8 business critical measures in the Budget, missed by the press

Given the noise that always accompanies a Budget we wanted to delve a little deeper into the Red Book and pull out some of the ‘under the radar’ measures announced that - while not getting much media attention - are important to business.

1. Public sector productivity programme - “The government is committing £4.2 billion of funding at Spring Budget 2024 to improve the productivity of the public sector… investing in technological and digital transformation to help unlock £35 billion cumulative savings by 2029‑30.”

   Verdict: certainly not missed in the press, with it being a cornerstone of the current budget. However, little has been said about the likely enormous procurement opportunity this programme embodies for those with the right expertise. As the fiscal envelope likely remains tight in coming years, expect more productivity programmes and opportunities to lend a hand on them.

2. Contracts for Difference - “The government has published full parameters for the Contracts for Difference Allocation Round 6 (AR6), including setting the largest ever budget for a single round, of over £1 billion.”

   Verdict: the last round of the CfD competition was widely considered a disaster, seeing no bids coming in from the offshore wind sector - the offer from HMG was too meagre in the face of inflation to elicit any interest from offshore industry. Lessons appear to have been learned, with the next round set to see the CfD’s biggest budget yet.

3. Nationally Significant Infrastructure Projects - “The government is publishing a response to the consultation on operational reforms to the NSIP consenting process and the updated National Networks National Policy Statement.”

   Verdict: progress of projects through the NSIP regime has become frustratingly slow with time. New reforms will allow for a fast track route and enhanced support services from the Planning Inspectorate to allow high-quality projects to move through the early stages of the process faster.

4. Full(er) expensing - “Draft legislation on an extension of full expensing to assets for leasing will be published shortly. Full expensing will be extended to assets for leasing when fiscal conditions allow.”

   Verdict: full expensing (the ability of firms to claim 100% capital allowances on qualifying plant and machinery investments) was made permanent at the Autumn Statement, in future, it will be possible to make similar claims on leases, enabling a much wider range of firms to take advantage of the offer, which up until now has had a strong bias towards heavy industry.

5. New securities exchange for private firms - “The government is consulting on the Private Intermittent Securities and Capital Exchange System (PISCES), a new innovative market that will allow private companies to scale and grow, and will boost the pipeline of future IPOs in the UK.”

   Verdict: This move follows in the footsteps of Nasdaq Private Market, a similar exchange operational since 2013 which in 2023 crossed $45 billion in transactions. As more and more firms opt to remain private for longer, the UK initiative is potentially very timely - indeed, the London Stock Exchange Group has already indicated a willingness to set up such an exchange. Finally, it’s worth noting that a private exchange would complement the current drive for pension fund investment in private markets: the ability to sell a private stake on an exchange means liquidity constraints - a key obstacle for pension funds, some of which need daily liquidity - can be alleviated.

6. Confirmation of ESG ratings regulation - “The government will regulate the provision of ESG Ratings, where these assessments of ESG factors are used for investment decisions and influence capital allocation [...] A full consultation response and legislative steps will follow later this year.”

   Verdict: If executed in a way that prioritises consistency and comparability, including with the rules proposed by the European Commission in June of last year, this move can alleviate what is perhaps the biggest problem in the burgeoning ESG ratings industry: lack of consistency, which makes, for example, within-sector comparisons of decarbonisation impossible. For firms investing heavily in the Net Zero transition, there is therefore a chance they will begin to see it reflected in their cost of capital to a greater extent than before.

7. Life sciences - “Building on the Autumn Statement 2023 announcement of £520 million new funding for Life Sciences manufacturing, the government is announcing that funding competitions for large scale investments will open for expressions of interest this summer with a separate competition for medium and smaller sized companies opening in the Autumn.”

   Verdict: the government is throwing (even more of) its weight behind life sciences with previously announced funding pots opening up. Several housing and transport schemes have also been announced in Cambridge and London with the intent of enabling the growth of their life and health sciences hubs.

8. Devolution Deals - “...the government has agreed a deeper “trailblazer” devolution deal with the North East Mayoral Combined Authority… The government has finalised the first of these agreements with Surrey County Council, Buckinghamshire Council and Warwickshire County Council.”

   Verdict: the North East Mayoral Combined Authority will be working towards seeing the same level of independence as the West Midlands or Greater Manchester Combined Authorities, with increased power over skills, local energy planning and transport functions. With the extension of further level 2 deals, more than two-thirds of England’s population will be living under some sort of devolution. For those not well acquainted with their relevant mayors and council leaders, now would be the time to ingratiate yourselves.

