After the shock of the education spending massacre, the cutbacks will probably provoke despair rather than anger
If they had happened under Tony Blair, the cuts would have been branded “the new realism”. But the slashing, burning and pain to come in next month’s Comprehensive Spending Review is now anything but new. This week, it was Nick Clegg’s turn to continue with the depressing economic mood music on behalf of the coalition government, but after the shock of the education spending massacre, the cutbacks will probably provoke despair rather than anger.
What damage you suffer really depends on where you are in the chain. The top 10 contractors seem to be relatively well insulated: Balfour Beatty, the biggest of them all, has grown at a healthy rate throughout the recession, Kier has just announced a 10% rise in profit (page 17) and Morgan Sindall had no trouble pulling £28m in cold cash out of its back pocket when it saw the chance to pick up some of the contracts shaken loose from Connaught (page 16). And although they may not have the “strong voice at the heart of government” that Richard Steer calls for in his column (page 26), the major contractors did march into Downing Street last week to put the case for infrastructure investment (page 11). No surprises there - and in any case the government is pretty much under a legal obligation to ensure that areas such as waste and water receive investment (see our markets special on page 53 for more on this).
And, of course, these contracts are the natural prey of the largest firms. But then there are the real victims - the regional contractors that are struggling to defend their territory from nationals that wouldn’t have dreamed of competing with them three years ago. According to David Lawther, the chief executive of ISG (turnover just shy of £1bn), he is now going for jobs worth £50k (page 17).
Meanwhile, procurement is under the microscope in Whitehall as never before. Gone are the days of Latham and Egan-style debates assessing the merits of partnering and integrated project teams. The government’s hatchet men are firmly on the side of those who argue against “over-designed” schools and hospitals, convoluted procurement programmes and ridiculous bid costs. As one contractor puts it: “Why have six poncy-looking schools when you can have 50 decent ones for the same price? This is now simply about need.” This is not advanced theoretical thinking, but it seems to be on the money. The message is to expect the procurement basics: standardised contracts, standardised designs, simple national frameworks and, more likely, the pursuit of value through volume. Once again, there’s likely to be a clear set of winners and losers, and if you’re not convinced you’ve only to look at what’s happening with the NHS’ Procure 21 framework.
The not-so-bad news, however, is that there is still a few billion in the exchequer, and this will filter its way through the system over the next year.
As this magazine has never tired of pointing out, it was Labour’s fiscal stimulus in the wake of the 2008 banking crisis that kept the whole of construction from following the housebuilders to Carey Street, and even so the losses were staggering (unemployment rose 720% for architects and 655% for QSs). This was followed by a false dawn in April, when activity indices showed actual growth, rather than slowing decline, for the first time in two years, and figures from the Office for National Statistics showed the sector had expanded 8.6% - but only in comparison with a winter when it more or less ground to a halt. Tomorrow, Labour hopes to elect a new Blair, but whoever it is, the figures in the national accounts will be the same … and when it comes to policy responses, to quote another recent prime minister, there is no alternative.
Tom Broughton, brand director