On Budget day our industry waited to hear the chancellor announce bold moves to unblock the pipeline of sorely needed social infrastructure projects. It’s still waiting, says Steve Beechey
As George Osborne stepped up to the despatch box to deliver his Budget speech, many in our industry were holding their breath. After all, what better time to announce final details of the Priority School Building Programme (PSBP), at once stimulating the economy through investment in construction (which has been shown by the UK Contractors Group to return £2.84 in GDP growth from every £1 invested) and providing some welcome improvements to the UK’s dilapidated school estate? Surely, at a time when the government is reliant on the private sector to deliver social infrastructure, this was the moment when the chancellor would throw his weight behind the idea of innovative working between the public and private sectors to finance new projects?
We need to deliver at least 500,000 school places in the next four years and over 200,000 new homes per year for the next 20 years. And yet the Budget placed little emphasis on these issues
The Budget was an ideal opportunity to restore faith among the contractor and investor communities and create the right conditions for projects to start moving forwards. The industry is desperately in need of certainty, while as a society we face a severe shortfall in our social infrastructure; latest figures show that we need to deliver at least 500,000 school places in the next four years and over 200,000 new homes per year for the next 20 years. And yet the Budget placed little emphasis on these issues, missing out on a number of easy wins.
First, the PSBP could have been unveiled as the forerunner to a new, fairer and more sustainable project finance model. It would provide a clear six to 12-month period during which the new model could be explored, and would then help carve out a template for future public private partnerships. Having seen a stable pipeline of projects confirmed and having been given a clear signal of the government’s intentions, investors and contractors would be far better positioned to plan their resources and invest in innovation.
Second, although the Budget did include the welcome commitment of £150m for tax increment financing (TIF), this is a drop in the ocean compared to the amount required to meet the country’s need for regeneration. A more significant £500m package of support over 12 months would have demonstrated bold leadership and provided enough short-term stimulus to reinvigorate the industry in geographical clusters. Spreading £150m in TIF projects over a three-year period will mean a long wait before we see any benefit to the economy.
Third, a progressive Budget would have introduced a blend of carrot and stick measures to encourage local authorities to move forward with local asset-backed vehicles (LABVs). Putting an incentive arrangement in place, as with the new homes bonus, for example, may have been enough to prompt those local authorities currently standing on the edge of the LABV diving board to make the jump into the brave new world of property joint ventures.
The industry was crying out for greater certainty when George Osborne opened the famous red briefcase, yet we’re still none the wiser
Local authorities and NHS trusts eager to take the plunge need direction from central government on how to leverage under-utilised or inefficient assets - this was not forthcoming in the Budget. Setting forth a plan of action for rationalising oversize estates and encouraging local authorities to be progressively minded towards eliminating surplus assets would have been a significant step in unlocking investment in local infrastructure.
Commissioning an independent survey to map out local authority-held assets across the UK could also provide useful guidance on the exact efficiency savings which could be made across the public sector and reveal just how much scope there is for LABVs to take off.
Given the desperate need for private sector investment in our social infrastructure to bridge the public funding gap, the absence of a detailed plan from the government on how it intends to tackle the issue just isn’t acceptable. The industry was crying out for greater certainty when Osborne opened the famous red briefcase, yet we’re still none the wiser. Social infrastructure cannot simply be pushed to one side in favour of economic infrastructure projects, or we could be left to count the cost of inaction for generations to come.
Steve Beechey is group investment director and head of education for Wates