Spending Review 2020: Infrastructure revolution

Read our commentary on the Spending Review on the infrastructure revolution, levelling up and shared prosperity fund.

Jonathan Branton, Head of Public Sector at DWF, said: "The Comprehensive Spending Review has been delivered by the UK Chancellor of the Exchequer Rishi Sunak today against the sobering backdrop of the Covid-19 pandemic leading to the worst economic slump in 300 years and with only 36 days to get a Brexit trade deal. In such situations, public support and stimulus of the economy comes to the fore and there is an understandably vital focus on using such funds to drive the recovery of the economy from the pandemic, or rather the "bounce back".

In particular the Spending Review announces the next phase of the government's so-called infrastructure revolution, worth over £100 billion in capital spending next year to kickstart growth and jobs. This will cover a wide variety of proposed investment from improvement in R&D, road and rail links, housing delivery, broadband networks, floods and coastal defences, schools and hospitals, defence modernisation and electric charging infrastructure. In the latter case this is part of a supposed £12 billion of funding towards a "Green Industrial Revolution" from which it is intended to transition the economy to net zero emissions. The Spending Review simultaneously announces a "Levelling Up Fund" worth £4 billion for England (and £0.8 billion for Scotland, Wales and Northern Ireland). This will invest in local infrastructure that has a visible impact on people and their communities and supports economic recovery. Delivered by Treasury, DFT and MHCLG this will allow local areas to bid for public funding of up to £20m for infrastructure which shall drive growth and regeneration. The first round of competitions is expected to take place early in the new year.

The BBC had reported earlier this week that the UK Shared Prosperity Fund (SPF) would be launched in the spending review (see earlier DWF note), but the reality was rather more circumspect. The Chancellor announced that the fund will 'over time' rise to an average of £1.5bn a year, but in 2021-22 it appears this will take the form of a series of pilots only, in preparation for a deeper roll out of the SPF from 2022-23. Given that no new funding is available from EU funds such as ERDF and ESF (that the SPF is supposed to replace) after 31 December 2020 this seems a missed opportunity, although existing EU-funded projects can keep spending until 2023. This may disappoint some not least because the more immediate pilots for 2021-22 are understood to only be valued at £220m, therefore leaving a circa £1.3 billion gap, which will presumably be made up in future years.

"However for all of the promises of new funding for infrastructure and levelling up, it will be vital that these headlines translate into real projects that actually happen on the ground, and quickly. It seems clear that the UK economy is going to need public stimulus possibly like never before and the government insists it will not return to austerity. However, to implement this public spending it will be vital to have a clear and robust set of subsidy control laws against which the respective grants and other payments needed can be made. This is plainly so regardless of any future trade deal to be concluded with the EU (see also previous DWF note). With only just over a month to go to the end of the Brexit transition period and no clear details yet for how the UK will regulate the award of public funding as of 1 January 2021, there is a risk of significant legal uncertainty impeding the delivery of this funding in a smooth way."