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From the Queen’s Speech to the next election: what now for the government’s agenda?
From the Queen’s Speech to the next election: what now for the Government’s agenda?

Posts Tagged ‘infrastructure’

Billed, Billed, Billed – the government sets out its economic recovery mission

WA’s Naomi Harris analyses the Prime Minister’s speech for what’s getting top billing; how big the bill will be; and what Bills we can expect to follow as he promises to ‘build back better’.

What’s getting top billing

The Prime Minister has earmarked £5 billion to ‘accelerate’ infrastructure to create jobs and support his ambition to ‘build back, better’. To turbo charge the stalled delivery of his ‘levelling up’ agenda and to invest in public goods that aid future prosperity, Johnson is carving up the money for capital spending in health, education and local infrastructure projects – the majority to be spent in the next two years.

The Chancellor is expected to go further next week when he delivers his ‘mini Budget’. Although Number 11 is keen for this not to be seen as an ‘emergency Budget’, it will be presented against a backdrop of the worst quarterly GDP figures since 1979 and, so far, the first local lockdown.

It will again focus on job retention with more detail on changes to employment and business support mechanisms and a potential temporary cut in VAT to help stimulate demand. We can also expect more from the Chancellor on job creation with further information on the earmarked ‘shovel ready’ projects and plans to support a ‘green recovery’. These two speeches are, however, stepping stones towards the much anticipated – and much delayed – National Infrastructure Strategy, now slated for the autumn.

How much the bill will be and who will pay

Uncertain about tax receipts and with public borrowing soaring, some have said that £5 billion is too much on top of the £298 billion that the ONS has said could be the final bill for existing support measures. Others say that £5 billion is a drop in the ocean if the Prime Minister truly wants to “use this crisis to tackle this country’s great unresolved challenges of the last three decades”.

It is undisputed that this government has thrown off austerity and has a new outlook. Ministers are happy to acknowledge where mistakes were made by previous Conservative governments and in his speech the Prime Minister spoke of a government that is “powerful and determined and that puts its arms around people at times of crisis”. Positively Keynesian, although this Prime Minister prefers the Roosevelt comparison.

In all of this it should be recognised that the Prime Minister’s ‘New Deal’ is not just about government spending but rather incentivising private sector investment. Just like Roosevelt, who created the Reconstruction Finance Corporation to design lending systems and new finance mechanisms to draw private investment into projects and insulate business from risk, Johnson is looking to encourage business to stump up capital through regulatory changes. Could this be the time for a Contract for Difference 2.0 or PFI 3.0?

The British taxpayer will undoubtedly be asked to start paying in eventually, but exactly who and when is an open question. Those who have been seen to do well from the crisis are likely to be at the top of the list for a windfall tax.

The Bills that we can expect to follow

We can expect the legislative pipeline to increase significantly in the tail end of this year as the government seeks to put its policy ambitions into action. The return of key personnel to Downing Street combined with rumours that the Cabinet Office and Number 10 may merge speaks of a government looking to increase its firepower on delivery.

 

 

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Are we still in the midst of an electric vehicle revolution?

The government’s 2035 ban on petrol, diesel and hybrid vehicles is under threat in the wake of COVID-19. With strong political and societal forces now in play, the government and industry face difficult decisions.

The risk is two-fold; the government may concede to pressure from some parts of a troubled automotive industry by relaxing its 2035 target; or a simple lack of policy action will make it far harder to meet the target in reality, even if government sticks by it on paper. The inevitable hampering of supply and demand will also make it harder.

Either way, industry will need to make a compelling case to government if it wants electric vehicles to remain a genuine priority policy area.

The government, meanwhile, needs to adapt its electric vehicle strategy in a way that reflects the new reality and has an opportunity to frame this as a key pillar of a green, economic recovery agenda.

 

COVID-19 changes everything

 

The world has fundamentally changed in the last two months.

For electric vehicles, supply is now a huge issue in Europe. Delays in global vehicle production is now likely as sourcing batteries and parts is very hard to do outside China without incurring much higher costs, especially considering China has far more lithium reserves and much greater lithium production than any other country.

Fiat has already implemented temporary closures at some of its Italian plants with others likely to follow, with the risk of a longer-term reduction in production capacity resulting from plant closures or delayed investment. In the UK, the likes of Nissan has today said it will begin building cars again in June having suspended production six weeks ago.

