Major shortfall in roads funding looming, government warned

The UK’s roads sector is facing a multi-billion-pound funding hole unless the government finds new ways to pay for crucial enhancement and renewal works.

Industry figures have warned that reduced income from fuel duty could hit work on both the strategic and local networks over the next decade.

New sources of revenue, such as toll roads or tax hikes, might need to be found to improve the condition of the UK’s roads network and increase its capacity, sources warned.

RAC Foundation director Steve Gooding said that as cars become less dependent on petrol, the level of fuel duty collected – one of the primary funding streams for roads – could “drop off a cliff”.

Last year, more than £27bn was raised by the government through fuel duty, with a large proportion of that spent on improving roads.

According to figures from the Institute of Fiscal Studies, fuel duty currently brings in revenues equivalent to 1.7 per cent of UK GDP, but this is expected to drop to 1.1 per cent by 2029.

“Losing fuel duty revenue would create a significant hole in the Treasury’s income,” Mr Gooding said. “Something will have to give: either you find another source of funding or you put up existing taxes.”

Fule duty brings in almost 10 times Highways England’s annual budget of £2.8bn.

“The need for investment in the network will not go away merely because the amount of duty available is falling,” said CECA chief executive Alasdair Reisner. “This is something the government will have to look at.”

Funding for local roads maintenance could be hardest hit, with local authorities facing a growing backlog of work.

Figures from the RAC Foundation show highways maintenance budgets for councils are already set to drop by 35 per cent by 2020.

In its annual audit of local roads, published last month, the Asphalt Industry Alliance found that town halls needed to find £12bn to carry out vital improvement work on the network.

AIA chairman Alan Mackenzie said: “Beyond 2021, the situation continues to look bleak. The road network has been seriously under-funded for the last 20 years and there’s nothing to suggest things are going to change.”

Amey development director Mark Brown warned that a lack of visibility of long-term funding could have an impact on the UK’s strategic roads network.

In 2013, the government launched its £15bn Roads Investment Strategy to fund projects across England’s strategic roads network.

While this funding is secure for the next five years, Dr Brown said contractors should be concerned over funding for RIS 2 and beyond.

Over the next four years capital investment in the strategic roads network will increase from £1.8bn in 2015/16 to £3bn in 2019/20, but maintenance budgets will increase by just £57m over the same period.

As a result of this lack of investment in maintenance work, Dr Brown predicted that money from the capital spending budget may have to be moved to fund the growing number of maintenance projects needed on the network.

“As the network gets bigger, it is clear that a proportion of the funds needed for capital projects would be increasingly channelled to renewal and maintenance work,” he said.

Last year, the chancellor announced the government would ringfence money raised through vehicle excise duty for the first time in 80 years for a new Roads Fund.

But Mr Gooding said there was still no certainty that the money raised by vehicle excise duty would be spent on roads.

He said: “Why would you think that after a general election in 2020, a new government will feel bound to a promise made by George Osborne unless it has some legislative backing?

“If you look at what past governments have done in order to convince us that their promises will stick, you’ll see that they’ve put those promises into the statute book.

“Contractors will be asking themselves [whether they can] trust the government’s promises.”

Aecom managing director of transportation Paul McCormick said contractors and consultants plans tended to cover five-year periods and the picture “looked bright” for many, particularly with the recent release of the National Infrastructure Plan.

Tarmac Contracting’s managing director Paul Fleetham siad: “Ultimately, whether revenue for projects is drawn from government, overseas investment or other private sources is for Government to decide.

”What is critical is for the construction sector to have certainty and confidence in the long-term project pipeline to make investment decisions around capacity, people and skills.”

The Treasury told Construction News it would not comment on “speculation regarding tax changes” and that the Roads Fund was a public commitment that did not require legislation.

Source: Construction News