My beef with the Budget
As last week’s Budget is still being analysed, dissected and discussed, what we do know is this: the latest growth figures are slashed in half, from 1.2% to 0.6%; and Treasury forecasts now seem as reliable as the labelling on a supermarket beef lasagne.
It has become apparent that for the Treasury, “environmental issues” means shale gas and that as far as Whitehall is concerned, construction is all about housing. To follow the food analogy, if the Budget were a ready meal there would be more horse than beef!
For instance, although there was the announcement of more and unspecified infrastructure spending, you may well ask what happened to the £4.7bn of capital investment pledged in the Autumn Statement of 2011 and the £5.5bn promised in 2012, that has yet to make an impact. The Construction Products Association (CPA) chief put it well, having recently been reported as saying that the government is announcing things but not actually spending what it has announced. The promises of investment seem hollow and, as ever, our industry is yet again left to provide a DIY recovery.
Here are some of the facts that George Osborne omitted from his Budget speech: Office for National Statistics (ONS) figures recently showed that output in construction fell 8.2% over 2012 as a whole, we are still 18% below our peak of 2008 and over 400,000 jobs have been lost. You do not need to ask your average architect if they have a strong pipeline of work in place or your medium-sized regional contractor if they predict strong profit growth for 2013/14.
True, it is not all doom and gloom, especially in London; and some parts of Manchester and Leeds, for instance, have pockets of growth. I also understand that there was a stronger sense of optimism at Mipim last week, all of which is positive, but this activity is no thanks to HM Treasury, which is leaving all the heavy lifting to others.
“The government’s promises of investment seem hollow and, as ever, our industry is yet again left to provide a DIY recovery”
One sector that did enjoy massive government intervention to prevent financial meltdown in the past was the banks. However, there is no sign of payback as yet. The majority of those working in the built environment are SMEs and a recent survey from the Federation of Master Builders (FMB) showed that banks are actively discriminating against construction companies. The FMB says that 40% of 1,000 member firms surveyed have found it harder than ever to gain access to funds in the past two years and that one in four of those questioned had lost business or abandoned plans to expand due to lack of finance. Over 20% said that this refusal of funding directly affected their decision not to take on more staff.
The government’s answer to investment in construction in the last year has been to stand on the sidelines and keep infrastructure spending off the balance sheet by providing only guarantees, hoping that the private sector would step in and invest. The CPA hit the nail on the head recently when it said that the government could inject investment quickly by focusing on repairs and mainztenance rather than high-profile, headline-catching projects.
A lot of these opportunities already have framework agreements or contracts in place so there is no delay due to planning issues.
The headlines were all dominated by the government’s decision to underwrite mortgages and offer £12bn of guarantees covering mortgages worth more £120bn. They think it will help 644,000 people over the next three years. As we all know, housebuilding is not the dominant employer in our industry and while the announcement is super news for housebuilders, their share price has already been on an upward trajectory for some months. The opportunity missed was the chance to support the green economy, championed by this magazine and a collective of UK construction firms with a combined annual turnover of over £20bn. The fact that this was ignored showed the myopic and blinkered view of a chancellor and his Treasury advisers who had more of an eye on the 2015 election than meeting the stipulations of the 2008 Climate Change Act.
What we have actually got is infrastructure spending announcements from 2011 and 2012 that have yet to feed through, banks refusing to lend to construction firms and, according to the latest Markit/CIPS Purchasing Managers index survey, a vitally important construction sector that is now at the lowest level of activity since October 2009. Mr Chancellor, take note: it will take more than donning a hard hat and being photographed plodding around some housing projects to get us out of this mess and you should have started two years ago.
Richard Steer is chairman of Gleeds Worldwide