There has been much comment recently concerning the planned cuts in public sector investment, with a figure of 50% often mentioned. This relates to the planned reduction in public sector NET investment over the period 2009/10 – 2012/13.
However, GROSS investment is planned to fall by a lesser 30% over this same period.
What is the difference between the two measures and which one is relevant to construction companies? The answer: gross investment is the relevant measure.
Gross investment refers to total capital expenditure by the public sector, while net investment refers to gross capital expenditure minus depreciation. As depreciation is an accounting charge against fixed assets, net investment is not an accurate measure of what is actually invested in any financial year.
For instance, in 2000/01, net public investment was just £9.5 billion and gross investment £33 billion. Clearly, the public sector did not spend as little as £9.5 billion on fixed assets in that year: new work construction output alone totaled £8.3 billion in 2000, and there is much more to public investment than new work construction, for example, expenditure on repair and maintenance, capital equipment, land and acquisitions.
The actual amount spent on investment (and thus the size of the market available to those delivering construction and other investment services to the public sector) is thus best reflected by gross investment data.
This is estimated at £68.7 billion in 2009/10, and is projected to fall to £48 billion in 2012/13, a decline of 30%.
While public sector gross investment is planned to fall strongly over the next few years, the decline is not as steep as implied by the widely quoted net investment measure (which will fall by 47%).