Lord Stewart Wood joins Bradshaw Advisory as a Senior Adviser

Bradshaw Advisory is pleased to announce that Lord Stewart Wood has joined Bradshaw Advisory as a Senior Adviser to help clients to think about a potential incoming Labour government - particularly their policy plans for the economy and net zero (in line with the rules of the House of Lords).

Stewart was chair of the Council of Economic Advisers to Gordon Brown, a special adviser in Downing Street and a strategic adviser to Ed Milliband. He was the Chair of the United Nations Association and Director of Janus Henderson's Diversified Income Trust.

Prior to politics, Stewart went as a Fulbright Scholar to Harvard to complete his PhD in government and taught politics and economics at the University of Oxford.

He is a Fellow of Practice at the University of Oxford's Blavatnik School of Government.

Bradshaw Advisory to support the Inclusive Growth Commission

Some of the UK’s biggest employers and infrastructure investors including Forth Ports, Manchester Airports Group, CBRE, NAMRC, Mace as well as trade associations Make UK and the Association of British Insurers have launched the Inclusive Growth Commission to help tackle our long-standing and highly impactful growth problem. The research, policy and secretariat function of the Commission is provided by Bradshaw Advisory’s expert team.

The Inclusive Growth Commission will develop practical ideas to address the challenge of a lack of growth in the economy, a systemic issue since the Global Crash of 2008. The next 12 months will see commissioners from leading capital-intensive businesses and expert advisers from the academic and think-tank world make proposals in the areas of investment, project delivery, work, health and skills to achieve fairer and inclusive growth for all parts of the United Kingdom. 

The Commission believes that focus on capital - physical, financial, human and knowledge - is the key prism through which to view the growth problem:

1. Physical capital - housing as well as energy and transport infrastructure to allow key UK clusters to develop and become engines of growth.

2. Human capital - a healthy, skilled workforce able to participate in and fuel growth.

3. Financial capital - reliable flow of patient capital investment of sufficient scale to support development of future engines of growth.

4. Knowledge capital - an institutional network able to channel financial capital in a way that maximises the development of commercialisable ideas.

Commissioners

Ciaran Bird, Divisional President, CBRE

Hannah Gurga, Director-General, Association of British Insurers (ABI)

Jason Millett, CEO of Consultancy, Mace

Ken O'Toole, CEO, Manchester Airport Group

Charles Hammond, CEO, Forth Ports

Verity Davidge, Director of Policy, Make UK

Andrew Storer, Chief Executive, Nuclear Advanced Manufacturing Research Centre

New research on growing the economy and overcoming NIMBYs

Bradshaw Advisory is working to support the newly formed Inclusive Growth Commission - a blue-chip business-led policy forum - on developing pragmatic policy proposals to unlock inclusive growth in the UK economy.

As part of our work, we partnered with YouGov to undertake new research on public attitudes to growth and the planning system. The full data tables can be found here.

In summary, the public doesn’t feel that Labour (net -9 points) or the Conservatives (net -30 points) currently have credible plans to grow the economy.

• The most popular political party voters trust to grow the UK economy is ‘none of the above’.

• The top three ways the public thinks we can grow the economy are 1) invest in training for high-tech jobs and industries 2) increase transport links across the country and 3) build more houses. 

On housebuilding and the planning system:

• More than half the country (53%) would support a large increase in housebuilding (33% against) with 47% supporting it in their own local area.

• 26% think that planning laws around house building are ‘too strict’, 27% think they are ‘about right’ and 21% feel they are ‘too loose’.

• In terms of persuading local communities to accept a ‘large increase in the amount of new housing’ in their local area (in order of popularity):
  ○ A promise of investment in improving local services (e.g. more doctors, school places) accompanying development saw support rise to 75% V 13% opposing (a 28% boost in support compared to the baseline).
  ○ Reserving a fixed proportion of new homes for local people saw 66% support and 19% opposition (19% boost V baseline).
  ○ Delivering new developments in a way that was in keeping with local architecture and building traditions saw 64% support and 20% opposition (17% boost V baseline).
  ○ A direct cash payment to local people of £10,000 saw support of 60% V 28% against housing plans (a 13% boost in support compared to no payment).
  ○ Money off energy bills for all households in the local area saw support at 60% with opposition at 24% (a 13% boost in support compared to the baseline).

