ALEX BRUMMER: Three key projects that the Chancellor MUST deliver

Amid the pre-Budget debate over the fiscal hits that await us all on October 30, unlocking investment in Britain’s future is finally being addressed.

Advanced discussions are underway on recasting fiscal rules to allow the Government more room to borrow to invest. Chancellor Rachel Reeves has already presented her main proposals to the Office for Budget Responsibility.

Unions appear to recognize that the greatest benefits in terms of future productivity and growth will come from making infrastructure a priority.

However, there was little encouragement in Reeves’s first statement to the House of Commons on July 29, which saw the scrapping of vital road projects such as the long-awaited Stonehenge tunnel and the Arundel bypass.

Since then, there have been encouraging signs of a restoration of stalled projects, including much of HS2 and a third runway at Heathrow. Government support for new nuclear energy could also be revived.

The problem is that these are truly long-term plans, with timelines stretching into the 2030s. They will have to compete with investment in the sinkhole that is the NHS and dilapidated school buildings.

Keir Starmer has also saddled the Treasury with ownership of Britain’s existing rail network, another potential drain on the public purse.

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

The cost to the taxpayer has skyrocketed since it returned to public hands. That bill could rise as other franchise agreements end and more of the network returns to the government.

A quick decision on HS2 is expected. When Rishi Sunak scrapped the northern leg from the West Midlands to Manchester in October 2023 amid rising costs, he failed to budget for a central London link from Old Oak Common in west London to the dilapidated Euston terminal.

He argued that if it was to be built, this unresolved part of the project would need to attract private sector funding. So far, as one potential developer told me, “it’s a big hole in the ground that no one is interested in.”

A decision on the budget and spending review looks likely. Euston is crumbling and overcrowded, and has recently come under fire for replacing its electronic timetable with an advertising billboard.

From a practical point of view, two giant tunnel boring machines will arrive from Germany this month. It now looks like around £1.7bn of investment funding could be unlocked to ensure the HS2 stump ends up in a London terminal rather than the suburbs.

There has been pressure on Reeves and Transport Secretary Louise Haigh from Greater Manchester’s popular Labor mayor Andy Burnham.

He told Starmer his region would be doomed to ‘Armageddon’ unless the Birmingham to Manchester stretch of the project was resurrected. The Full Monty of a bullet train to Manchester seems unlikely. But at stake is the possibility of a cheaper and lighter train, which uses the route and greatly increases its capacity.

Industrial, commercial and residential projects on the route to and around Birmingham show how better transport links can spur development in lagging regions.

That does not mean that London and the South East, which generate the largest proportion of national income from City services, professional and otherwise, can afford to be ignored. Quite the opposite. The £100 billion a year of taxes generated by the sector needs to be increased.

The big solution, which could underpin Britain’s preeminent role as Europe’s financial centre, is more capacity at Heathrow.

Plans for a third runway, recommended by city great Howard Davies in 2015, never materialised.

They were first hit by political chaos after the Brexit referendum and then by Covid. And Heathrow’s biggest user, British Airways, has always been reluctant to support a third runway, fearing higher fares and creating more landing and take-off space 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 serious delays in departures and arrivals. Morning transatlantic flights often burn fuel as they circle the airport waiting for landing slots.

Heathrow’s owners are understood to have been waiting for a new government in the hope of reviving the runway project as London competes with Frankfurt, Paris and, increasingly, Dubai.

Chief executive Thomas Woldbye is currently looking to squeeze more capacity out of existing infrastructure, but would also like to see the third runway.

As BA witnessed after decade-long delays in planning Terminal 5, expansion at Heathrow is never easy.

A new lead would offer Labor the chance to show that its manifesto promise to tear down planning rules to allow for infrastructure and housing is more than mere rhetoric.

The other major infrastructure project that needs urgent attention is new nuclear energy. Great British Energy has a budget of £8.3 billion. To succeed, it must ensure that, as Britain moves towards a carbon-free economy, it has a baseload of reliable electricity that is not reliant on blowing wind, the sun and still inadequate battery storage.

The key to this will be nuclear energy. The lifespan of existing nuclear power stations has been lengthened and the new, over-budget Hinkley Point super reactor in Somerset is struggling for new funding.

Centrica, which owns a 20 per cent stake in Britain’s aging reactors, is being chosen to invest in Hinkley alongside French powerhouse EDF. Centrica also indicated it would be willing to be a key investor in a second superplant at Sizewell in Suffolk when the Government provides the necessary support.

Energy Secretary Ed Miliband, once an enthusiast for zero-carbon nuclear power, has so far remained silent on Rolls-Royce’s new big plants and small modular reactors. Investment in repair and creation of new infrastructure was a plan that Boris Johnson, a supporter of new visionary projects, never managed to fulfill. Rishi Sunak bowed to pressure to cancel rather than redevelop much of HS2 and failed to understand the problem. Reeves’ first budget is his chance to change course.

The Chancellor recognizes that infrastructure must be a fundamental part of an agenda to unleash productivity and growth, and will seek to redefine public finances to make this happen.

In the end, however, their ambitions will come under scrutiny by financial markets and the reaction of sterling and gold-edged stocks: government-issued IOUs.

So far, judging by high bond yields, traders don’t really like what they’re seeing.