The economic recovery hasn’t quite panned out as planned, but the Chancellor should be thankful for small mercies. Considering the recent turmoil in the Eurozone, Osborne must have been delighted to deliver his Budget Bill safe in the knowledge that:
- The Government is on target to undershoot the 127bn borrowing forecast for 11/12
- The OBR is predicting 0.8% growth this year and 2% in 2013
However, I don't believe that the growth forecast for the next three years (between 2-3% per annum) will be reflective of our industry. Actually, there was precious little news for most of us in our industry (the energy sector aside) – a touch disappointing when you consider the potential that construction has to delivering regeneration and growth.
There now appears to be a much reduced risk of a double-dip, but with Moody’s having recently stated that Britain is on “negative watch” for its AAA status, Osborne still had little option but to keep the good ship Britannia moving steadily forward on its current course of prudent financial management to deliver economic recovery.
Within the speech there were a few sideshows that will grab the headlines – dropping the 50% tax rate is one, but don’t expect to see anything in the broadsheets tomorrow that will profoundly change our industry – we are firmly living within the ‘new normal’. Opportunities are emerging though – the heavily trailed feasibility study into new ownership and financing models for the national road network is an example. Another is the public recognition that airport capacity in the South East is insufficient to support growth in a globally competitive environment.
So what does this all mean for public sector organisations across the country? The answer is simple – more of the same – securing efficiencies and trying to kick-start economic development with less.
Here's the view of our team at EC Harris on the impact of the Budget and how the industry can help deliver savings whilst encouraging growth:
Affordable Housing: Given the recent updates on the Coalition’s NewBuy and reinvigorated Right to Buy initiatives, there was unsurprisingly little more in the Budget for housing.
Small fiscal tokens included £100m for military housing, a pledge to support £150m of Tax Incremental Financing to help local authorities promote development and extra for the Get Britain Building and Growing Places funds. The greatest impact will be made through the smart blending of all these programmes to avoid the misalignment of supply and purchase initiatives.
The Budget was also used to promote the long awaited planning reforms due to be launched in early April; a promise of just 50 pages of regulations in favour of sustainable development.
Education: It was good to see a commitment to investment in new research facilities, but is £100m really enough to create the globally competitive skills based economy that most of us recognise is essential for long term success?
Whilst making the headlines with commitments to spend, hidden deep in the text of the document is a review VAT exemption for providers of education, in particular at university degree level. The intent is to ensure that commercial universities are treated fairly, but if carried through this will create significant pressure within the sector.
For local authorities and schools the key areas of focus will remain Basic Need and condition.
Health: The passage of the Health and Social Care Bill still provides many questions as to where the NHS will look to achieve the efficiency it requires to deliver the targeted £20bn savings. Clarity around how NHS Prop Co will function alongside the new PFI model will be a priority, as this has real potential to unlocking value from within the NHS estate.
Our latest research showed that for 2010/11 the ‘wasted’ space in the NHS is circa 1.9 million m² - broadly equivalent to Sainsbury’s entire UK store base. Securing such financial and efficiency opportunities is now vital to get the NHS estate in shape for the future.
Local Government: The news that councils will be able to use prudential borrowing on reduced rates for value for money investments is to be welcomed and we await the finer details.
Many local authorities are facing an uphill struggle to design and implement their efficiency programmes and the challenge that late-comers face is increasing exponentially with time. There is a shrinking window of opportunity for transformation.
Now is the time to be bold and implement decisions whilst people are still open to radical change. Those organisations which move quickly will benefit from the limited tools the Government has committed around funding and freedoms.
Central Government: Pressure to increase the efficient use of property continues, following a recent NAO report estimating that £830 million could be saved annually through collaboration across government departments and other public sector organisations.
We now need to see much more strategic property decision making and closer collaboration to push the boundaries in property rationalisation and realise the optimum savings from property integration and the roll-out of shared service centres.
Graham Kean, Head of Public at EC Harris