Where's your head(room) at? It’s Autumn Statement season.

This piece is by our Senior Consultant Economist, Matthew Latham.

It’s Autumn Statement season once again and, while we’re not in as fraught circumstances as we were in the aftermath of the short-lived Truss administration, the stakes are high for the Chancellor. There is of course the prospect of an election next year and with the Tories 20 points behind in the polls, Mr Hunt would normally be wanting to give away a number of goodies. His tone in the press over the past few weeks, however, has suggested that we may have a rather more restrained budget, with him ruling tax cuts as being out of the question. Unsurprisingly, this has left many other party members cold, with them already incensed by the country’s record breaking tax burden.

At the centre of much of the debate of what we can expect to see in the upcoming budget is ‘headroom’ and how much of it the Chancellor has to play with. Here, we’ll take a little tour of what the word means and dive into the factors affecting both it and the Chancellor’s decision making in the upcoming budget. Much of the conversation around the Statement’s likely measures thus far has been focussed on households and the likely settlements for different public services. To add a counterpoint, we’ll provide some discussion of some policies businesses might see affecting their bottom lines.

Figure 1: headroom pressures in a nutshell

For those of you looking for the headlines: (see the diagram above) the Autumn Statement must, according to OBR forecasts, set the country on the track to see net debt as a % of GDP to be falling by 2027/28 and for net borrowing to not exceed 3% of GDP in that year either. 

While at the time of the Spring Statement, the country was seeing expectations of its growth performance upgraded and expectations were set for interest rates to have peaked by Q3 of this year. Growth projections are now being downgraded and inflation and interest rates have remained high (even with reports of inflation dropping to 4.6% in October, that’s still orders of magnitude higher than has been the norm this decade). Lower expected growth puts downward pressure on government receipts, whilst higher interest rates increase debt servicing costs towards 2027/28. Higher inflation on the one hand increases the cost of pension and welfare spending, but increases the size of the cash economy, boosting revenues in nominal terms. The size of the Chancellor’s ‘headroom’ and thus, his willingness to give away goodies will depend on the relative sizes of these effects reflected in the OBR’s forecasts.

Thus far, we’ve seen projections of tightening headroom, as pointed to by the IFS on multiple occasions, but other forecasts, produced by NIESR, for example, expect headroom to the tune of £90bn for the funding of tax cuts. Which forecaster is right ultimately doesn’t matter for the budget, it’s what the OBR predicts that’ll determine what the Chancellor has to play with.

It is also (very) likely that Mr Hunt’s grim tone is being taken now to create a greater sense of excitement around whatever goodies he does decide to give away.

What determines how much ‘headroom’ we have?

Much of the gossip surrounding the upcoming Autumn Statement centres on the issue of ‘fiscal headroom.’ This refers to the degree to which the Chancellor can take actions which will loosen the public finances in some way (by either cutting taxes or increasing spending somewhere), whilst still meeting the fiscal rules set out in last year’s Autumn Statement. These fiscal rules are:

• for public sector net debt (excluding the Bank of England) as a % of GDP to be falling by the fifth year of the OBR’s forecast, i.e. 2027/28.

• for public sector net borrowing to not exceed 3% of GDP by the fifth year of the OBR’s forecast.

• to ensure that spending on welfare is contained within a predetermined cap set by the Treasury.

The first two are the most pressing for both the Chancellor and the country more widely, dictating a more broader set of decisions than the third.

The first rule means that, based on the decisions made at the Autumn Statement, the OBR’s forecast values for public sector net debt as a share of GDP must be falling in 2027/28. In simpler terms, it translates to ‘the country’s level of indebtedness relative to its income should be falling in the medium term.’

The second rule means that by 2027/28, public sector net borrowing must be at or below 3% of GDP, essentially meaning that in the medium term, we should expect the government to be keeping a ‘disciplined’ budget. This leaves room for governments to respond to short term crises, where we would expect to see high levels of spending and potentially low tax revenues, but for these to be brought in line by the time the crisis in question is recovered from.

As will become clear from the discussion below, it is the first rule which will be binding for the Chancellor in the current budget, driven in part by the costs of servicing the country’s debt increasing over the medium term.

How much room for manoeuvre is there?

