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Plans for a new £1.7bn tunnel near the Stonehenge monument in England were scrapped by Rachel Reeves on Monday in a move that analysts said casts doubt over Labour’s economic growth strategy.
The contentious bypass was among a list of transport and healthcare infrastructure projects abandoned by the chancellor, as part of measures to find nearly £22bn in savings across Whitehall.
Reeves said the government would conduct a “complete review” of the Conservatives’ flagship new hospital programme, under which 40 on the NHS’s deteriorating estate were to be built or expanded.
She said Labour would set out a “thorough, realistic and costed timetable”, given that only one hospital had been opened to patients and six had started their main construction activity.
Analysts warned the decision to cut back on infrastructure spending after two decades of under-investment in roads, railways and reservoirs risked creating damaging uncertainty for the construction industry.
Noble Francis, economics director at the Construction Products Association, said large contractors and building materials manufacturers had “invested in the key capacity and skills to deliver infrastructure projects so will be hit badly by these cancellations”.
“By pausing, delaying or cancelling these vital projects, it constrains growth in the wider economy and productivity across the economy,” Francis warned.
“It doesn’t save money long-term as these projects, or similar projects, will have to be built later down the line at a much greater cost,” he said.
Reeves said the government would achieve £785mn in transport project savings in 2025-26 by cutting the proposed two-mile Stonehenge tunnel alongside one of Britain’s most renowned monuments and other schemes.
Other projects to be axed included the A27 Arundel bypass and the previous government’s “restoring your railway programme”, which will save £76mn next year. The government also said it would review all transport projects.
James Smith, research director at the Resolution Foundation think-tank, said that while the cancelled projects were relatively small in size, the decision raised concerns about Labour’s commitment to a long-term growth strategy that had building projects at its core.
“Cutting infrastructure spending is always the easiest and most expedient lever to pull when budgets get tight. And while these are small projects, the cuts do not send the best signal about the government’s priorities if the same approach was taken in October,” Smith said.
A 2023 report by the think-tank calculated that between 2000-20 the UK’s failure to reach OECD average levels of public investment in infrastructure of 3.7 per cent of GDP had led to £500bn in public under-investment.
Infrastructure construction activity fell 11 per cent following the previous Conservative government’s austerity programme introduced in 2011 after the financial crisis.
Since 2018, infrastructure output has risen by 28 per cent mainly due to large one-off infrastructure projects, such as HS2 Phase 1, Hinkley Point C and the Thames Tideway Tunnel.
Both the Hinkley Point C nuclear power station and Thames Tideway, a sewer running under central London and part of the river Thames, are being privately financed through household bills.
The policy is line with the Conservative’s pledge to use private finance on half of the projects in the Treasury’s pipeline of infrastructure schemes. The Labour party has indicated that it will continue with this strategy.
Last week, Reeves announced a review of Britain’s pensions system, in part to try to boost how much money funds allocate to domestic venture capital and infrastructure.
The government said on Monday it would launch the National Infrastructure and Service Transformation Authority, which will develop a 10-year strategy and “drive more effective delivery”.
Reeves did not mention either the HS2 link to Euston or the Lower Thames Crossing, a new £9bn road and tunnel to east London, two major schemes whose future remains unresolved and which were reported to be at risk prior to Reeves’s announcement.
Simon Rawlinson, senior director at consultancy firm Arcadis, said: “In taking early control of the capital spending programme, Labour need to be careful that they keep options open on programmes that support the growth agenda.”
“They should avoid delays and extra costs that could be incurred such as those seen following the cancellation of the A14 upgrade in 2010,” he added.
Shevaun Haviland, director-general of the British Chambers of Commerce, said groups would want clarity on any further projects to be cancelled to maintain business confidence.
“Infrastructure projects inject wealth into local areas and create jobs through supply chains, as well as having a multiplier effect on investment,” she added.
Reporting by Gill Plimmer, Peter Foster, Philip Georgiadis, Jennifer Williams and Laura Hughes