This is just of foretaste of cuts we face in the June Budget and autumn spending review

The government’s newly unveiled £6bn of spending cuts will not critically harm construction, but they are merely a precursor to further cuts in the upcoming Budget, at the end of June, and the spending review due in autumn. These, more than today’s announcements, will dictate the fortunes of public sector construction - and, given that public sector is 40% of total construction, will also heavily influence any potential recovery for the industry as a whole.

George Osborne and his Lib Dem side-kick (technically chief secretary to the Treasury) made their first joint speech (of many to come) on the spending cuts today. Six billion pounds sounds a lot but given that total government expenditure for this financial year is expected to be £704bn, the £6bn savings only account for 0.8% of this budget and are a drop in the ocean compared with the cuts in spending necessary.

The speech was mainly to placate the markets, which will be hammering us in a similar vein that they did Greece, although not to the same extent, if the government does not outline in detail how it will reduce its unprecedented, historically high borrowing.

The speech was low on detail, but a few key highlights include:

  • £1.7bn savings to be made from delaying and stopping contracts and projects, including immediate negotiations to achieve cost reductions from major suppliers to government
  • £170m also given to the delivery of unfunded social homes (funded, in the main, by savings within the housing budget)
  • £670m savings from the Department for Education from reducing waste and quango costs elsewhere in its budget
  • £683m savings from the Department of Transport
  • No further fall in health spending.
  • Health spending was already on its way down for this financial year anyway.

Of most concern is the government delaying and stopping contracts, in addition to renegotiating cost reductions. The election already provided a hiatus on projects being signed up, and this will only make things worse for construction.

The news on the housing side is good for this financial year, but it is unfortunate that none of the savings will be used for improving the existing stock and it is disappointing to see a fall in education spending, which will no doubt have an impact upon school building, as well as a fall in transport spending, given the improvements in transport infrastructure that are necessary.

Savings, efficiencies and quangos are all initially mentioned when spending cuts are needed, as they play well to the public. However, soon, tangible cuts in spending will have to be made and it is critical that when this happens it is not in areas such as construction, which provide the type of employment and output that will be critical to sustaining growth for the whole economy.