A Long and Winding Road…

July 01, 2016

Grant Klein considers the impact of the result of the EU referendum on the UK’s transport sector, in the first of a series of blogs.

The first few days after the EU referendum have been momentous, both politically and economically. The impact on the transport sector will be significant in every aspect of how services are procured, built and operated. While the Referendum result is clear, what happens next is anything but.

We know that the change is unlikely to be immediate for anyone. Indeed, the overriding message we’ve heard from the transport sector is that they will, as best they can, ‘keep calm and carry on’.

Ahead of the vote, the implications of Brexit for the transport sector were clear - threats to budgets for major infrastructure projects, stalling of current project and changes to various forms of tax or levy.  None of this will change overnight. But these risks can now be mitigated, and the opportunities seized upon to improve the case for certain investments.

There are a number of themes emerging that can help to focus thinking on the nature of change that may be coming.  We’ve set these themes out below as we start to consider the questions the public sector will have to face in the days and weeks ahead:

Policy development and regulation: The UK will need to develop regulations to replace those that come from EU Directives.  There are some complex agreements to consider such as the Open Skies Agreements and port regulations linked to national borders.

What implication will the additional civil service workload have on decision-making and approvals? And how will regulators such as the ORR and other oversight bodies be affected?

Capital project approvals: There are two potential impacts here. Delays to decisions whilst government is focused on wider Brexit issues (as has already been the case for an announcement about South East airport capacity) and reduction in government spending resulting in some projects being scaled back, delayed or even cancelled.

What are the risks of capital projects being delayed, de-scoped or cancelled and by what criteria? And how can project sponsors use this opportunity to re-state or enhance their case for funding?

Funding and loan provision: There are many projects and programmes directly funded by the EU, particularly for schemes supported by local transport authorities. And many more receive loans from organisations such as the European Investment Bank.

What are the implications for projects that are funded by the European Union or other EU bodies? And what are the opportunities for securing alternative funding sources?

Supply chain appetite: Many suppliers will be considering their priorities as a result of a likely Brexit. In the transport sector, that includes suppliers of rolling stock, as well as civils contractors. It also extends to component supply, such as specialist electronics.

What are the plans for suppliers or prospective suppliers for major transport projects? What can the UK or individual projects do to reassure suppliers that the pipeline remains solid?

Taxes and levies: There will clearly be tax implications across all sectors, with air passenger duty, fuel duty and vehicle excise duty and the lorry vignette charge all potentially affected. The challenge will be to understand which taxes and levies will be affected, when they need to change, and the implications on budgeting.

How will transport-related taxes and levies need to change, and when?

Standards and specifications: The UK will be able to change some of the standards, specifications and associated regulations it currently uses. There are specifications, such as in highway design, where there will be more cost effective ways of achieving objectives. Removing restrictions on toll technology, for example, could open up opportunities for new forms of charging or technology.

What are the opportunities to improve efficiencies by changing compliance standards?

These are just some of the issues that all public sector transport bodies are now grappling with. In some cases, there will be merit in developing detailed plans now, whilst in others it may be more of a watching brief, until the Brexit path is clearer.

As the dust starts to settle, we have a once in a generation chance to rethink the priorities for transport service provision in the UK. It will be a long road but one paved with opportunities to make the best choices on infrastructure and to better integrate transport to serve its customers and communities. 

 

Grant Klein |Partner
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