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Tom Henderson Tom Henderson Partner
19 July 2016

What are the implications of Brexit for the transport infrastructure sector?

This article was first published in the Transport Times, July 2016.

In the aftermath of Brexit, it seems that the only thing that can be said with any certainty is that we face a sustained period of uncertainty.

Given the potentially damaging ramifications of this, there have been plenty of “business as usual” reassurances doing the rounds. In this vein the Secretary of State for Transport recently affirmed the government’s commitment to major infrastructure programmes including HS2, the northern powerhouse, rail electrification and the roads investment strategy.

From the perspective of someone operating at the working level on these sorts of projects, it is fair to say that the immediate post-Brexit experience has indeed been “business as usual” – work has continued pretty much as it did before. Can this be taken as early indication of the shape of things to come? Probably not, as the political fall-out from Brexit means that we’re still in something of a hiatus.

The nature of transport infrastructure – promoted and funded both by the public and private sectors, and comprising the UK’s largest and most expensive projects – raises some interesting questions for how the sector may be affected by Brexit. The obvious starting point is the imminent change to the political landscape.

Brexit has, of course, precipitated a change in leadership of the government. The prospect of a Conservative leadership contest lasting until September had meant it likely that key decisions would be deferred at least until the new leader was appointed and a reshuffled cabinet installed, and perhaps until that new team had put together its first autumn statement. With the quicker than expected resolution of the leadership question, and given that Theresa May appears to have ruled out a snap general election, the machinery of government may begin turning again soon.

Nevertheless a casualty of the Brexit-precipitated hiatus was the decision on the location of a runway in the south-east, delayed until (at least) October – it would be a surprise if it was issued before then. It is likely that some other key decisions have also been stuck in the same queue, delaying progress. And it is conceivable that slower decision-making will remain a function of Brexit, since government’s focus, and hence a good deal of Whitehall resources, will inevitably be diverted towards negotiations with the EU over the terms of Brexit.

Of course the other consequence of a leadership change is a potential change of direction for transport infrastructure policy. It seems unlikely that the Theresa May will stray very far from the government’s policy of prioritising investment in transport, but which types of schemes will be favoured, and where?

Using the runway decision as an example, Heathrow’s chances remain unclear, since Theresa May has expressed concerns about the impact of its expansion. And will the geographic balance of spending change too? Brexit will certainly increase pressure on government to focus more resources on the regions, in particular to put some substance behind the northern powerhouse initiative.

Underpinning all of this is the wider question of how much money will be available to spend on infrastructure projects – which in turn will depend on the economic consequences of Brexit. The long term outcome will ultimately rest on whether, in years to come, the UK economy fares better or worse outside of the EU. As for the short to medium term, the early indications are that the economy will suffer some adverse effects.

This may be felt most acutely for privately funded transport projects. The UK is the biggest recipient of foreign direct investment in the EU, so any loss of confidence pending clarity over the UK’s future relationship with the EU might see prospective investments deferred. There has been some anecdotal evidence of this happening already

On the positive side, the European Investment Bank (EIB) has confirmed that it will continue to lend money to UK infrastructure projects whilst the UK remains a member of the EU. And publicly funded projects currently under development may enjoy a degree of immunity, if government prioritises transport investments to stimulate growth. But if the UK economy contracts – or simply the government needs to look for more savings – the largest and most expensive public projects such as HS2 may come scrutiny, and tough decisions could not be ruled out.

A final word on the legal implications of Brexit. Many of the laws which infrastructure developers must comply with derive from the EU – habitats and species protection, environmental impact assessment, road tolling, air quality, and state aid, to name but a few. There is no immediate change to this law as a result of the Brexit vote. And it is likely to apply unchanged for the foreseeable future, given that much of that law has been transposed into UK legislation, and the subject matter is unlikely to be high on the government’s Brexit negotiations agenda.

At some point there will need to be a debate on what should happens to EU-derived law in this area, but taking environmental protection legislation as an example, there is unlikely to be a clamour for it to be rolled back. But given the increasing recognition that the application of this law has made the planning process unwieldy, Brexit might offer a useful opportunity for some sensible rationalisation.

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