Sowing seeds for growth, but no green shoots for capital spending: EY Budget Commentary

Rohan Malik, EY UK&I Government and Infrastructure Leader, comments on the Chancellor’s Spring Budget:

“Today’s Spring Budget reinforced the Chancellor’s commitment to stability, with selected growth incentives for priority areas. This may help reassure some in the business community, with clear and consistent policy that was telegraphed in advance.

“While it is encouraging to see Government sow the seeds for future growth in specified areas, there were no ‘green shoots’ for capital spending, which the Chancellor reiterated in his plans to freeze from 2025. Inflationary pressures will mean this essentially represents a cut to public sector investment, which may risk the delivery of the UK’s already delayed largescale infrastructure project pipeline.

“EY’s recent Regional Economic Forecast revealed that the rising cost of living is likely to exacerbate the differences in economic performance across the country this year, widening regional inequalities. Infrastructure projects help deliver growth, jobs and skills across the UK, so pushing these projects even further behind schedule is likely to have consequences for regional growth. Private sector capital is available to plug gaps in public spending, but mobilising institutional investors will require further clarity. With various projects either stalled or encountering delays, government could help dispel confusion by outlining which are key national priorities and highlighting where the private sector can play a collaborative role in funding them.

“Investment zones have the potential to nurture growth in areas that most need it, but central and local government will need to work together in the coming months to pair this policy with visionary region-by-region sectoral growth plans. A one-size fits all approach won’t work, and regions should understand their own strengths, weaknesses, and sub-sector opportunities. This will require close collaboration and defined roles within the private sector, alongside government, as investors, employers and economic agents in their regions. It’s also vital to unlock investment in skills and encourage labour retention.” 

“The announced £20bn allocated to carbon capture and storage technology is encouraging, as is the intention to reclassify nuclear as environmentally sustainable, which should help to unlock financing opportunities in energy infrastructure and support project delivery. All eyes are now on the Government’s revised Net Zero strategy, due to be published later this month, and expectations should be high. The recent Skidmore Review provided a host of sensible recommendations and the newly-established Department for Energy Security and Net Zero should bring some welcome alignment. However, we have seen years of well-intentioned Whitehall positioning. If the UK is to finance the growth of its own green super-economy and harness Net Zero to power regional growth in manufacturing and jobs, we urgently need to move towards delivery.”