How much will today’s announcements by the Chancellor George Osborne really change the picture for construction?
Will the promise of jam today, tomorrow and for every day in this parliament really amount to a hill of beans?
But if you want to carry on to find out why not, here we go.
I’ll start by trying to get a handle on what the funding gap might be for construction. In fairness its all a bit hypothetical and rests on what is a reasonable aspiration for the fruits of construction.
Anyway by way of a start here’s a graph which shows construction output up to now with the Construction Products Association forecast to 2015.
I have put in a trend line which shows the trend growth from 1975 to 2007 when the credit crunch bit. This is projected forward to suggest a reasonable aspiration for construction output.
As we can see there is a gap, which in today’s money is about £20 billion next year.
Now let’s think about that forecast from the Construction Products Association and what it means. Its projection doesn’t include the amount of housing that before the credit crunch we thought to be needed. It doesn’t include all the huge sums of cash needed to bring the nation’s infrastructure up to scratch.
To meet those aspirations we would need to spend a further £10 billion to £15 billion a year on housing and another £5 billion to £10 billion on infrastructure above the peak levels. So let’s suggest (not unreasonably if we accept those figures) that we would need to spend a further £20 billion above trend to meet the aspirations that seemed reasonable before the downturn.
Add that all together and you have a pretty strong case for suggesting that the funding gap for construction is not far shy of £40 billion a year, if we want to meet our not-that-lofty aspirations.
Put that figure out of your mind for a moment. I don’t want to taint (well not just yet anyway) your enjoyment of the excitement generated before the chancellor’s speech.
Because today he will release some mouth-wateringly humungous numbers for how much more spending this government is to lever into infrastructure. Numbers so big they will make the public go “wow”. Well perhaps that’s his hope.
But maybe not, as we already know most of what there is in the Autumn Statement from an orchestration of ministerial and private briefings.
There is still some excitement left, we don’t yet know the name of the rabbit he will pull out of his hat.
Anyway, here’s what the BBC reports will be in the sugar coating he’ll be putting on the nasty pill of sick-making economic figures that he will also be releasing:
“These include a bid to encourage British pension funds to invest in £30bn of infrastructure projects over ten years, a £1bn three-year scheme to subsidise work placements for young people, a £40bn scheme to underwrite bank loans to small businesses and a mortgage indemnity scheme to boost the housing market.”
That sounds fantastic for construction.
It’s meant to. But (here I have to dilute your enthusiasm) it basically amounts to a watering down of more ambitious plans laid out over the months that this new administration has been in power.
Let’s look at what was in the plan October 2010.
Here’s a cut from the National Infrastructure Plan 2010:
“We plan for UK infrastructure investment to be some £200 billion over the next five years. We will help make that happen through smarter use of public funding, improving private sector investment models, encouraging new sources of private capital and addressing the regulatory failures that stand in the way of greater private sector investment in our country’s infrastructure.”
That’s £40 billion a year.
So unless I have my sums badly wrong this Autumn Statement is set to promise £3 billion a year or 7.5% of that £40 billion. Not that much of a spectacular then.
From a construction perspective, we measure infrastructure slightly different. It doesn’t include above ground stuff like buildings, it doesn’t include techie stuff like IT, process plant and equipment. But even so the vast bulk of infrastructure in that widest use of the word boils down to the civil engineering type of infrastructure that is measured in the construction statistics.
Last year we did about £20 billion of it when you add the new stuff to the repair and maintenance. That is in volume terms possibly about as much as we have ever done in a year in the UK, the infrastructure statistics not going back too far.
Even against this the £3 billion a year over 10 years doesn’t look that tasty. Certainly we are not in FDR New Deal territory here.
What is more worrying is that the funding, unless I am mistaken, will very much rest on funders in the private sector being willing to pump in the bulk of the investment, with the government underwriting risk.
I’d better end here, because the structuring of an economy whereby risk is socialised while profits are privatised is a whole other can of worms. And at the moment I don’t want to be distracted by worms as I ponder on what the name of that rabbit might be.