At the time of the Spring Budget, a whole 8 months ago, the government was forecast to meet all three fiscal rules, with the OBR forecasting public sector net debt as a share of GDP to fall by 0.2 percentage points between 2026/27 and 2027/28, public sector net borrowing to be at 1.7% in 2027/28. This budget came at a time when, as it is now, the tax burden was at its highest level since the end of the second world war, after a decade of attempted budget cuts and record-low capital expenditure, as well as record levels of public debt. Even so, ‘headroom’ was found for a number of new spending commitments and tax cuts in areas like childcare and pensions.

The ‘headroom’ found for these extra commitments, came in large part due to improving prospects for the UK economy. Forecasts had in the months prior upgraded expectations about the UK’s growth performance in the short term from a recession to some stagnation. It was also expected that the inflation which had been driven by increased fuel costs would fall steadily throughout the year, standing at 5.4% by now, which would in turn lead to a reduction in the Bank of England base rate, which was expected to peak at 4.25%. The avoidance of a recession and the eventual calming of price and interest rate rises provided enough wiggle room for the Chancellor to offer some loosening of fiscal policy in certain areas.

Many of those factors which, in the short to medium term, were set to provide some relief for the government’s coffers either have not materialised on the upside or have begun to dissipate.

Inflation has remained higher than was expected at the start of the year, reportedly sitting at 6.7% for quarter three of 2023, with the price shock generated by the energy crisis feeding through into more persistent core inflation via salary increases. This in and of itself would actually have a positive impact upon the revenue-side of government finances. With high inflation, especially when driven in part by pay growth, the government is able to bring in more in cash terms via taxation, an effect enhanced by the freezing of income tax thresholds. These increased revenues and cheaper-than-expected energy supports have led to borrowing for the fiscal year actually being around £10bn below expectations. 

Given that both increases in salaries and the price level tend to be permanent, the benefits of these changes for the government’s coffers is likely to persist over the course of the 5-year forecast period, potentially reducing the value of the numerator of the all important net debt to GDP ratio. The larger economy in cash terms, which we can expect after a period of inflation and salary adjustments, will also help to chip away at the denominator.

‘So what’s the problem then?’ I hear you ask. The problem is not in inflation’s effect this year, but over the next 5 or so years.

In response to this above forecast (and more importantly, above target) inflation, the Bank of England has increased its base rate to 5.25%, a whole percentage point above what was expected at the time of the Spring Budget. This has two very important effects. The most significant is that of increasing government borrowing costs in the medium term. An increase in the bank’s base rate today increases the amount the government will have to pay back when the debt it issues today comes to maturity a few years down the line. It is estimated that compared to what was expected when Rishi took up office in number 10, the government’s interest payments on its debts in the final year of the OBR’s forecast will be £40bn higher thanks to increases in the base rate. This seriously squeezes the Chancellor’s ability to meet the requirement to see debt as a share of GDP fall in 2027/28.

A further consequence of the higher inflation and interest rates is the likelihood of us seeing lower growth rates than we were expecting at the beginning of the year. While over the course of 2022, the below-expected energy price rises and the support measures from government kept the economy more robust than many forecasters expected, those tailwinds have run out. The above expectation inflation is showing signs of eating into disposable income, especially when taken in combination with the fiscal drag imposed by tax threshold freezes. 

The base rate increases are also starting to bite. On the side of households, those with floating rate mortgages have seen their budgets pinched. Slightly less well promoted have been the dampening effects of rate rises on asset prices more widely, which have led to deteriorations in both the balances of households and businesses. Further, more recent data has also begun to show slowdowns in borrowing and investment more widely. These factors are beginning to be taken into account by forecasters, with the Institute for Fiscal Studies reporting expectations of a recession next year.

This lower growth will mean downgrades in expectations for future tax revenues and expectations of higher spending, all meaning more debt being taken on at a period where interest rates are high, increasing the cost of servicing every pound borrowed and making it increasingly difficult for the government to hit its targets by the end of the OBR’s forecasting period.

Finally, in periods of inflation, coffers come under pressure from the upgrades made to pension and welfare payments, adding further pressures to those created by potentially lower revenues and higher interest payments. 

The real uncertainty surrounding the degree of headroom will lie in expectations of the relative size of the effect of a larger economy in cash terms helping to shrink the net debt to GDP ratio and the potentially higher borrowing costs, contracting real activity and higher spending on welfare and pensions. On this point, we see a wide variety of analyses, with the IFS suggesting that the picture is almost certainly worsening for the prospect of a fiscal loosening, but other analyses, by NIESR or The Resolution Foundation (see figure 2 below) predicting that the growth of the cash economy will more than offset any negative drag driven by interest rates or inflation (worth noting they do not wade into the debate around growth in the run up to 2027/28). The real deciding factor here is not, however, which forecaster is correct, but what the OBR predicts will be the case.

