The government’s policies for economic recovery aren’t working, and if ‘getting Britain building’ is the answer, a new course of action is needed now

The fact that the UK economy has been plunged back into recession by a fall in construction output may well have come as a surprise to those outside the sector with at least a passing interest in government policy.

David Cameron and George Osborne have repeatedly, and very publicly, stated that “getting Britain Building” is crucial to economic recovery. And a raft of grand sounding policy announcements - a National Infrastructure Plan, a construction pipeline, and a £20bn plan to attract investors to projects - have made national headlines over the last six months. All of which has given the impression that the weight of government is being brought to bear on kickstarting growth in the industry.

However, although ministers have been quick to place construction at the centre of recovery, the reality - as last week’s GDP figures show - is that the policies put in place aren’t working.

The government’s biggest initiatives rely on stimulating private sector appetite to invest in construction - and this attempt to manipulate lending markets is not working

One of the main reasons for this is that the government’s biggest initiatives rely on stimulating private sector appetite to invest in construction - and this attempt to manipulate lending markets is not working. Pension funds have so far shied away from investing in infrastructure, banks have backed off from the government’s Newbuy mortgage guarantee scheme, and we’re still waiting for French utility giant EDF to commit to its £10bn plan for new nuclear plant at Hinkley, which is entailing increasing financial risks. Meanwhile, the investment vehicle that lending markets know and trust - PFI - is still in limbo pending the outcome of a government review that, as yet, shows no sign of concluding.

It was never going to be easy to attract private investment in the current economic climate, and the government cannot be blamed for trying. But if the major building projects ministers claim are central to economic health really are critical then the government needs to become more directly responsible for their delivery. Taking nuclear as an example, can it be right that whether or not the lights go out in the UK essentially rests on the investment priorities of a company owned by the French government?

Much has been made of the government’s reluctance to switch revenue funding to capital projects, but by injecting capital directly into a handful of key schemes, the government would be in a greater position to secure the delivery of those projects. At the same time, it would send a signal to investors that it takes its commitment to infrastructure seriously, which could spark further investment. Alternatively - or indeed additionally - swift clarification of the future of PFI could pave the way for the government to develop PPP vehicles that give it greater certainty of delivery.

Whatever course the government chooses to take, it’s clear that it does need to act - and quickly. The catch 22 situation of the double dip denting market confidence further, plus the ongoing eurozone crisis, means that, if ministers are to meet the twin objectives of using construction to boost recovery, and delivering the infrastructure they have identified as critical, doing more of the same is not an option.

Sarah Richardson, deputy editor