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.Infrastructure...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.