In this edition, we focus on the infrastructure implications of the new Labour Government's first Budget, including for energy, vehicles, telecoms, housing and major projects. We also look at new initiatives affecting the UK water industry and UK infrastructure investment more generally. Please get in touch if you would like to discuss any of the issues discussed below.
As highlighted in our post-election Infrastructure Spotlight, the Labour Party's 2024 Manifesto contained some ambitious statements of intent in the infrastructure space. These included accelerating the UK on its path to net zero, whilst overhauling and regenerating the UK's ageing infrastructure more widely, by using public investment "to crowd in private funding".
Whilst the recent Budget may have not set the pulse racing for the infrastructure world, it did deliver on (at least the next steps of) many of those Labour commitments. Among other things, the Chancellor pledged to prioritise long-term funding for growth, with an increase of over £100 billion in capital investment over the next five years "across roads, rail, schools and hospitals".
The Chancellor formally confirmed that there would be a change to UK fiscal rules to fund extra investment (through increased borrowing). The fiscal rule change will see Government assets included in the UK's measure of debt – called 'public sector net financial liabilities'. This is a broader measure of the UK's balance sheet than public sector net debt and includes financial assets and liabilities such as student loans and stakes in financial institutions. The idea behind the change is to provide the Government with extra room to borrow (and still have debt falling as a proportion of GDP).
The UK Infrastructure Bank is being renamed the National Wealth Fund ("NWF") and has been re-purposed to support the Government's wider industrial strategy. Although there is a danger that this could dilute the NWF's focus on infrastructure and lead to funding being diverted to other areas, it is clear from NWF statements that infrastructure and net zero remain key areas for targeted investment. Ultimately, the whole point of investing in infrastructure is to support the wider economy and promote growth, so in that respect, an ability to take a more holistic approach to investment may be helpful (see also our discussion of the UK's draft industrial strategy below).
The Government hopes that the NWF will help to catalyse over "£70 billion of private investment". During the International Investment Summit (which was held in October), it was confirmed that the NWF would be initially capitalised with £27.8 billion – with £5.8 billion of the NWF’s capital focusing on green hydrogen, carbon capture, ports, gigafactories and green steel. It's also worth noting that the NWF is expected to implement the investment strategy of Great British Energy ("GBE"), for which the Government is providing capitalisation of £100 million.
The NWF's strategy in deploying that capital and its role on infrastructure projects in particular are being considered by one of the many new taskforces being set-up by the new administration. However, if properly structured and purposed, it does seem to have the potential to unlock large scale investment in infrastructure, in a genuine public-private partnership, in a way its predecessors have not quite managed.
Policy measures specific to particular areas/sectors such as energy, transport, housing and EVs/EV charging infrastructure are discussed in more detail in separate sections below – but highlights from the Budget for infrastructure and energy investors include:
As ever, the Budget introduced some changes to taxation with implications for the infrastructure and energy sectors – and, as is to be expected, there was a mixture of good and bad news. Key tax increases included the following:
On the more positive side, the Budget saw the publication of the Government's Corporate Tax Roadmap, which includes commitments to maintain, and in some cases simplify, the existing corporate tax rate and thresholds, and some of the key reliefs, including in relation to capital allowances, R&D relief and deductibility of debt. The stated aim of the Roadmap is to give businesses generally greater tax certainty in advance – which is of particular benefit to long term investments such as infrastructure. For more on this, see section 2 of this briefing.
The Government has acknowledged concerns raised by businesses in the renewable energy and infrastructure space following the Gunfleet Sands Ltd and others v HMRC (2023) decision which held that preliminary studies performed prior to installation would not qualify for capital allowances. The Government has committed, in the Roadmap (see above), to launching a consultation on the options for addressing these concerns. The hope will be that this encourages further investment in renewable energy and major infrastructure projects. There is scant detail currently available, but the Roadmap indicates that the consultation process will take place in Spring 2025. For further information about the Budget more generally, please see our analysis available here.
