As if in compensation for all the anticipation before and excitement during the Budget announcement, we are left with the dull thud back to reality afterwards.
Certainly, for construction the Budget itself changed little of substance.
Alright the first-time buyer stamp duty holiday was an eye-catching cheeky move. But we all know its greatest impact will be in 20 months time when we will see a flurry of activity by those who don’t want to miss out on potentially saving a grand or two on a home that will in all probability be a three or four grand more expensive because of the sudden increase in demand.
But the central problems remain for construction, who or what will fill the huge hole that will be left in funding for capital works as the state retreats?
Just to remind you of the figures we are talking about here, gross investment within the Treasury’s capital budget is set to fall from £69.5 billion this financial year to £45 billion in 2013-14 (see the table below, sourced from the Budget main document).
This I found a shade puzzling, as the public finance figures point to a net investment over the 11 months of this year of £37.2 billion, which would mean a net investment figure for March this year of £12.8 billion against £8 billion last year.
The March figure will be the annual big one, but the suggestion is that a quarter of the annual Budget will be released in one month. Still we’ll see. The public finance figures can show some pretty big revisions.
There was a further £1 billion of spending penned in for 2011-12, but in the main the profile of the capital budget remained pretty much the same.
What we are left with is more of less the same prospect we saw when we looked at the Pre-Budget Report – savage cuts in public funding. The exact amount is hard to gauge, given mix of work that falls under the capital budget line, the timing of spending and the effects of PFI.
But it would be not unreasonable to expect, once you take into account inflation, public spending to be lighter by say £15 billion to £20 billion in 2013-14 than it is today. Given that the public sector provides about £40 billion to £45 billion of cash to construction, that is a fairly sizeable chunk of work set to evaporate.
In cash terms that loss of revenue is of an equivalent scale to the drop in output in 2009. Scary.
That may be hard to take, but what is a tad more worrying is that this profile of spending is based on projections of how much the Treasury will have brought in and how much it feels it can borrow. These in turn are, broadly, based on the expectations of growth in the economy.
If GDP growth drops and Treasury revenues are less than expected, the figures penned into the capital budget line will come under scrutiny and will be among the favourites for cuts.
Now the Treasury forecasts for growth may prove correct. But looking at forecasts for GDP growth in 2011, just two out of 28 independent forecasters plonked for a figure above 3%, which is the lower end of the Treasury’s expectations. The average of the independent forecasts comes in at 2.0% with a median of 2.1%.
That places the Chancellor Alastair Darling and his team in the “very optimistic” camp.
Given that cuts in spending on capital projects are to be savage anyway and may be more savage if the economy doesn’t perform in the optimistic way the Treasury expects, I had expected a little more in the Budget on investment.
We did though get the announcement of plans for a new Green Investment Bank, which flowed out of the work of Infrastructure UK.
Potentially this is an exciting step. If Government funding is falling and there is no real prospect of a rapid move by traditional private sector clients to fill the gap, it is essential that new sources of funding are released and that new financing mechanisms are explored.
However, my excitement was rather tempered when I read the report. I had a quiet night planned with a beer and my downloaded copy of “Strategy for national infrastructure”, such fun and you can get you own copy by clicking here.
I wasn’t expecting a racy read and on that score I wasn’t disappointed. But my heart sank when I was faced with deciphering various sentences and clauses such as... “This will include consideration of the potential for infrastructure excellence clustering; and publish alongside the National Infrastructure Frameworks a summary of relevant departmental supply chain analyses for the sectors of infrastructure that they sponsor and outline any cross-cutting action that may be necessary.”
Hell’s teeth, what does that mean? I am not touting my services, but one investment Infrastructure UK could make is in a good subeditor.
Style aside, there was another nagging concern in the text. When it discusses other capital expenditure, such as schools, hospitals and housing, it appears to see these as in competition for finance from the same sources.
That is in one sense true. But it would have cheered me to read within that passage how capital projects such as schools, hospitals and houses interact to generate value and as such can be complementary in lifting, say, land values or the value of other neighbouring assets.
Small point, I know, but if we are to get out of the mess we are about to plunge into, to steal a phrase from Tesco, every little helps.
A sneaking feeling tells me that “value generation” – whatever that means, I hear you quite rightly scoff – will become the critical aspect of work of the Green Investment Bank as it seeks out new funding and innovation in financing capital projects.