Figure 2: Resolution Foundation estimates of the impacts of inflation and interest rate changes on government borrowing

Regardless of where the OBR lands amongst the other forecasters, headroom is certainly tight - we should not forget the longer term context we are in, after a decade of poor growth, crises and record debts. Some sweeteners are still almost inevitable, especially with an election just around the corner - it is very likely that the Chancellor’s tone thus far has been to increase the wow factor of any positive announcements made in the Statement.

Which measures might we expect to see?

For the most part, the rumours spreading throughout the press on which measures might appear in the budget have focussed on measures for households. Here we’ll focus on factors more relevant to businesses.

Full expensing: with an economy significantly underperforming with regards to business investment, many eyes will be on the government’s full expensing policy, which allows companies to deduct 100% of the cost of spending on certain plant and machinery investments between 1st April 2023 and 31st March 2026. In past interviews, Jeremy Hunt has stated that if there is room in the budget, he would make full expensing a permanent fixture. However, now with him emphasising the tightness of headroom in the run up to the Autumn Statement, this relief may be phased out on schedule, allowing for a little more room for manoeuvre towards the end of the forecast period.

VAT registration thresholds: much of the talk around fiscal drag has centred on income tax thresholds, but VAT registration thresholds have also been frozen at its £85,000 level since 2017/18, bringing more small businesses over the edge and footing them with both the cost of paying VAT and the processes required to go through to register. While the policy has brought in further revenue, analysis by the OBR has shown that a number of businesses appear to be stalling in terms of their incomes just below the £85,000 threshold, pointing to some disincentive effects on business growth. The Chancellor may take the decision to raise the threshold.

Living wage increases: with inflation continuing to stick around, there are a number of calls on government to further increase the living wage from its current £10.42 level. This would not immediately cost the Treasury anything, and may score some points in the minds of some voters. The labour market, however, appears to be entering a different phase from what we have seen in recent months, with a slowdown in economic activity likely and mounting pressures from existing salary pressures, the eyes of many businesses have turned away from the issue of skills shortages and may increasingly be concerned with the matter of covering their current staffing costs.

Incentives to hire the long-term sick: a big theme of the Spring Budget was the Chancellor’s attempts to increase labour force participation, with measures targeting pensioners, as well as increasing levels of childcare support. One of the core issues facing the UK economy, especially in the aftermath of the pandemic, has been increases in the numbers of workers leaving the labour force as long-term sick. In response to this, it would not be foolish to expect extra measures at some point to coax employers into hiring those from this group who want to re-enter the workforce. Again, the broader contractionary direction of the economy not expected by a number of commentators may dampen the effectiveness of such measures - if businesses are not concerned with filling gaps or expanding for the time being, such policies are unlikely to do an awful lot.

Why is the National Infrastructure Commission so against hydrogen in homes?

This piece is by our managing director Tom Lees.

“There is no public policy case for hydrogen heating”

On Wednesday the National Infrastructure Commission (NIC) published its assessment of the future of infrastructure (NIA) in the UK in the next 30 years along with recommendations to ministers.

Probably the most eye-catching - and in some quarters controversial - recommendation was to rule out the use of hydrogen to heat homes instead strongly favouring heat pumps, heat networks and other electrical heating in some cases. There is no public policy case for hydrogen heating are the damning words of the NIC. But how and why did they come to this conclusion?

First, some background. The NIC was created by George Osborne in 2015 as an independent expert body to provide analysis and advice to the government of the day. The NIC has nine expert commissioners (Sir John Armitt, Julia Prescot, Prof Sir Tim Besley CBE, Neale Coleman CBE, Andy Green CBE, Prof Jim Hall, Prof Sadie Morgan OBE, Kate Willard OBE, Nick Winser CBE) is supported by a secretariat of policy and economics civil servants and also commissions technical analysis and reports from the likes of Steer and Arup in particular areas.

As well as the 200-plus page NIA document itself the NIC also published a number of different technical annexes (often of similar length to the main document) to further explain their reasoning and recommendations. For the energy and heating network, Arup and Aurora provided additional technical work and analysis to the NIC and Ofgem. It is worth pointing out that Nick Winser CBE FREng - one of the commissioners - also spent 30 years in the energy sector including 12 years at National Grid (including as CEO) when it ran and owned the UK's gas network.