Prior to the Budget, the Government published a consultation on a proposed industrial strategy for the UK. The aim is to provide a "10-year plan to deliver the certainty and stability businesses need to invest in the high growth sectors that will drive our growth mission", to be in place by Spring 2025. In total, eight "growth-driving" sectors have been identified as requiring further investment, including advanced manufacturing and clean energy industries.
We will have to wait until next year for further details to be published – however the Green Paper already contains plenty of information for infrastructure investors to think about when considering the UK as a future investment opportunity. Given this and the Budget, it appears that the new Government is taking steps to reinvigorate the infrastructure sector in the UK, while still prioritising the net zero transition. However, investors will be wary of how soon changes can be unlocked in relation to identified barriers (such as planning, skill shortages and regulatory uncertainty). There is also a risk the Government could become more focused on delivering public services at the expense of larger infrastructure investment, if the political sands shift again in unstable times.
Finally, when it comes to specific projects, there were some losers. Prior to the Budget, the Government signalled that there would need to be cuts to certain infrastructure projects, so that others could move forward. So, some projects have now been axed, including £1.3bn of funding committed by the previous Government for the creation of an exascale supercomputer at the University of Edinburgh and shelving a £2bn plan to build a two-mile tunnel close to Stonehenge (to ease traffic congestion).
The Budget saw the announcement that £100 million in funding would be provided for the proposed publicly owned investment platform GBE. GBE was announced prior to the election and is intended to act alongside private partners, investing and managing green technologies and capital-intensive projects. A Great British Energy Bill, which would establish the Government-owned company, has passed through the House of Commons and is currently at the Committee stage in the House of Lords.
Once GBE is fully established, its investment activity will be undertaken by the National Wealth Fund ("NWF") (formerly the UK Infrastructure Bank – see section 1 above). This suggests that these two organisations will be working closely together in the energy sphere. This may allow GBE to draw on the NWF's resources, experience and pipeline of projects. The NWF is also expected to invest about £5.8 billion in green hydrogen, carbon capture, ports, gigafactories and green steel.
The remit and role of GBE remains markedly unclear at this point, and further details are keenly awaited. There have been various suggestions, from sources within and outside Government, that it may be a (possibly minor) owner of energy generation projects, an expert advisory and development body, and/or act as a mass procurement vehicle to allow the supply chains needed for the planned infrastructure overhaul to scale in a cost-effective and resilient way. We anticipate one key element of its role could be working with the Crown Estate to help identify and de-risk public development land (assisting pilot energy projects through early, expensive and high-risk consenting stages, then recouping that investment when private capital crowds into the de-risked project on competitive terms). However, this very much remains to be seen.
In the Budget, the Chancellor explained that the Government had commissioned advice from National Energy System Operator ("NESO") – itself newly spun-out into public ownership with a decarbonisation remit – on meeting its targets for clean energy by 2030. She also said that the Government would be publishing its own detailed Clean Power 2030 Action Plan (no specific date has been given for this – although it is hoped it will be released prior to the end of 2024). Coupled with the Prime Minister's recent statement to the COP29 summit, this indicates that the UK Government remains committed to its net zero ambitions – notwithstanding that the election of Donald Trump is expected by many to result in a weakening of the commitment of the US (and others) to measures designed to respond to climate change. Indeed there is a feeling that the UK sees the changing administration in the US as an opportunity to make the UK a relative 'safe harbour' for international sustainable capital, helping to fund the planned infrastructure drive.
In summary, NESO's advice is that whilst the targets are achievable, they are likely to prove challenging – as is evident from the figures below:
£200 billionof investment required over 5 years |
>5000
|
43-50
|
13
|
32
|
15
|
The £27.8 billion in initial funding being provided to the NWF (see above) represents only a small fraction of the overall amount that NESO estimates will be required to meet decarbonisation targets by 2030. A key practical issue will be how quickly the NWF can deploy initial funds and how significant additional Government funding will be. Investing all the funds necessary and delivering "on the ground outcomes" within five years may not be realistic. It is therefore likely that a substantial part of investment identified by NESO will need to come from private capital. Hence, as noted above, we see the UK looking to burnish its credentials on the world stage.
