the status quo. Investment in flood defences is welcome, but if budget hadn’t have been cut in the first place the Exchequer would have a lot more money to play around with now.

2 thoughts on “Budget 2016: Infrastructure

  1. Any investment outside London and the South-East feels like tokenism meant to stave off criticism. The Tories aren’t really bothered about anywhere else so they don’t want to spend money outside of the little world they inhabit.


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