| Comprehensive Spending Review|
|The Comprehensive Spending Review (CSR) has been a long time coming and it's not great news for the construction industry. But, then again, no-one thought it would be. Constructionbytes.com looks at the 'highlights' of what was announced and discusses what it means for various construction sectors.|
Initial reactions to the CSR have been that it is not quite as bad as first feared, although some of the detail is still to be announced. Capital budgets are actually rising by £2 billion to £51 billion compared to the last Budget, then falling back to £49 billion, £46 billion and £47 billion in the next three years. However, as is always the case, there are winners and losers, with the social housing sector being a major sufferer while transport and education don't come out too badly (announcements already made regarding BSF aside). Public sector spending was expected to fall by 35% over four years but the eventual figures were just over 30%. Nevertheless, this still represents a £20 billion reduction in public sector investment over the next four years.
Local Council Funding...
Funding for local councils is to be reduced, with the Department for Communities and Local Government seeing its capital budget fall by almost 75% from £6.9 billion this year to £2 billion in 2014-15 and council funding overall falling 27% over four years. A further £2 billion is to be spent on reaching the Decent Homes Standard over the same period. Cuts in this area will be of concern to regional offices and companies who rely much more on local council spending than they do on that coming out of Westminster.
The social housing budget is to be reduced by 63% to £1.1 billion although 150,000 new homes are expected to be built over the next four years through £4.4 billion of capital spending. This has been accompanied by a change of policy, with the government subsidy for new social housing being reduced by 60%. Councils and housing associations are expected to borrow the difference and fund repayments through higher rents, which are to rise to 80% of market rate for new tenants. The National Housing Federation reckons this will increase the rent for a three bedroom property from £85 to £250 per week.
Capital spending on transport over the next four years will be £30 billion, a decrease in real terms of 11%. Many major schemes are to go ahead, including Crossrail, although with the opening date put back a year. Overall, £10 billion is to go into funding public transport schemes in major cities and into national and local road networks. Although the Severn Barrage was a high profile casualty.
Health & Education...
Education will see capital spending fall 60% over four years, from £7.6 billion in 2011-12 to £3.3 billion for 2012-13, then up slightly to £3.4 billion in 2014-25. Against this, £15.8 billion is to be spent refurbishing schools over this period and 600 schools are to be built. Although the fate of the Building Schools for the Future has long since been know and this is perhaps the biggest blow of all for construction.
With the NHS budget ring-fenced, health care spending is due to increase by more than inflation, from £104 billion to £114 billion over the next four years. Nevertheless, capital spending is to fall by 17% although some new hospital schemes are going ahead. PFI and PPP also seem to have fallen out of favour.
Law & Order...
The Ministry of Justice's budget is set to fall 6% a year but capital spending is to be halved from £600 million to £300 million a year by 2014-15. As a result, there will be capacity for 3,000 fewer prisoners and a new 1,500 capacity prison has been deferred. However, £1.3 billion is to be spent over the next four years to refurbish and maintain existing buildings.
The Green Agenda...
Unsurprisingly, given the government's green agenda, the Department of Energy and Climate Change is set for a 41% real terms increase in its budget to £2.7 billion in 2014-15. There are plans to invest £1 billion in a carbon capture and storage demonstration plant and to provide £860 million in the Renewable Heat Incentive. Nuclear decommissioning is also set to see increased spending while offshore wind farms will get £200 million and a Green Investment Bank is to have £1 billion of government funding and, hopefully, more from the private sector.
The government is planning to increase its support for apprentices by 50%, with numbers rising to 75,000 a year and a proportion likely to be in the construction sector. A cut of 35% in the Health and Safety Executive's budget has, however, led to fears that more construction deaths may result if the number of inspectors is reduced.
Are You Well Positioned for the Future..?
So overall, a rather mixed bag. There is still definitely still funding out there for projects, the question is can construction companies react quickly enough to the shift in focus. For example, the booms of the last decade in sectors such as commercial, PFI/PPP, and education led companies to focus on these areas. Many built up large teams to take advantage of these opportunities and have steadily recruited more and more specialists in these areas. Unfortunately, these teams are now likely to have a much reduced workload or be sitting idle (if they have not already been culled). Meanwhile, their employer is not well positioned to benefit from opportunities resulting form the funding now to be directed towards infrastructure and energy projects.
There is evidence that some companies had the foresight to begin gearing up for this shift some time ago. Those who have not yet restructured would probably be best advised to follow suit as soon as possible.