The NIC assessed the case for hydrogen heating using six criteria: price (negative assessment), quality (neutral assessment), delivery (negative assessment), environment (negative assessment), resilience (negative assessment) and the economy (neutral assessment).

So, why does the NIC/Arup/Aurora/Ofgem analysis come to these conclusions? Below are the key points they make.

Clearing up some myths

• The NIC recommendation still allows for the commercial development of hydrogen heating if investors/consumers see it as a viable product.

• They don't recommend heat pumps for everyone and every situation. They want a hydrogen network for heavy industry and think that some homes are better served by heat networks or other types of electrical heating.

• The NIC advises the government it doesn't decide on policy itself.

• Would a future Labour government agree? It is not clear. There will clearly be a lot of intense lobbying from gas distribution networks whose existence is threatened by the NIC's recommendation. However, the NIC is an independent expert body and one of its commissioners (Neale Coleman CBE) is a former Director of Policy for the Labour Party.

Background facts

• Gas boilers currently heat around 88% of English buildings.

• Decarbonising the heating systems of around 29 million homes in Great Britain by 2050 is a major delivery challenge which will require significant coordination

• Low-carbon hydrogen production is currently close to zero.

• The production of 'green' hydrogen requires electrolysis. This is the process whereby low-carbon electricity is used to split water into its component parts of hydrogen and oxygen. This takes quite a lot of energy.

• Large amounts (83%) of the existing gas is suitable for hydrogen although this is less clear for the high-pressure parts of the network.

• Storage, customer meters, boilers, cooking appliances would all need to be upgraded/replaced.

• It would be a complex task to transition the gas network to a future state with some combination of operating with hydrogen and decommissioning certain parts.

• The NIC analysis focused on domestic heating, but they say their results are equally applicable to heating business premises.

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Costs - Negative Assessment

The hydrogen network modelling looks at three scenarios (1 - no hydrogen heating, 2 - 13% hydrogen, 3 - 38% hydrogen) which give ranges of £45-64bn that would need to be invested to use gas in varying quantities (high/balanced/low) plus costs for upgrades in the home (e.g. a new boiler).

The NIC concluded costs of heating are lower without hydrogen heating. The cost of producing hydrogen is forecast to outweigh the greater in-building capital costs of heat pumps.

They also suggest this is consistent across a range of property types:

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Quality - Neutral Assessment

The quality of heat provided from hydrogen or heat pumps/heat networks is essentially the same.

Hydrogen requires fewer in-building changes although still requires a new hydrogen boiler. The change over from natural gas to hydrogen likely requires the home to be without supply for up to two days.

It is possible that a hydrogen supply may never materialise.

For a heating supply via a heat pump, first-time installation averages two to four days.

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Delivery - Negative Assessment

The NIC thinks it's more complex and potentially more disruptive to roll out hydrogen heating.

The need for at least some upgrades to electricity distribution networks exists regardless of whether heat is electrified – for example, to ensure there is sufficient electric vehicle charging infrastructure.

The production of hydrogen is 'less direct' and less efficient. It requires the creation of new low-carbon generation supplies (in competition with other needs) that then is used for electrolysis to create energy which is then piped into homes which is then burnt. It is simpler to use the low-carbon electricity directly for use in heating homes via heat pumps.

The need to scale up hydrogen production and provide pipelines means it is not possible to begin at-scale conversion of homes to hydrogen until the mid-2030s. Heat pump technology already exists, is well proven and is being deployed at pace across developed countries (although the UK is behind).

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Environment - Negative Assessment

Hydrogen produces no carbon dioxide when it is burned, but it is an indirect greenhouse gas, meaning it affects how long greenhouse gases, such as methane, remain in the atmosphere. This means that if it leaks then it has a higher global warming potential than carbon dioxide.

Gas network leakage today is generally thought to be very small as a proportion of gas transported which would be similar for hydrogen.

In the long term the Commission expects that hydrogen supply will be predominantly from green hydrogen produced using decarbonised electricity. However, if blue hydrogen production is higher in systems with hydrogen heating then this would entail higher emissions. Some increase is plausible given the challenges around hydrogen supply.

Burning hydrogen also creates nitrogen oxide emissions.

