Spending cuts: Industry reaction

Grant Prior 11 years ago

Civils contractors believe their campaign to protect infrastructure spending saved a number of projects from George Osborne’s axe in today’s spending review.

CECA National Director Rosemary Beales said: “We await the detailed announcement next week by the Secretary of State of exactly what cuts have been made to transport projects. However, the Chancellor has made it completely clear that he links investment in infrastructure with economic growth.

“The Chancellor gave a welcome reprieve to a number of transport projects across the UK, including M25 widening and the Tyne and Wear Metro which are of course very good news for contractors.

“We hope the positive outlook for transport continues in the announcements due from the Department for Transport next week.”

Paul Fleetham, Executive Director, Tarmac National Contracting, added:  “It is clear that there is a green light for some major schemes.  This, along with extra money for flood defence and wind power development, means that it is not all bad news for the construction sector.

“However, this should not diminish the scale of the challenge we all face in delivering schemes at a time of extreme budget constraint.

“The 7% annual cut announced for council budgets means that we must continue to drive innovation and efficiency to ensure that the UK’s roads building and maintenance programme does not suffer.”

Richard Threlfall, UK Head of Infrastructure at KPMG, said: “For infrastructure providers today’s announcement has been good news.

“The industry has been united in pointing out the importance of infrastructure investment in helping to power the country out of recession and the Government appears to have listened,  indeed the Chancellor named Infrastructure as one of the four top priorities (together with health, education and security).

“Overall capital spend is up £2bn a year over the next four years and that has allowed the Chancellor to make a number of “good news” announcements.”

“Of course the pain and the gain is not evenly spread. Transport is a big winner with a £30bn capital settlement and Crossrail, tube investment, Midland Metro, Tyne and Wear Metro, rail electrification, Mersey Gateway and a raft of road improvements all given the green light.

“Renewable energy will benefit with a commitment that the UK should continue to be a “leader in the green economy” and the promise of £1bn for the Green Investment Bank. The lack of comment on nuclear is disappointing given that renewable energy alone will not be sufficient to keep the lights on in the medium term.

“What is clear is that the Government wants to see continued investment in social infrastructure with £15.8bn pledged to maintain and rebuild schools, albeit not via BSF, mention of further prison investment, greater freedoms to invest for health Foundation Trusts and more money to go into social care.

“The biggest loser in social infrastructure is social housing, with investment set to halve. Overall the KPMG verdict would ‘could have been a lot worse”.

Rick Willmott, Group Chief Executive of Willmott Dixon, said: “The cut in housing grant was no surprise.

“The key point is that the onus will be on private sector companies like Willmott Dixon working with local authorities and RSLs to help unlock new and innovative funding streams that do not rely on Government grant.

He added: “The funding streams are out there, such as Tax Incremental Financing, and Willmott Dixon will be looking to bring together funders, land owners and social landlords to create development opportunities that move beyond Government subsidy.

“In the future, there will be a more unlocking of public sector assets, mainly land, to fund new development and what is clear is that we are entering an era where tradition funding models will be replaced by new opportunities that will see institutional funders in the City play a bigger role.”

Construction products suppliers were also braced for even worse news in the Chancellor’s statement

Michael Ankers, Chief Executive of the Construction Products Association said:  “We knew this was going to be a difficult Review as far as construction was concerned.

“However, the Chancellor has acknowledged the important role that capital spending on construction can play in helping to provide for a private sector-led economic recovery.

“In particular maintaining transport investment at £30bn over the next four years will sustain employment and help encourage private sector investment.’

“Nevertheless, public sector investment in construction over the next four years will be more than £20bn less than in the last four years and that will have significant consequences for the construction industry.

“We hope that following today’s announcement there will be a recovery in confidence in the private sector now the uncertainty surrounding the CSR is out of the way.

“A commitment to Crossrail ends speculation about the long term prospects for that scheme and we welcome the support for the Renewable Heat Incentive as a contribution to improving the energy efficiency of our existing building stock.

“Where we urgently need greater clarity, however, is the mechanism to encourage investment in private housing and this will not happen until we have agreement over the New Homes Bonus incentive and reforms to the planning system.”

Kathryn Hiddleston, Construction partner at business and financial advisors, Grant Thornton UK LLP said: “On a positive note, the Government intends to increase the existing levels of capital spend by £2.3bn a year to 2014/15 to fund projects with long-term economic value.

“This includes over £10bn on nationwide high value transport maintenance and investment and more than £14bn for Network Rail investment. This is good news for the large scale civil contractors.

“Changes to social housing so that new tenants will pay 80% of market rents will help fund the development of 150,000 of new social homes over the next four years. Welcome news for a beleaguered house building market.

“However, where the Government gives with one hand it can take away with the other.

“The Government wants to devolve significant financial control to local authorities and – despite pledging to maintain significant funding for schools and hospitals – it is requiring local government to achieve savings year on year of 7.5% over the next four year at the same time as freezing Council Tax for 2011/12.

“All this will undoubtedly have a draconian effect on the number and value of projects available for regional builders.

“On a really positive note Mr Osborne announced an increase in the funding for adult apprenticeships by £250m a year by 2014/15. It is to be hoped that a large proportion of this will be directed towards developing skills for the construction industry.

“In conclusion, potential winners are the large scale civil contractors and social housing developers but the medium to small regional outfit may find that competition becomes even more keen for an ever-decreasing share of local council spend.”

Steve Bratt, new Group CEO of the Electrical Contractors’ Association (ECA), said: “While I am delighted that the Chancellor has honoured his pledge to protect infrastructure spending, by committing £30 billion to key projects such as the Tyne and Wear Metro and Crossrail as well as investment into the regions, I am deeply concerned about his plan to only build 150,000 affordable homes over the next four years.

“In 2009, 113,000 affordable homes were built; this was the lowest level over the last 60 years.  Mr Osborne’s decision will seriously impact jobs and opportunities within the construction industry, and I wonder if 37,500 homes each year is enough for those in low paid professions and key workers looking to get a foot on the property ladder.”

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