A further challenge will be the need for extensive coordination across all aspects of the UK's energy infrastructure, from generation through to transmission, storage and smarter management to meet energy users' demands. The Government will be looking to bodies such as NESO and the newly constituted National Infrastructure and Service Transformation Authority (NISTA) to help deliver this. For more detail on NISTA, see section 5.
There is also a very significant, and politically thorny, issue to be addressed in the form of the planning system. To achieve the scale of the overhaul needed for clean energy by 2030, it is likely significant reform of the planning system will be needed. See section 5 for further discussion of the Government's proposals.
Notwithstanding this challenging backdrop, it's worth pointing out that the new Government has already acted swiftly in a number of key areas, notably by:
The Government pledged to provide £3.9 billion of funding across 2025 and 2026 for Carbon Capture, Usage and Storage ("CCUS") 'Track-1 projects' (HyNet North West and the East Coast Cluster). This follows an announcement earlier in October of up to £21.7 billion of "funding available, over 25 years, to make the UK an early leader in 2 growing global sectors, CCUS and hydrogen". Its inclusion in the Budget highlights that the sector will continue to receive support from the Government, even when some remain sceptical of the future importance of these technologies. This has the feel of a compromise between the more 'Net Zero' and 'Industrial' focused factions of the Labour administration – as CCUS provides an opportunity to enable heavier industrialisation to scale in the near term without as large a carbon cost.
As an additional incentive, the Government plans to legislate in the Finance Bill 2024-25 to provide relief for payments made by oil and gas companies into decommissioning funds in relation to assets sold for use in CCUS. This maintains the tax treatment available had these assets had been fully decommissioned (rather than repurposed for CCUS).
The funding for CCUS and hydrogen is also significant because it increases the chances of the Government being able to meet its 2030 clean energy targets. The NESO report discussed above outlines two pathways towards this. One requires 50GW of additional offshore wind capacity, but the other allows for this target to be missed by as much as 7GW if it is accompanied by 2.9GW in low carbon dispatchable power from hydrogen or gas with CCUS ("dispatchable power" means generation which can respond quickly to spikes in demand). Without the funding for CCUS and hydrogen, the probability of this pathway remaining open would be quite slim – which means that the 50GW target for offshore wind would have to be met. CCUS and hydrogen are "first of a kind" technologies – so the risk of failure is significant. But if the investments succeed, the pay-off could be substantial – for example, by helping the UK to become a market leader in an important but currently under-utilised energy transition technology.
£2.7 billion of funding was also confirmed to continue Sizewell C’s development through 2025 and 2026. This funding is intended to keep the Government's options open until a final investment decision is taken on whether to proceed with Sizewell C as part of phase two of the spending review (alongside final decisions on other multi-year spending commitments). According to some reports, the delay over a final decision has proved necessary because negotiations with other investors are taking longer than expected. While there was no specific additional funding allocated for Great British Nuclear's small modular reactor competition, the Budget did confirm this remained ongoing – with the final decision to be taken in spring 2025.
Labour confirmed changes to the existing Energy Profits Levy ("EPL") payable by oil and gas companies would be going ahead, including a 3% rate increase and an extension to the end date.
The Budget also confirmed that the UK would introduce its own CBAM mechanism with effect from 1 January 2027, placing a carbon price on goods that are at risk of carbon leakage imported to the UK from the aluminium, cement, fertiliser, hydrogen, iron and steel sectors (but not glass and ceramics as previously proposed). As such, the scope broadly mirrors the approach adopted by the EU in relation to its own CBAM – see our briefings The Carbon Border Adjustment Mechanism: plugging the carbon leak and The Carbon Border Adjustment Mechanism: Recap and updates. There will be a registration threshold of £50,000 of CBAM goods, which is intended to exclude the majority of micro, small or medium-sized businesses.
