How much is really at stake for the sector in next week’s spending announcement?


Given that it will set departmental spending budgets for the whole parliament, there’s no doubting that from a Whitehall perspective next Wednesday’s set piece spending announcement will be the most important in the next four years. But for the construction industry, how much is really at stake?

Much of the information with the most significance will be contained away from the headlines pulled out in George Osborne’s public speech, in the settlements for individual departments. Several key spending departments for the industry - communities and transport among them - have already reached agreement with the Treasury on the scale of cuts they will be expected to deliver, believed to be closer to the extremely tough 25% end of the scale demanded by the chancellor rather than the arguably impossible 40%.

Even though Osborne has made clear he will prioritise capital over current, day-to-day spending, the detail of these settlements will be tracked closely by industry. Against the backdrop of public spending austerity, even a relatively small drop to capital spending limits could mean the difference between a programme going ahead, being delayed or scrapped altogether. The amount allocated to traditional types of affordable housing - under threat as the government prioritises its starter homes initiative - and the £2bn the industry is counting on for the second wave of priority schools, are just two details that are being nervously awaited.

The government’s unwavering commitment to making spending reductions in the cause of reducing the UK’s budget deficit makes it unlikely that there will be significant fresh headline programmes. The main plausible exception to this is infrastructure. Osborne has said he will commit at the Spending Review to investing £100bn in infrastructure. Even though individual bids for funding still face heavy scrutiny, the chancellor’s passion for the sector as a driver for economic growth, particularly in relation to his envisaged “northern powerhouse”, means that significant funding announcements in sectors such as road and rail are still very much on the cards.

The likelihood of infrastructure programmes receiving a boost, both in this and in future budgets, has been enhanced by the creation of the independent infrastructure commission, which Osborne insists will “hold any government’s feet to the fire” on infrastructure delivery.

The creation of the commission, as Richard Threlfall articulates on page 28, could turn out to be the Conservatives’ most important move in terms of ensuring the delivery of infrastructure improvements (once the detail of how it will work is determined, that is). This is partly through encouraging continued government funding in the sector, but also because its creation signals a clear policy intent that will give foreign or private investors confidence in projects. The significance of this policy for project financing should not be lost amid the wrangling over funds that will occur over the coming days. As the government sets out what will inevitably be a very constrained spending environment for the duration of the next four years, the opportunity still exists for the adoption of other policies that, in a similar way to the infrastructure commission, could create this kind of security for investment without being in themselves a commitment of public sector funds.

One such idea was articulated by Arcadis this week, in its recommendation for an independent housing delivery agency. Similar is the position favoured by Building’s Agenda 15 campaign, for housing and retrofit to be brought under the auspices of the National Infrastructure Commission (NIC).

The inevitable debate that accompanies calls for government-led policy to drive improvements in delivery of the built environment is whether industry should simply “do it themselves”. But rightly or wrongly, increasing evidence points to change being driven when it has a clear government mandate, even with little or no funding attached (see our analysis of BIM adoption this week).

Funding is, of course, always welcome. But in the current environment, policies with government backing - such as the NIC - are becoming more trusted by those planning their businesses than pots of cash that could be removed (look at the Green Deal subsidies). And the government has no excuse for not using that to its advantage to address the mounting problems with the country’s built environment.

Sarah Richardson, editor