The general election result has left construction at the mercy of a fragile political alliance, with cuts to public sector spending the only certainty. We have to fight our corner
‘Be careful what you wish for – you might get it!” Well, we’ve got a Con-Lib government, which is what I predicted, and better, we hope, than the majority Conservative government some of us feared. Will it bring us best of breed with each party acting as a brake on the other’s nuttier notions, or will we get two parties get at each other’s throats – the “Con-Dem-nation” of Daily Mail opprobrium? We’ll soon know, as an emergency Budget will be announced in less than 50 days.
The Lib Dems have come out rather badly. After all, without them there would be no government. Instead of splitting the cake vertically along policy lines with the Tories keeping economic and foreign policy and the Lib Dems getting home affairs (for their fairness agenda) and a referendum on PR, the split has been horizontal. So, the Lib Dems have got all the lesser jobs, barring Energy and Scotland (where the Tories have no writ anyway) and a referendum on the alternative vote system – a far cry from legislation on proportional representation. The deputy prime minister’s post is traditionally a non-job; George Osborne will rule the economy despite Vince Cable at “Biz and Banking”; and Theresa May will be a very Conservative home secretary.
But what about construction? Well, notwithstanding the Tories’ appetite for efficiency savings (aka sacking civil servants), the easiest way to make their £6bn cuts in year one will be to axe capital spending. PFI contracts in health, transport and IT will be slashed immediately (Heathrow’s third runway has already been scrapped) as will Building Schools for the Future (BSF) spending. Schools get the raw deal out of this. There has been plenty of capital spending on hospitals and there are private sector options for infrastructure, but the cuts will add insult to the injury schools have already suffered.
super-green Chris Huhne is secretary of state for energy, but has to carry out the Tory nuclear policy. Surely that’s a Cameron joke at the LibDems’ expense?
BSF is a badly conceived procurement mechanism (ignoring RIBA’s leaner, quicker “smart PFI” alternative) that has led to hundreds of millions of pounds worth of skilled constructors’ and professionals’ money and energy being wasted to produce far too few new and renovated schools. Our industry’s best efforts are not in doubt, but the clunkiness of the procurement system has only been matched by its profligacy. Meanwhile, thousands of schools wait in the queue for the attention they desperately need. And, unintentionally, the “localism” of Tory planning policy could herald widespread nimbyism, bringing housebuilding to a halt.
New public investment policies will turn even more directly to the market than PFI or BSF; free schools, private hospitals, toll roads, and so on. Crucially, we must “mind the gap” when transferring from one system to another. When PFI replaced traditional public procurement, there was a two-year investment gap. It decimated the public sector supply chain and this will happen again.
The emergence of a green economy may give us some hope. The super-green Chris Huhne is secretary of state for energy, but has to carry out the Tory nuclear policy. Surely that’s a Cameron joke at the Lib Dems’ expense? Nevertheless Huhne will push offshore wind, tidal, local CHP and every other green energy proposal while agonising over our failing nuclear plants. This is a huge opportunity.
Our industry’s best efforts are not in doubt, but the clunkiness of the BSF procurement system has only been matched by its profligacy
The big question is whether the private sector will double dip. The banks may be the robber barons of the age but they do drive our economy. Cable has gone from sage to savage in his desperation to break up the banks and raise capital gains tax to 50%. Let’s hope that Cable is safely out of the way at business.
Still, it looks like taxes will rise (VAT to 20% or more seems likely) and ruthless public sector capital spending cuts will come in immediately. These tough measures are what the City wants and will boost confidence in the final recovery and the gilts market. But that does not mean it’s good for the construction industry in the short term.
My fear is that construction will double dip for two years, even if the broader economy does not. To minimise this, we must be quick to understand the new public economy and find fast-track ways to align with it. For example, we should quickly research and influence the new schools agenda. The same will be true in health, roads and energy.
Welcome to the new austere world of DIY public services, a second Victorian “Big Society”. Once again, the construction industry is used as an economic regulator, so get behind the Construction Industry Council – we’re going to need all the political influence we can get.
Jack Pringle is partner at Pringle Brandon