Budget risks tipping construction into recession

Jeremy Hunt’s second fiscal statement since becoming Chancellor has given to the construction sector with one hand - and taken with the other.

It is clear this Government understands how our industry can drive forward economic activity across the country, but there is much more potential which could have been harnessed in the Spring Statement. Prime Minister Rishi Sunak has been clear on his economic priorities since moving into Number 10: his aspirations are to halve inflation, grow the economy through better-paid jobs and to reduce the UK’s national debt. This Budget was an opportunity to show just how far his Government was willing to go to work in partnership with the industry as we help him meet his targets, but instead it is putting the construction sector at risk of recession.

The Construction Leadership Council advocated for stability to combat inflation, but on the infrastructure investment front the industry has been let down. The construction sector is worth 9% to the UK economy each year, of this up to 30% is from the public sector – without visibility of the pipeline, the sector’s ability to plan and mitigate inflation is undermined. Certainty and stability on the pipeline of works is what our sector desperately needs. Projects such as HS2, the New Hospital Programme, Lower Thames Crossing and Northern Powerhouse Rail have been cast into doubt. We urgently need the Government to publish its Infrastructure and Construction Pipeline. Without that certainty, the sector cannot plan ahead to deploy resources, people and materials which would mitigate inflation. With last week’s announcement that the delivery of HS2 is being rephased, the need for certainty on commitments to other major projects is more needed than ever. These delays will also have a major impact on our supply chain and could put our SMEs at risk of collapse.

Meanwhile, nuclear had renewed support in the Budget. The Government has announced the launch of Great British Nuclear (GBN), to increase resilience in the energy market. It will also make up to £20bn available for Carbon Capture, Utilisation and Storage (CCUS). This commitment should give confidence in nuclear-related infrastructure investment. In addition, the Government has announced that GBN will launch the first technology choice process for Small Modular Reactors (SMRs), which may path the way to a new viable option for low carbon energy.

The CLC also asked for the stimulation of growth and productivity. Throughout the pandemic we were one of the only sectors to improve productivity, through enhanced ways of working, which delivered productivity improvements of over 14% against a 5 year average. The sector also collectively invested £2.67bn in R&D over the past 5 years – this is a 5 fold increase on the previous decade. In terms of capital allowances, there was some positive news from the Chancellor. For three years, from April 1, companies will be able to write off the full cost of investments into some plant and machinery. While this will enable construction firms to invest in the very best tech - boosting productivity, safety and efficiency – the CLC was in favour of larger incentives on ‘green investments’ which will help drive the sustainability agenda. They also advocated for relief on hire plant, as it is fairly standard for specialist machinery to be hired on a job by job basis in our industry.

The industry was hoping to hear more from the Chancellor on how the industry will be involved in delivering the Government’s ambitions. In his Autumn Statement last November, the Chancellor doubled down on retrofit commitments. The need to address the UK’s aging housing stock is urgent – and it will help to relieve the effects of soaring energy prices. Retrofit ambitions could have been reinforced, with the Government supporting tangible action behind the commitments it made last year.

Dubbed the ‘back to work’ Budget, it was good to see the need to address skills take centre stage. Among the positive news was that immigration will be made easier for construction workers. The Government has accepted the Migration Advisory Committee’s interim recommendation to add five construction occupations to the Shortage Occupation List in a bid to help ease the immediate labour supply issues. This will help the sector to appoint a skilled workforce to deliver schemes and projects up and down the country - which will, in turn, unlock further nooks and crannies of the economy.

The Government is also putting funding and weight behind enticing those who have left the workforce to return. This is vitally important in an industry where skill and experience are key. ‘Returnerships’ will target the over 50s and will bring together the Government’s existing skills programmes to help the country adapt to working for longer. In construction, we are interested to see if we can use this new initiative to retrain talented colleagues to become the teachers and tutors of the next generation of construction workers, who are hungry to learn.

The attention given to ensuring a sustainable and accessible housing market will go some way to addressing challenges faced by our homebuilders. The Government has acknowledged that high levels of nutrient pollution is stalling homebuilding for many local authorities – which is hampering the ability for the sector to meet the ambition of delivering 300,000 homes annually. The Spring Budget included a commitment to consult on and potentially fund high quality, locally-led nutrient mitigation schemes. We know that some local authorities face a resourcing challenge so, for this new approach to be successful, the industry should be involved from an early stage.

While there were some positives to come from the Budget, the reality is that without the Government urgently publishing the Infrastructure and Construction Pipeline, the industry’s hands will be tied in delivering the Prime Minister’s priority of reducing inflation.

This article was originally published in Construction News.