The Government confirmed funding for three major rail projects:
Of these three projects, the most impactful in the long term nationwide are arguably the TransPennine Upgrade and East West Rail. For example, Northern Powerhouse Rail points out that current levels of economic interaction between major cities on the TransPennine Route are relatively low; improved transport links can be expected to improve this and therefore boost economic growth. Similarly, East West rail is expected to unlock land for housing and laboratories, supporting the wider Cambridge life sciences cluster. This is not to say that the HS2 funding is without significance – in particular, the hope is that it will catalyse investment in the Euston area, notably as regards new housing, whilst also encouraging new developments in Birmingham by providing stronger transport links to London. But as noted above, there is no sign that the decision to cancel Phase 2 of HS2 to link the Midlands to Manchester and Leeds is being revisited.
The following Budget commitments are also of note:
The Government has pledged to invest at least £500 million over the course of the next year in Project Gigabit and the Shared Rural Network. This funding is aimed at providing full gigabit coverage in the UK by 2030. Project Gigabit involves the award of contracts to lay fibre to poorly served areas (typically those which are less densely populated). Shared Rural Network is a £1 billion deal with the UK's four mobile network operators to improve mobile connectivity, also in poorly served areas.
Coverage currently sits at 81%, and the Government considers that it remains on track to deliver the initial target of gigabit-capable connectivity to at least 85% of UK premises by the end of 2025. In late 2023 and early 2024, 15 new contracts were awarded under Project Gigabit, representing over £700 million in funding. The first cross-regional contract is expected to be awarded in Q1 2025.
The UK Government's target is to build 1.5 million new homes by 2029 – with the vast majority of that investment coming from the private sector. Compared with say, the level of funding that the Government is allocating to energy transition and net zero, the funding announcements relating to housing in the Budget were relatively modest. The commitments most relevant to the private sector were as follows (but see below for discussion of various measures relating to social housing, where private investors also play a part):
Given the comparatively small amounts of funding being made available to the private sector, the success or otherwise of the new Government's planning reforms will be key to its ability to deliver on its housing targets. We discuss these changes in more detail in our briefing Planning ahead for the new Labour Government – but as we point out in the same briefing, it may not be possible to implement the reforms soon enough to have a meaningful impact on delivery of housing in the next 4-5 years. This in turn may mean that the new Government will need to make greater use of its intervention powers in order to "rescue" housing projects which are at risk of getting bogged down in the planning process; indeed the Deputy Prime Minister has recently called in a proposed development of 8,400 homes in Kent, which had been expected to be refused consent by Swale Borough Council. However, such interventions are likely to prove controversial and delay due to legal challenges cannot be ruled out. It also remains the case that, without a strong contribution from the public sector, the Government's housebuilding target may ultimately prove to be too ambitious.
There were also some significant Budget announcements relating to the social housing sector, where the Government committed to provide a further £500 million for the Affordable Homes Programme, increasing it to £3.1 billion. Although welcome, this in itself will only fund around 30,000 affordable homes – which is a drop in the ocean against the overall 1.5 million target. There were also welcome commitments to provide greater certainty over future Government support for the sector – for example, details will be published of future grant investment under the Affordable Homes Programme to 2029.
There was no mention of the Future Homes Standard in the Budget, however this is still expected to come into force in 2025 – and Labour have stated that they "fully support the need for low carbon homes and will review proposals and feedback from the future homes standard consultation in due course". As a result, we anticipate the drive for new homes will create significant opportunities for low or zero carbon infrastructure in particular – including heat pumps and district heat networks. The Government also announced £25 million for a new joint venture to deliver 3,000 energy-efficient new homes across the country, with a target of 100% of these being affordable.
Finally, although the Budget confirmed that – despite changes elsewhere – Capital Gains Tax rates for residential property would remain at current levels (i.e. 18% and 24%), changes were made to Stamp Duty Land Tax (SDLT).
An SDLT surcharge (on top of the standard residential rates) applies, broadly, to (i) any individual purchasing an "additional dwelling" (i.e. any property other than their main residence) and (ii) any company that acquires any residential property. From 31 October 2024, this surcharge was increased from 3% to 5%. It was also announced that the single rate of SDLT payable by companies and non-natural persons acquiring dwellings for more than £500,000 (often known as the ATED-related SDLT charge) would be increased from 15% to 17%, again with effect from 31 October 2024.
