Autumn Statement 2022: UK chancellor pulls ‘rabbit from hat’ on infrastructure and energy funding

Delivering his autumn statement (70 pages / 5.94MB PDF) on Thursday, Jeremy Hunt told MPs that total departmental capital spending in the 2024-2025 financial year would be maintained, in cash terms, until 2027-2028. He said the £600 billion pledge would be used to deliver major infrastructure projects, including the NHS hospitals programme, East West Rail, core Northern Powerhouse Rail, and HS2 to Manchester.

Hunt also said the government remained committed to Project Gigabit, an effort to reach at least 85% gigabit-capable broadband coverage across the UK by 2025, and nationwide coverage by 2030. He said he would place the UK Infrastructure Bank on a statutory footing to help facilitate long-term investment too. Jonathan Hart of Pinsent Masons said that, contrary to “gloomy predictions of cuts to existing projects”, the chancellor “seems to have pulled a rabbit from the hat.”

Hart said: “The announcement that there will be no cuts to existing capital budgets for the next two years will no doubt come as a relief to energy and infrastructure sector, particularly given the impact of inflation on frozen budgets and rising construction costs. As always, the devil will be in the detail. However, considering what could have been announced , the chancellor’s statement is to be welcomed.”

Hunt said the government will press ahead with the development of a nuclear power facility at Sizewell C alongside the roll-out of cheap, clean renewables, including wind and solar. He added that the new plant would help secure the UK’s energy security, hit its target of decarbonising the country’s power system by 2035, and reach net zero by 2050.

Graham Alty of Pinsent Masons said: “The confirmation from the chancellor that the construction of the Sizewell C nuclear plant is going ahead is fantastic news. It provides the UK with significant capacity of safe, clean energy which will support growth, facilitate the development of green hydrogen and help us transition to a net zero economy.”

Hunt also confirmed that the second round of the Levelling Up Fund will allocate at least £1.7bn to priority local infrastructure projects, with successful bids announced before the end of the year. Hunt added that negotiations for further mayoral devolution deals across the England would give local partners more flexibility and accountability over key economic growth funds.

Robbie Owen of Pinsent Masons said: “The chancellor’s confirmation that the UK’s climate change commitments, agreed at COP26 in Glasgow, would be adhered to is of course very welcome. The surprise, however, was the government’s pledge to maintain 2024-2025 capital spending in cash terms until 2027-28, although the impact of inflation on frozen budgets at a time when construction price trends and experience from projects have risen and will continue to rise remains to be seen. It’s also a strong signal that the £600bn government investment over five years will be coupled with four new devolution deals and new mayors, and potentially significantly enhanced devolution deals for Greater Manchester and the West Midlands.”

He added: “It was also interesting to hear the chancellor clarify that investment zones – one of the sole surviving elements of Liz Truss’ economic plans – will be refocused so that they centre on universities in left behind areas of the country. What was not particularly clear, however, was how this good news package would be paid for. At this stage, it all seems rather too good to be true.”

Owen also welcomed Hunt’s pledge to continue to ensure that all infrastructure is delivered quickly through reforms to the planning system, including through updating National Policy Statements for transport, energy and water resources during 2023, and through sector-specific interventions. He said: “The government’s plan to accelerate delivery of projects across its infrastructure portfolio, rather than focus on the list of projects that were flagged for acceleration in September’s Growth Plan, is clearly much more achievable than what was said in the Growth Plan".

The chancellor said £40bn would be raised over the next six years through the revised energy profits levy (EPL), with the changes set to take effect from 1 January 2023. He said the EPL rate would rise to 35% from the existing 25%, while the investment allowance for energy providers would be reduced to 29% for all investment expenditure – except for decarbonisation expenditure which will continue to qualify for the current investment allowance rate of 80%.

At the same time, a new electricity generator levy is to be imposed. This is a temporary 45% tax on the extraordinary profits from low-carbon UK electricity generation. The tax will be limited to generators whose in-scope generation output exceeds 100GWh across a period and will only then apply to extraordinary returns exceeding £10m. Hunt said the tax will apply to extraordinary returns arising from 1 January 2023, and will be legislated for in the next Finance Bill.