Even more significant, however, are the societal and economic changes arising from COVID-19, some of which serve to reinforce the case for electric vehicles whilst others hinder it. For example, the links being made between COVID-19 deaths and air pollution could increase the demand for cleaner and greener vehicles. A recent RSA survey found that over half of respondents had seen an improvement in air quality since travel restrictions were enforced.

Big questions are also emerging over the future of public transport. Auto Trader found 48 per cent of consumers were less likely to use public transport after the lockdown. Though this could lead to a rise in demand for electric vehicles in the longer term, equally, in the short term it could push people into buying dirtier (and now cheaper considering falling oil prices), CO2-emitting vehicles, or micro mobility solutions such as bikes or scooters. The former could potentially hinder the take up of electric vehicles, as could the latter as people look to replace shorter journeys with walking or cycling, thereby missing the window of opportunity to promote EVs as the natural solution.

 

Electric is still the answer

 

One fact remains clear; the drive to zero carbon and the increasing evidence of the harmful impact of air pollution mean electric vehicles remain an important long-term strategic play for the automotive industry, alongside hydrogen and other biofuels.

Yet take-up in the UK remains extremely low. March saw the number of new battery-electric vehicle (BEV) registrations number 11,694. That’s 4.6 per cent of a UK total market that was down 44.4 per cent. These numbers have been quickly dismissed by experts as distortions to what’s really going on. Yes, sales of electric vehicles are rising, but nowhere near as fast as March’s figures suggest. So, if March is just an anomaly then a more important question is what government should do to increase supply and demand of electric vehicles in both the short and long-term.

In the short term, despite extending its consultation deadline (from the 29th May to the 31st July) on bringing forward the ban on sales of new petrol and diesel vehicles, the transition to electric vehicles remains a key strategic pillar of the green agenda for government and the automotive industry. Government grants (including extending the plug-in car grant at the last Budget) and tax incentives have no doubt helped create the beginnings of an electric vehicle market in the UK but for manufacturers, another big driver of supplying these cars in the first place is the EU’s strict requirements when it comes to carbon dioxide emissions.

For consumers, they need the confidence now more than ever that they can buy an electric vehicle at a reasonable price. They also need to know they will have enough charge points along their route and that when charging their vehicle, the experience will be as quick and affordable as possible.

Existing commitments include ensuring every person in England and Wales is within 30 miles of a charging point; investing an extra £500m on a fast-charging network; and boosting funding for high-tech research by £9bn over the next five years. These will be important in giving consumers the confidence they need. However, government must implement these policies immediately, or at the very least accelerate them through releasing funds over a shorter 3-year period.

Furthermore, as provided for in the Automated and Electric Vehicle Act (2018), government also has at its disposal the powers to be more prescriptive with what it requires from charging providers in connection with standardisation across provider payment methods. Making use of these powers could provide a more seamless consumer experience, helping drive confidence, greater uptake of electric vehicles and, ultimately, help provide some much-needed economic stimulus.

 

The (green) road to recovery

In the longer-term, the government’s attention will turn to driving economic recovery.

One approach to this could be to double down on its climate change commitments as part of a ‘Green Recovery’ agenda, similar to Labour’s “Green New Deal” which would have seen a state-led investment programme to reduce greenhouse gas emissions in as fair a way as possible.

The policy thinking to support such an approach is already emerging; the International Renewable Energy Agency recently found that accelerating investment in renewable energy could generate global GDP gains of almost £80tn between now and 2050.

Electric vehicles would obviously need to be a key pillar of such an approach.

A green recovery agenda that prioritises the clean energy transition with a specific emphasis on its electric vehicle plans, could drive significant investment required to spark an economic recovery. Conversely, failure to prioritise these issues will be a major missed opportunity.

 

Industry’s role

COVID-19 has presented the government with a significant window of opportunity to pursue a clean energy system that aligns economic stimulus and policies with environmental goals.

However, there’s no guarantee this will happen.

So, for those with a vested interest in the development and take up of electric vehicles, getting out early and making the case for a green recovery will be crucial for realising the electric vehicle revolution.

We may not be in the midst of a revolution right this second, but with a little bit of refocusing from government and constructive engagement with industry about what needs to happen and how, we can soon be on our way.

 

 

 

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Communication matters: Covid-19 and the UK broadband sector

Broadband: a fourth utility

Yesterday should have seen the closure of Ofcom’s huge three month consultation examining almost all aspects of regulation for the UK’s fixed telecoms market. This exercise sits in the context of a very ambitious political target to deliver gigabit capable broadband to every UK premises by 2025.

