17 March 2016
Our in-house experts reflect on this year’s Budget and what it means for the Northern Powerhouse infrastructure, flood defences, Britain's Energy Coast, the energy sector and climate change.
The Northern Powerhouse
The Chancellor announced that he would move forward with allocating £300 million to transport and infrastructure projects, backing High Speed 3 between Manchester and Leeds, pledging £60 million to improve rail links in the North of England, £75 million for a feasibility study of the Trans-Pennine tunnel between Sheffield and Manchester, as well as £161 million to accelerate upgrades to the M62.
Marc Davies, our Head of Environment, and also Chair of ACE’s Northern Region Group, has been an active advocate of the Northern Powerhouse. He reacted positively to this news but stressed the importance of seeing beyond the Manchester-Leeds axis, commenting in Infrastructure Intelligence: “the investments in infrastructure are welcome and needed. Cumbria and the Energy coast is an important pillar of the Northern Powerhouse and the A66 and A69 highway improvements will help connectivity. But there is much more to be done to help overcome the current imbalance with spend per capita on transport still massively weighted to London.”
Following the devastating floods in Cumbria and Yorkshire at the end of last year, the Budget 2016 included £700 million to spend on flood defence and resilience by 2020-21. An increase in maintenance expenditure by £40 million per year and investment of over £150 million in Leeds, York, the Calder Valley, Carlisle and wider Cumbria, will be funded by a 0.5 percent rise of Insurance Premium Tax.
Our flood defences expert, Matthew Elliott, Engineering Director in Leeds, welcomed the news: “Increased spending on flood alleviation infrastructure, be that in the construction of new defences or the maintenance of existing systems is welcomed given that all the evidence points to a growing flood risk exposure due to the impacts of climate change. Whilst the focus on the recent floods in the north is welcome it should be born in mind that the recent (Feb 2016) Environment Agency climate change allowances predict the most severe climate change impacts in the south. In as much as the funding is to be generated by increases in Insurance Premium Tax, which in all likelihood will be passed on to all tax-payers, one might feel that this is simply a general tax increase via the back door.”
Britain’s Energy Coast
Craig Hatch, our Head of Asset Management who leads our Britain’s Energy Coast strategy, is based in Cumbria and witnessed the destruction caused by the floods firsthand: “We welcome the additional commitment of funds to enable key infrastructure repairs to bridges and roads to reconnect affected communities following the devastating effects of Storms Desmond & Eva in Cumbria and elsewhere.
The A66 and A69 road improvements investment announced will help connectivity for Cumbria as the engine room for the Northern Powerhouse. The continued commitment for the significant improvements in the transport links in the north is well received.”
He added: “The Chancellor’s stated view that the world is a more uncertain place than at any time since the start of the financial crisis, leading to his announcement to cut 50p in every £100, translates effectively to £2 for government departments and local authorities to find once protected budgets are taken into account. This emphasises the importance of effective asset management for these bodies, which can be effectively driven in two ways: firstly, by strategic thinking to maximise capital receipts from asset portfolios; and secondly by an effective risk based approach to minimise revenue spend in maintaining assets. Both these areas have been part of the core thinking within our asset management capability meaning that we will be ideally placed to advise authorities in both of these areas.”
Energy and Climate Change
Steve Mustow, Senior Director of Strategic Development in our Environment discipline, commented: “The abolition of the CRC energy efficiency scheme following the 2018-19 compliance year is to be welcomed, given the cost savings that businesses will gain through reduced bureaucracy and that an equivalent increase will be made to the Climate Change Levy. However, the budget’s contribution to combating climate change is mixed, and comes at a time when record breaking high winter temperatures have been recorded in the Arctic."
Simon Sjenitzer, our Associate Director for Energy & Climate Change Business Deveopment, echoed Steve’s concerns and added: “The announcement that the government will auction Contracts for Difference of up to £730 million this Parliament for up to 4 GigaWatts of offshore wind and other less established renewables is welcome. It is also interesting that the budget continues the support of small modular nuclear reactors (SMRs) as a low carbon technology to potentially be used in the UK. Such reactors should be cheaper and quicker to build than their larger-scale cousins, which would be a distinct advantage given the well publicised funding and programme challenges being experienced with the latter. However, no assistance is at hand for the onshore wind industry which has been hit by recent cuts in support, despite offering a proven, cost-effective and rapid means of increasing the country’s renewable energy supply. Other levers are outside the Government’s hands, as taxation on the solar industry, which is reducing competitiveness, is imposed through the EU.”
“The Government’s promised action around tax relief for decommissioning of oil and gas assets is to be welcomed as there is much work to be done in that area to minimise environmental risk. However, the issue is not just restricted to the oil and gas sector, with significant requirements on the immediate horizon for decommissioning of coal fired power stations and other energy-related infrastructure. As well as being an environmental liability many of these sites actually have great potential for remediation and re-use, and WYG is working with a number of clients in the sector to achieve these benefits.”