In welcome news for some, Labour did not fulfil their manifesto pledge to raise the SDLT surcharge paid by non-UK residents: this remains at 2%. This 2% surcharge for non-residents can apply in addition to the new 5% surcharge on residential property, which means that the top band of the consideration for some transactions could attract an SDLT charge of a sizeable 19%.
By increasing the surcharge, Labour is hoping to disincentivise acquisitions of second homes and buy-to-let properties by making them more expensive to purchase. The intention is that this will allow more properties to be acquired "for main homes and for first time buyers". The new surcharge is predicted by the Government to bring in £115 million in 2024 to 2025 and intended to fund other capital investments, such as Labour's promised delivery of 1.5 million new homes. For more detail, see our Real Estate Budget briefing.
Many of the specific major projects mentioned in the Budget have already been covered in previous sections dealing with energy/net zero, transport, telecoms and housing – so this section focusses on general measures aimed at streamlining the implementation of major infrastructure.
The big question here is whether the new Labour Government has grasped the problems highlighted in a recent report from the National Infrastructure Commission ("NIC"), which found that the development of new infrastructure in the UK is too slow and too expensive. Evidence from the Budget is encouraging in the sense that it suggests that the Government at least recognises the NIC's diagnosis and is trying to do something about it.
One of the key issues highlighted by the NIC report was a lack of long term strategic direction and coordination. Partly in response to this, the Budget included confirmation that the Government is to combine the National Infrastructure Commission (NIC) and the Infrastructure Projects Authority (IPA) into a single body (responsible for both strategy and implementation), to be known as the National Infrastructure and Service Transformation Authority (NISTA). This is expected to be operational by Spring 2025, at the same time as the Government expects to publish a 10-year National Infrastructure Strategy. Whilst this is a challenging timetable, the fact that the current chair of the NIC, Sir John Armitt, is to continue in that role at NISTA should help to provide continuity.
The NIC report also identified the need for more efficient planning and consenting regimes. As we outline in our briefing Planning ahead for the new Labour Government, this is an area where the current Government had already developed significant proposals for reform, including:
In particular, the Government has made it clear that it wants to "unblock" infrastructure development in order to support economic growth and sees planning reform as key to this aim.
The Budget confirmed previously announced commitments to provide £46 million to fund over 300 new planning officers. Although welcome (and a recognition that resourcing issues are a big practical barrier), this amounts to less than one additional staff member per planning authority in England and Wales. Our view remains that the Government may need to look again at resourcing if it is serious about "unblocking" the planning process (particularly given the requirement on local authorities to update their local plans, which is a very resource-intensive undertaking). £5 million was also earmarked to deliver improvements to the planning regime for Nationally Significant Infrastructure Projects.
More generally, a number of the proposed reforms will require legislation, which will take time to get through Parliament. As a result, if the new Government is to have a realistic prospect of "unblocking" sufficient projects to meet targets over the next 4-5 years (i.e. before the next election), it may need:
The Budget confirmed that the Government continues to expect that the bulk of investment in EV charging infrastructure will come from the private sector – although it did include a commitment to provide £200 million in 2025-26 to accelerate the rollout of public EV charge points.
As in other areas (such as energy transition and housing), the Government's target of 300,000 public charge points by 2030 is challenging. The total number of public EV charge points as at October 2024 was 70,000 (source: ZapMap) – although, if recent growth rates continue, this target could be met.
It is obviously critical to operators of and investors in EV charging infrastructure that appropriate incentives are in place to encourage consumers to switch to EVs sooner rather than later. Of particular importance was the announcement prior to the Budget that the Government was committed to phasing out new fossil-fuel only cars by 2030 (reversing the previous Government's pledge to extend this deadline to 2035). From 2035, all new cars and vans produced will be zero emissions vehicles. This is commonly referred to as the Zero Emissions Vehicle Mandate and was discussed in section 1 of the Autumn 2023 edition of Infrastructure Spotlight.
