Budget day as ever was interesting and obviously, the devil is in the detail, especially when it is bad news. However, the Chancellor's speech and the Budget document provide us with some initial thoughts.
The macro figures are as bad as expected and potentially worse; £175bn public borrowing in 2009/10 and £173bn in 2010/11
However, the £173bn is based upon very optimistic GDP growth forecasts for 2010. The chancellor is more optimistic than most forecasters, with expectations of 1.25% GDP growth in 2010 and 3.5% growth in 2011. The majority of forecasters are forecasting marginal growth or contraction for the economy in 2010 and if he is, as we suspect, too optimistic, then tax revenues will be significantly lower than expected (income tax, corporation tax, oil revenues, stamp duty) and expenditure will be considerably higher (social security payments). The problem with this is that it means that either public borrowing will be even higher than expected next year or capital spending will be cut. Potentially both. And this could have a significant impact on a construction industry already enduring its worst recession on record.
Of even more concern is public sector net investment, which is anticipated to fall from 3.1% of GDP in 2009/10 to 1.25% in 2013/14. The sharp fall in investment is surely likely to impact upon our industry and for anyone who has seen our latest forecasts, a fall in public sector construction spending post-election (which must occur on or prior to summer 2010) is likely.
It is not all bad news and some further measures to assist in the private and social housing markets were welcome but were relatively modest given the scale of the downturn in the housing sector. The Learning and Skills Council may have irresponsibly committed to projects in its colleges' programme for which it did not have the funds but as a result there were at least projects that could be got off the ground very quickly. An additional £300m of funding will only support about 10% of these additional schemes and seems to be a missed opportunity.
Whilst the provision to support credit insurance is welcome, for many it is too little too late and for those whose insurance has been withdrawn or reduced before 1 April it has no value at all. Perhaps our biggest disappointment is that the government has once again failed to act on VAT on domestic repair and maintenance, including lower rates on a wider range of energy efficient products. This has so many positives in helping economic growth and reducing carbon emissions, it really is surprising that the government has once again failed to act. Also disappointing is the failure to act on empty property rates - an unnecessary burden on companies already struggling to maintain properties in anticipation of an upturn.
The government has acknowledged that the construction industry is key to leading the economy out of recession. Unfortunately, this government aspiration has not been reflected in the proposals set out in today's Budget.