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Resilience - Negative Assessment

Resilience to shocks to the electricity system does not differ. Both heat pumps and hydrogen heating require electricity to function.

Exposure to volatile natural gas markets could be higher with hydrogen heating, if additional natural gas is required to produce hydrogen or to produce the additional electricity needed.

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The Economy - Neutral Assessment

The benefit to the UK is likely to be similar for both hydrogen heating and heat pumps as the main source of home heating.

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On the face of it the NIC presents a compelling case as to why hydrogen heating is not a viable solution over the next 30 years. It will be interesting to see how and if their analysis holds up under intense scrutiny from the gas companies.

Reaction to the 2nd National Infrastructure Assessment

This piece is by our managing director Tom Lees.

The National Infrastructure Commission (NIC) has published its second National Infrastructure Assessment (202 pages - found here). This important document provides the government with independent expert advice about infrastructure over the next decade or so.

The NIC is set a 'fiscal remit' (total % of GDP to be spend on infrastructure) of 1.3% of GDP. They say their plans fit within that remit. The NIC doesn't set policy but advises. Ministers are obliged to publish a written response (no timescales).

Having read through the whole assessment, it has a tonne of great analysis, modelling and recommendations. There are a few key takeaways to flag:

Interesting points of context

• No reservoirs have been built in England in the last 30 years.

• Over the last 40 years investment in the UK averaged 19% of GDP, the lowest in the G7.

• Electric car sales have increased from 1% in 2015 to 16% in 2022. 

• Since 2010 the UK has deployed over 13GW of offshore wind and now has the second largest offshore wind fleet in the world. 

• Since 2012 time to get a DCO has increased by 65% (from 2.6 to 4.2 years on average) and the rate of judicial review has reached 60% from a long-term average of 10%.

• Currently around 80% of the energy demand (electricity, heating, driving etc) is met by fossil fuels (petrol, gas, oil), although our electricity generation now produces 75% less emissions that in 1990.

• The government will have spent around £30bn on subsidising household energy bills by the time the energy price guarantees wind down fully.

• One of the key reasons this is so high and our energy was so badly 'shocked' was because we had no gas storage.

• By 2035, modelling suggests that around 60GW of offshore wind and 70GW of solar generation will be needed.

Policy recommendations

• A BIG no to hydrogen heating homes. Full support for heat pumps and getting on with their deployment where we have fallen behind. Want subsidies for those on low incomes.

• The NIC want massive spending on (up to £4.5bn per year) insulation/energy efficiency.

• Prioritising funding on maintenance and repairs of current assets.

• Want a 'core network' to transmit and store hydrogen and carbon with hubs in Grangemouth and North East Scotland, Teesside, Humberside, Merseyside, the Peak District and Southampton

• There should be a real focus (£22bn) on improving transport infrastructure in England's largest cities:  Birmingham, Bristol, Leeds and Manchester

• Government should develop a new  25TWh 'strategic energy reserve' (i.e. gas/hydrogen storage) to support resilience to economic shocks.

• They want a 'national integrated strategy for interurban transport', including a pipeline of strategic improvements to the road and rail networks over the next 30 years.

• Major planning needs to be radically reformed and sped up (recommendations about guidance, sharing environmental data, standard community benefits).

• National Policy Statements need to be updated at least every 5 years (an put that in law).

• We need a strategic spatial energy plan (that needs to be regularly updated.)

• Onshore wind should be added to the NSIP regime.

• They think cities need to reduce car journeys by introducing more congestion charges/workplace parking levies.

• Their 'house view' is still sceptical on large nuclear power. Remain open-minded on SMRs etc.

• The NIC want the energy system largely run on wind/solar with 60GW of 'short-term flexible capacity' (gas/hydrogen) to smooth out when the sun doesn't shine/wind doesn't blow.

How closely the government listen to the NIC’s recommendations or indeed how closely a potential incoming Labour government listen is yet to be seen.

What the public thinks about HS2

Economics, policy and public affairs consultancy Bradshaw Advisory has worked with YouGov on new and important research that explores Britain's attitudes towards HS2 and infrastructure investment and delivery more widely.

• 4 in 10 oppose plans to build HS2 between London, Birmingham and Manchester (3 in 10 support). 

• 4 in 10 in the North of England are also against the scheme (3 in 10 support).

• In slight contradiction, if HS2 does go ahead 5 in 10 want the scheme built to Manchester with only 3 in 10 supporting cutting off the line at Birmingham

• The most popular type of infrastructure investment is into local roads - reflecting the fact that outside of inner London most people still regularly use their cars. This was especially true for 2019 Conservative voters.

