Philip Hammond has told MPs he will borrow to provide £23bn of ‘highly targeted’ funding for innovation and infrastructure over five years and signalled increased infrastructure investment from 2020.
In his Autumn Statement on Wednesday, the chancellor repeatedly referred to gaps in productivity, both between the UK and other European countries and between London and the regions.
He announced a ‘National Productivity Investment Fund’ (NPIF) for innovation and infrastructure worth £23bn over five years. The NPIF will be targeted at four areas that the Treasury described as ‘critical for productivity’ - transport, digital communications, research and development, and housing.
This was the only spending commitment in the Statement funded by additional borrowing, rather than other fiscal measures such as tax cuts, the chancellor said.
Manchester in the Northern Powerhouse
Mr Hammond said that he had also written to the National Infrastructure Commission to advise it that it should assume that the Government would spend between 1.0% and 1.2% of GDP on infrastructure every year from 2020 until 2050.
He added that current spending, measured according to the same definition, would be around 0.8%.
The Government is publishing a strategy for addressing the productivity gap in the Northern Powerhouse and will publish a similar strategy for the Midlands Engine shortly, Mr Hammond said.
The chancellor also announced a further tranche of local growth funding worth £1.8bn. Of this, £556m will go to the North of England, £392m to the Midlands, £151m to the east of England, £492million to London and the South East, and £191m to the South West.
Mr Hammond said that the Barnett formula meant increases in funding for infrastructure for devolved nations, with £250m for Northern Ireland, £400m for Wales and £800m for Scotland.
On digital infrastructure the chancellor also confirmed a total of £1bn ‘to catalyse private investment in fibre networks and to support 5G trials’.
He announced that 100% business rates relief would apply to new fibre infrastructure for five years from April 2017.
Mr Hammond said ‘Our future transport, business and lifestyle needs will require world class digital infrastructure to underpin them. So my ambition is for the UK to be a world leader in 5G.’
He also confirmed that funding for research and development will be £2bn per year by 2020, as announced by prime minister Theresa May this week.
Mr Hammond said his infrastructure spending would provide ‘the financial backbone to the Government’s industrial strategy’.