Instead, Ofcom has suspended all consultation deadlines and has put any new consultation or decisions on hold in response to Covid-19.

The world has changed for every sector of the economy in the last three weeks and telecoms is no exception.

The challenge facing the sector has gone from racing to be part of the gigabit capable rollout and seeking every avenue to help accelerate build plans to maintaining what is now, more than ever, a vital fourth utility for a population largely unable to leave their homes.

Securing political recognition of the importance of maintaining these vital communication services has not been hard. With most of the population now attempting to work, educate their children and fulfil all their recreational needs without leaving the house, classing maintenance of broadband and mobile services as an essential service is a no-brainer.

The COVID-19 challenge

Securing classification of their engineers and street works operatives as key workers was a critical win. So is new guidance endorsed by DfT and DCMS underlining the importance of street works for this activity to continue.

So, what is the challenge?

In short, ensuring that the operational capacity is in place to maintain these vital networks and, where possible, for new network building to continue. This will mean flagging to government at an early stage if, and when, additional support measures to facilitate this are going to be required.

Protecting the supply chain will be critical to ensure that vital materials can continue to make it to the teams that need them. The risk is that suppliers further down the supply chain are impacted by an extended period of lockdown which may require more specific measures to ensure that the manufacturing and transportation of key materials can continue.

Government is alive to these dangers, but ensuring clear and regular communications between the sector and key officials and ministers will be critical. Government will need to understand as quickly as possible if new operational or regulatory constraints emerge that need to be dealt with at a political level and how they can help to fix them.

Looking ahead

What happens when the immediate crisis abates and attention turns back to medium term policy priorities?

Ofcom has been clear that this remains a critical area of focus, stating:

“The current situation has confirmed the vital role of our industries, and we are conscious that we need to be ready to support our sectors in being ready for the future as the country comes out of the crisis. Investment in fibre and 5G connections will remain of critical importance. Our review on promoting investment and competition in fibre networks and the 5G auction are important building blocks for this.”

The question the telecoms sector will be asking itself is: Does that mean everything just gets picked back up where it left off? Or will the experience of managing the worst pandemic in 100 years change the terms of the debate and shake up the familiar arguments over competition, the role of Openreach and how other players can access its passive infrastructure, full fibre vs gigabit capable etc?

Most likely it will be a bit of both.

This experience has reinforced the critical importance of delivering next generation connectivity to the whole country. The 2025 rollout target may be slightly relaxed if the operational impact makes it even clearer that it is not realistic. But the political sentiment and impetus behind full fibre rollout will, if anything, strengthen.

However, it is unlikely that the perspective of government or individual companies will be completely unchanged by this experience.

When everyone dusts off their draft Ofcom consultation responses or key messaging for the DCMS select committee inquiry on full fibre rollout there are almost certainly going to be new points to make and new angles to explore.

How might the policy debate change?

With telecoms and broadband edging closer to being classed as a critical utility in the same way as gas, water and electricity there will be renewed questions in the minds of policy makers about what this means for consumer protection.

Ofcom is already looking at this and undoubtedly ensuring the consumer gets a good deal and is protected will likely come into even sharper focus.

Early signs can be seen in the commitments from the main broadband retailers to lift data caps and adopt a flexible approach to consumers struggling to pay bills during the current crisis.

Furthermore, when building new gigabit capable networks, this may finally prompt more assertive action on the regulations governing the access of rivals to Openreach’s passive infrastructure (and to other wholesalers’ passive infrastructure in future).

This will now be viewed not just from a commercial perspective but from the perspective of maintaining network resilience.

Precisely how these new questions will evolve into the policy debate will be informed by the experience of the industry in the coming weeks. We are still a long way from being out of the woods but the process of learning lessons from the current experience to produce more effective policy outcomes that help accelerate the UK’s digital infrastructure upgrade is already underway.

For example, does there need to be an increased focus on network resilience when driving forward full fibre rollout and how can this be factored in? What additional protections, if any, are required for consumers, particularly in vulnerable groups? How can the efficiency and resilience of the supply chain, both of contractors and materials, be reinforced?

Those companies able to start that forward-looking process sooner rather than later stand to benefit a great deal in terms of their ability to shape the policy environment in the months and years ahead.

 

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