However, since the Budget, pressure from vehicle manufacturers has prompted the Government to announce a further consultation on the 2030 target. A significant dilution of that target is likely to be greeted with dismay by many in the EV charging sector. If the Government wishes to avoid such an outcome, whilst making at least some concessions to manufacturers, it may need to look at offering additional incentives to encourage motorists to make the switch to EVs; this survey provides an overview of incentives available in other European countries, which the UK could potentially use as a model. Other measures included:
It was also confirmed that UK Export Finance, the UK's export credit agency, will now be allowed to provide funding to UK companies supplying critical minerals in relation to EV battery production (and other sectors).
For a more in-depth discussion of the EV charging sector, including a number of suggestions as to what else the Government could do in order to meet its roll-out targets, see section 7 of the last issue of Infrastructure Spotlight.
In her Mansion House speech on 14 November, Chancellor of the Exchequer Rachel Reeves announced that the 86 funds which make up the Local Government Pension Scheme ("LGPS") in England and Wales will be required to pool their assets in new 'megafunds'. This is intended to increase investment in infrastructure and other productive asset classes including private equity, as well as generating economies of scale and reducing investment costs. A consultation runs until 16 January 2025. The timescale for implementing this is not clear.
This initiative has been strongly influenced by models in Canada and Australia, where they see far greater pension fund investment in infrastructure than is seen in the UK. To date, in response to earlier Government initiatives, only around 39% of the funds' nearly £400 billion of assets have been pooled (into eight current pools). Each fund's administering authority will be required to specify a target for investment in their local economy, with 5% given as an example.
There are currently eight LGPS asset pools. Their fund sizes (by reference to the total assets managed by each pool) are as follows:
In its consultation paper, the Government cites examples such as the Border to Coast pension partnership, which was set up to pool the assets of 11 Local Government Pension Schemes. Under its UK Opportunities private markets programme, Border to Coast has recently committed £48.5 million to build onshore solar and wind farms as well as battery storage. The investment will develop four wind farms in Scotland with further sites in the pipeline.
Currently, there are around 30 group personal pension providers and 30 master trusts. The Government believes that reducing this to a total of 24 or fewer will produce the kind of fund sizes needed to drive a significant increase in productive investment, including in infrastructure – i.e. at least £25 billion per provider/scheme and ideally £50 billion.
Separately, but with similar aims, there is a concurrent consultation on proposals to reduce the number of workplace pension providers available to employers for compliance with their automatic enrolment duties. The reduction would be brought about by imposing a minimum asset value requirement for each master trust's and group personal pension provider's default arrangement, and a limit on the number of different default arrangements they may offer. This would be in place not before 2030 and there may be a transitional period. Employers' own trust-based occupational pension schemes are not in scope.
The Water (Special Measures) Bill (the "Bill") was introduced into Parliament on 4 September 2024 and is currently in the final stages of its passage through the House of Lords ("HoL"). As part of its announcement introducing the Bill, the Department for Environment Food & Rural Affairs ("DEFRA") emphasised that the Bill is intended to significantly strengthen the power of water industry regulators in the UK – holding water companies to account "where they have failed to deliver for the environment and customers and begin to restore trust in the industry".
These are significant ambitions for a sector which has come under intense criticism in recent years. It certainly appears that the new Government is intent on taking a more interventionist approach than its predecessor by, in this case, encouraging greater scrutiny over remuneration packages and the imposition of more fines and other penalties. And it also seems to be in a hurry to do so.
For more detail, see our briefing: Water (Special Measures) Bill: what's next for the water industry in the UK? which includes discussion of the implications for:
It also looks at the Government's wider plans for the sector, in particular the implications of its independent review into the water sector and how it is regulated.
We have recently published the first two instalments in our Energy & Infrastructure video series, where we will be looking at ten different forms of sustainable infrastructure that we will see more of in the coming years.
Watch out for more episodes, which will include videos on the following topics:
