Hurt at work?

The true impact of the Coalition Government’s Spending Review is incredibly difficult to measure, with the Chancellor’s announcements offering a mixed bag of seemingly positive steps forward, drastic cuts and ventures into the unknown.

At this stage it appears that the effects of the Spending Review will be about adopting a ‘make do and mend’ attitude, searching for ways that existing building stock can be used better and more efficiently, together with a focus on sustainable infrastructure in particular wind and rail maintenance, thus providing a vital lifeline to the construction industry which will need to find solutions to deliver this.

Who pays?
Much of the proposed development of infrastructure earmarked by councils for development in the next four or five years was to be financed under the Public Finance Initiative (PFI) scheme. However the Spending Review was noticeably silent about any continuing commitment to the PFI. A number of significant infrastructure projects do look set to continue, but it remains to be seen whether new infrastructure projects will need to be kick started through the Tax Increment Financing (TIF) and Green Investment Bank initiatives, but more importantly for the industry, how quickly this will happen?

In the short term therefore it seems we may see a resurgence in traditional procurement, but the development of new procurement models is to be anticipated alongside the use of TIFs and the need to facilitate energy efficiencies in developments.

It may be the case that cuts in public spending will lead to opportunities given that, with a smaller civil service the Government will have to outsource more work. It will however prove increasingly important – given the toughly regulated construction industry sector – to be vigilant on tax compliance, given the emphasis on the rigorous pursuit of ‘missing tax’.

Is the future green?
In times of economic hardship many believed that sustainability would fall further down the agenda and that it could even be in danger of disappearing altogether amongst a sea of pressing issues the Government must address. Thinking green does still appear for the most part, a high priority, with the Severn tidal barrage plan the only notable casualty.

A continued championing of the Green Deal should see a rise in people introducing energy saving measures in developments, with the promised reward of significantly reduced energy bills. Similarly, the piloting of the renewable heat incentive in 2010-2011 should ensure more efficient heating systems in properties.  Over £1bn is to be invested in the UK-wide Green Investment Bank and £200m in the development of low carbon technologies, with offshore wind farms a particular focus. It is also interesting to note that there have been no cuts or alterations to the structure of the Feed in Tariffs regime, which was widely predicted to be a major casualty of the Spending Review.

In contrast, the changes to the Carbon Reduction Commitment Energy Efficiency Scheme (CRC) offer a double edged-sword. It is welcome news for the industry that the CRC is to be simplified with much of the red tape removed, which will ease the administrative burden on businesses. Pushing the timetable for the purchases of allowances back to 2012 will also give many companies further time to gear up correctly.

Businesses must beware, however, as the CRC is effectively becoming a tax, with any payments now used to support public finances. Previously any payments made under the emissions trading scheme would be repaid to the participant, so the scrapping of the recycling scheme deals a huge blow, with businesses now facing a permanent cash deprivation rather than merely a cashflow issue as previously envisaged.

The proof of the pudding
A double-dip recession has been seen as a real possibility once the true pain of the cuts is felt, yet for the moment the industry is maintaining a delicate balance. The NHS budget remaining stationary may mean that construction could end up being a key focus for reducing health sector costs, yet there is a clear commitment to transport infrastructure and the £14bn allocated to rail maintenance will offer welcome opportunities for the construction industry.

Equally, the ‘Building Schools for the Future’ project may be dead, but £15.8bn has been pledged over four years for maintaining school estates, with 600 schools to be rebuilt/refurbished from this budget. There is also £1.3bn pledged for improvements to existing prisons.

The construction industry, which has recently led the higher than expected third quarter GDP growth figures, can but hope that it really is the case that where some doors have closed, many more may potentially open.