ALEX BRUMMER: Three key projects that the chancellor MUST implement

Amid the pre-budget debate about the tax breaks awaiting us all on October 30, there has finally been talk of unlocking investment in Britain's future.

Advanced discussions are underway on transforming fiscal rules to provide the government with greater freedom to borrow for investment. Chancellor Rachel Reeves has already forwarded her main proposals to the Office for Budget Responsibility.

Labor appears to realize that the greatest benefits in terms of future productivity and growth will come from prioritizing infrastructure.

However, Reeves' first statement to the House of Commons on July 29 was not encouraging, with key road projects such as the long-awaited Stonehenge Tunnel and the Arundel Bypass completed.

Since then, there have been encouraging indications of the revival of stalled projects, including large parts of HS2 and Heathrow's third runway. Government support for new nuclear weapons could also be renewed.

The problem is that these are really long-term programs, with a schedule stretching back to the 2030s. They will have to compete with investment in the sinkhole that is the NHS and crumbling school buildings.

Keir Starmer has also burdened the Treasury with ownership of Britain's existing rail network, another potential burden on the public purse.

South East Trains, which became state-owned in 2021, consumed £415m of state funds in the year to March 2024 despite rising passenger numbers and increased services.

Costs to taxpayers have skyrocketed since the case returned to public hands. That bill could grow as other franchise agreements expire and more of the network returns to the government.

An early decision on HS2 is expected to be made. When Rishi Sunak moved the northern section from the West Midlands to Manchester in October 2023 due to rising costs, he failed to budget for a central London link from Old Oak Common in west London to the dilapidated Euston terminus.

He argued that if it were to be built, this pending part of the project would need to attract private sector funding. For now, as one potential developer told me, “it's a big hole in the ground that no one is interested in.”

A decision seems likely during a budget and spending review. Euston is run down and overcrowded and has recently been criticized for replacing an electronic timetable display with advertising boards.

From a practical point of view, two giant tunnel boring machines are coming from Germany this month. It now appears that around £1.7 billion of investment funds could be unlocked to ensure that the HS2 stump ends up at a London terminus rather than the suburbs.

Popular Labor mayor of Greater Manchester, Andy Burnham, kept pressure on Reeves and Transport Secretary Louise Haigh.

He told Starmer his region would be doomed to “Armageddon” if he did not bring parts of the Birmingham to Manchester project back from the dead. Full Monty in the form of a bullet train to Manchester seems unlikely. However, it is possible that a cheaper and lighter train could use this route and the capacity could be significantly increased.

The industrial, commercial and residential sites in and around Birmingham show how better transport links can boost development in lagging regions.

This does not mean that London and the South East, which generate the largest share of national income from city, professional and other services, can afford to be ignored. On the contrary. The amount of tax generated by this sector of £100 billion a year needs to be increased.

The most important amendment that could reinforce the UK's prominent role as a European financial center is to increase the capacity of Heathrow Airport.

Plans for a third runway, recommended by city grandson Howard Davies in 2015, never materialized.

They were surprised first by the political chaos after the Brexit referendum, and then by Covid. Heathrow's main user, British Airways, has always been reluctant to support the construction of a third runway, fearing higher fees and the creation of more slots for its rivals.

In the first half of 2024, the UK's flagship airport served around 40 million passengers. As a regular user, I can attest to major delays in departures and arrivals. Morning transatlantic flights often burn fuel as they circle the airport waiting for landing slots.

It is understood that Heathrow's owners were waiting for a new government in the hope of reviving the runway project as London competed with Frankfurt, Paris and, increasingly, Dubai.

CEO Thomas Woldbye is currently looking to increase capacity on existing infrastructure, but would also like to see a third runway.

As BA could testify after a decade of delays in planning Terminal 5, expanding Heathrow Airport is never easy.

A new runway would give Labor the opportunity to demonstrate that its manifesto promise to scrap planning rules to enable infrastructure and housing is more than just rhetoric.

Another major infrastructure project requiring urgent attention is new nuclear power. Great British Energy has a budget of £8.3 billion. To be successful, as the UK transitions to a zero-emissions economy, it must ensure a reliable baseload of electricity, independent of wind, solar radiation and the still insufficient levels of battery energy storage.

Nuclear energy will be the key to this. The life of existing nuclear power stations has been extended and a new super reactor, which is running over budget at Hinkley Point in Somerset, is seeking new funding.

Centrica, which has a 20% stake in aging UK reactors, is selected to invest in Hinkley alongside French power plant EDF. Centrica has also indicated that it would be willing to become a lead investor in a second superfactory at Sizewell in Suffolk if and if the Government provides the required support.

So far, Energy Secretary Ed Miliband, once an enthusiast of carbon-free nuclear power, has remained silent on both large new power plants and Rolls-Royce's small modular reactors. Investing in repairing and creating new infrastructure was a plan that Boris Johnson, a supporter of new, visionary projects, never managed to implement. Rishi Sunak bowed to pressure to cancel rather than reshape most of HS2 and failed to grasp the nettle. Reeves' first budget is her chance to turn things around.

The Chancellor recognizes that infrastructure should be a key part of the agenda to unlock productivity and growth and will seek to redefine public finances to make this happen.

Ultimately, however, its ambitions will ultimately be controlled by the financial markets and the response of the sterling and gold exchanges – IOUs issued by the government.

So far, judging by the elevated bond yields, investors don't like what they see.

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