• 7 in 10 think that the UK government is useless at delivering large infrastructure projects (1 in 10 think it’s good).

Good quality infrastructure is widely accepted as being essential for economic growth and improving living standards. However, according to the University of Oxford 80% of large projects on average are late or over budget.

HS2 is one the most expensive infrastructure projects in the world and the most expensive capital project in the UK. It was originally forecast to come in at around £33bn and be fully complete in the 2030s, the latest estimates suggest it may cost around £100bn to build and not be complete until 2045.

According to press reports, the government is currently considering ways to reduce its cost which may include stopping the line at Birmingham and not building the section to Manchester.

Tom Lees, Bradshaw Advisory’s Managing Director said:

“Our research shows that the majority of the country remains against the building of HS2 which is consistent with most other polls undertaken over the last ten years. 

2019 Conservative voters and those over 50 are particularly against the scheme. Every region apart from London is also against building HS2.

However, the research also shows that if this scheme does continue to go ahead people think it should continue to Manchester. This is likely because they see little point in a new connection that simply runs between the capital and Birmingham.”

Further details on the polling research

Bradshaw Advisory/YouGov polling

Sample size: 2144 adults in GB

Fieldwork: 21st - 22nd September 2023

Method: Online

Questions and summary results 

Generally speaking, how good or bad do you think the current state of infrastructure is in the UK?

Total good = 18%

Total bad = 57%

Don’t know = 5%

And generally speaking, how successful or unsuccessful do you think the UK government has been at delivering large infrastructure projects over the last five years?

Total good = 9%

Total bad = 62%

Don’t know = 11%

Which of the following types of infrastructure, if any, do you think the UK government should be investing more in at this time? Please tick up to three.

Top three; Local roads (41%), National railways (33%), Local bus networks (33%)

HS2 is a proposed high-speed railway line connecting London, Birmingham and Manchester. Those in favour of the scheme argue that it will help to create jobs, boost the economy and help us reduce carbon emissions. Those against argue that it is too expensive, will take too long to build and will not provide good value for money.

Do you support or oppose plans to build a new high-speed rail line (HS2) linking London, Birmingham and Manchester?

Total support = 29% (North = 34%)

Total oppose = 39% (North = 40%)

Don’t know = 9%

And to what extent would you support or oppose reducing the plans for HS2, which meant that the service only ran between London and Birmingham, in an attempt to save money?

Total support = 23%

Total oppose = 39%

Don’t know = 13%

Download the full polling tables here.

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It’s make your mind up time

This piece is by our managing director Tom Lees.

Political strategists, businesses and MPs are asking themselves how Labour’s current 17-point poll lead will convert when it comes into contact with the ‘real world’ at the next general election in autumn or winter next year.

Bradshaw Advisory is a member of the British Polling Council and the Market Research Society which means we can conduct our own research around political issues and trends to provide bespoke insights to clients.

We recently undertook a representative poll of 1001 2019 voters to find out how 'hard' or 'soft' the current headline voting intention is.

Clearly, the economic noise - including today's 13th rate rise in a row from the Bank of England making borrowing more expensive - is not good for the Conservatives. But even so, all is not lost for Rishi.

Our research shows that 40% of 2019 voters are still up for grabs and could be swayed ahead to switch from their current preferred political party or ‘don’t know’ ahead of the next general election.

36% of voters say they will definitely vote Labour with 13% of voters saying that while they are leaning towards voting Labour today, they could still be swayed to cast their votes elsewhere.

Meanwhile, less than 1 in 5 (19%) of voters say they will definitely vote Conservative at the next General Election, with another 9% saying they will probably vote Conservative but could still be swayed. The Conservative vote share didn’t slip below 30% under John Major and William Hague when Tony Blair won landslides in 1997 (30.7% Conservative vote share) and 2001 (31.7% Conservative vote share), so a 28% vote share would represent the worst Conservative result in history and seems somewhat unlikely.

The Liberal Democrat leadership will be concerned that just 3% of voters say they will definitely be voting for Ed Davey’s party, with another 2% of ‘soft’ Lib Dems not yet firmly in the Lib Dem camp and still potentially open to switching allegiances before polling day.

So with more than a year to go before the next election, there still is a lot of work for parties to do to sure up and hold on to their respective voting coalitions.