Five construction priorities for the Autumn Budget
Tomorrow, on Wednesday 22 November, Phillip Hammond will announce his next Budget. Speculation is already rife in the media about what he will include and what he won’t. Mace's CFO Dennis Hone explores what he hopes to see announced tomorrow.
It’s an important moment – with the abolition of the Spring Budget/Autumn Statement system, this is the last major change to the UK’s government spending that will be made until November 2018, by which point we’ll be fast approaching the Brexit deadline.
Many are predicting that the Chancellor will make some radical offers in this Budget, aiming to reach out to the young voters that the Conservatives appear to be struggling to appeal to but he is fiscally constrained and won’t want to be seen as imprudent. It is a tricky balancing act and the fear is that any apparent giveaways may just be the recycling of previously allocated funds or a just a band aid for major inter-generational wealth issues.
For us in the construction sector, there are a number of key issues where the Chancellor could make a real difference:
1. Indication of a construction sector deal
First and foremost on our watch list will be any indication of whether we’re likely to see a ‘sector deal’ for construction.
With the potential impact of Brexit looming large, a £250m research and development boost for construction could go a huge way to boost industry confidence. This would help put construction on a par with the Car and Aviation industries in which the government have so heavily invested to promote innovation and would also help to address our poor productivity figures. Construction is one of the worst performing economic sectors in terms of productivity – and partly that is down to slim margins, which limits significant investment in innovation and research.
Any sign in the Budget that construction could be one of the successful bidders for a deal would be a big vote of confidence and a recognition of the specific challenges our sector faces. Expect to see some happy reactions from stakeholders if it seems a sector deal is on the horizon.
2. Supply-side encouragement for house-building
To date, this Government’s largest interventions in the housing market have all been demand-driven. The recent announcement of more money for social housing and changing the classification of Housing Associations to private (rather than public) investors in the sector is welcomed.
Many expect the Chancellor to make a determined bid for the votes of the younger ‘rent’ generation – and one way of doing that would be to introduce clear measures to expand house building, particularly through increasing the ability of local government to promote and invest in new developments.
A big programme of centrally or locally-funded house building would certainly give a boost to certain parts of the sector, creating a pipeline of work that would likely survive any cyclical downturn in the market. It would also have the wider benefit of diversifying the house building market; encouraging smaller entrants to the market that will improve competitiveness and drive down prices.
Given the scale of the housing problem it remains to be seen if the Chancellor has the funds to generate a significant increase in house building, particularly in the leafy heartlands of conservative voters, or whether any house building target announced will simply be cosmetic.
3. Commitments on infrastructure spending
There are a number of big infrastructure projects – Heathrow, Crossrail 2, Northern Powerhouse Rail – where the backing of the government and a vote of confidence from the Chancellor would go a long way.
Many of those projects looked like certainties not very long ago, but in common with all major investments from the Channel Tunnel to the Olympics there are always detractors who do not wish schemes to proceed for local or wider political reasons. If this government is to generate regional prosperity it needs to be bold in taking forward major infrastructure schemes.
It also will help the UK construction industry hold on to the talent and skills we desperately need. There’s a risk that all of the expertise we’ve developed delivering Europe’s largest construction project – Crossrail – will go to waste as all those skilled tunnellers and track-layers decide to look elsewhere for their next big project.
4. Funding for our ports and customs systems
However Brexit ends up being delivered we know that our ports will need to build capacity in order to help sustain future economic growth. As we enter into trade deals around the world, we need to ensure that our businesses have access to effective and efficient cargo routes and custom controls.
For construction, there’s also a risk around importing materials. Brexit could mean expanded customs checks at our borders. If we can’t get the materials we need into the country as quickly as we need to, there’s a risk that construction projects across the country could be impacted.
For many materials and products there are local suppliers, and where these are at the right quality and price point, local suppliers will be the obvious choice. However, we must recognise that we are in a global market place and there will always be new products and suppliers that the construction industry will need to access – or that will have the capacity to meet demand.
As ‘just in time’ lean construction becomes more popular, we will rely more on swift, reliable imports of materials – so the government will need to make sure our ports are up to scratch. It will be interesting to see if the Chancellor makes any commitments in respect of investment in technology and/or staff to ensure our ports do not become a bottleneck to the import of goods and materials.
5. Reassurances about access to EU labour
Finally – although it’s not a topic that normally gets discussed at the Budget – it would be good to have some certainty from the Chancellor that he expects sectors like ours to be able to access EU labour after Brexit. Clearly this is already under discussion in the EU/UK negotiations and the indications are that a solution will be found.
Any indication from the Government about future permanent or temporary arrangements could be hugely reassuring to many in the sector who are increasingly concerned about our resilience in the face of a potential huge exodus of skilled labour.
We’ve recently had a confirmation from the Minister for Immigration that EU citizens currently in Britain will continue to be able to work – but ideally we’d receive something concrete on our long-term access to the European labour market.
If that’s not possible, the announcement of significant contingency funds to be made available to support sectors that rely heavily on such labour could be helpful. It’s not just construction – the health service and the agriculture industry will both also be looking for similar reassurances.