Party conference season is upon us and this year the agenda is more relevant to construction than ever. Building looks at the likely policies to emerge and invites you to keep tally of their impact on the industry
Next week, the annual round of politicking, lobbying, speechifying and stale sandwich scoffing that is the party conference season begins. It comes - as it always does, somehow - at a moment of great uncertainty for the construction sector, when government action to tackle the deficit with spending cuts seems in danger of settling the economy into long-term stagnation.
However, behind the inevitably political ding-dong over balancing the books vs further market stimulus, there is plenty else going on that’s of vital importance to the construction world. Initiatives such as the Green Deal, reform of procurement, and the continuing upheavals in planning are all crucial to the industry’s recovery, but are at the mercy of politicos and - more perilously - grass-roots members.
So given the state we’re all in, what signs should the industry be looking out for from our elected representatives?
Economic growth and public spending
George Osborne’s Comprehensive Spending Review cut £11.4bn from capital spending on construction over the next four years. Major casualties include education and housing, with 70% and 60% cut from their capital budgets respectively.
The fiscal and spending stimulus undertaken by Labour had a striking effect on construction, with 2010 recording two of the highest quarters of growth in 20 years. In contrast, the current a 45% drop in public construction spend has seen new orders now fall to their lowest ever level.
Nonetheless, those in the boardrooms of the biggest companies have thus far supported deficit reduction, recognising that if the UK’s national debt starts to be talked about in the same breath as Spain’s and Italy’s, then this will have more lasting damage than stopping the school building programme. There is, though, a growing feeling that more can be done right now, hence deputy prime minister Nick Clegg’s speech this week promising to prioritise infrastructure.
Noble Francis, economics director of the Construction Products Association, says: “Given the concerns but also the need to address the deficit, the government should be looking at the best way to utilise the finance it has pencilled in over the Comprehensive Spending Review period up to 2014/15 by bringing forward spending from later years, when private sector recovery is likely to be more sustained.”
What to look out for
Any leaks or previews of the forthcoming Plan for Growth part 2, expected later in the autumn. In particular, the industry is wondering if capital spending could be brought forward from later in the parliament to ease current problems. Hints of efforts at deregulation or tax incentives for businesses would also be welcomed. Diverting funds from public services such as incapacity benefit to capital investment in infrastructure is also possible.
The Green Deal
A major consultation on the Green Deal, the programme to get thousands of homeowners to improve the energy efficiency of their homes with private money, is due out at the end of October. Seen by some as the great hope of the domestic repair and maintenance industry now that the Decent Homes programme is over, the government has said it can create 250,000 jobs and improve the energy efficiency of thousands of homes.
However, huge questions remain over its implementation. Most research, including that done for the government by chief construction adviser Paul Morrell, suggests that without further government subsidy the deal will not be attractive enough to householders to take up on a wide scale. There are also concerns over the cost of finance for the private companies expected to pay up front for the work, and for the ability for smaller contractors to benefit.
John Alker, policy director at the UK Green Building Council, says: “Everyone is saying that you need further financial incentives to make this work, and given how much political capital the government has invested in this project, it’s not unrealistic to expect something on this.”
What to look out for
The biggest cheers would be for anything suggesting genuine extra incentives for homeowners to undertake Green Deal works: which could be in the form of a VAT rebate, a lower stamp duty level on green homes, or a penalty for sales of homes where energy standards are low. Warm words about commitment to the scheme will do little to allay fears.
The NPPF is about the jobs and the houses and growth society needs. We need the government to hold firm in the face of criticism
Jeremy Blackburn, RICS
Housing and planning
Planning will be a huge issue at the Tory and Lib Dem conferences following the publication of the National Planning Policy Framework (NPPF), and Labour, which has so far been eerily quiet on the subject, will be forced to take a position. Rumours have been rife in recent weeks that the government - stung by recent studies showing the fall in home ownership - will launch a housing strategy this autumn. Most of all the industry wants to see action on mortgage lending, which, despite the furore over planning, is generally agreed to be the main constraint on residential development. Redrow’s Steve Morgan has recently made the case for Mortgage Indemnity Guarantees to give lenders the confidence to lend to people with smaller deposits.
Regarding planning, the publication of the NPPF has reassured many developers horrified by the abolition of regional housing targets. The worry is whether the government holds to its stated policy. Jeremy Blackburn, UK policy manager at the RICS, says: “The NPPF is about the jobs, houses and growth society needs. We need the government to hold firm in the face of criticism.”
What to look out for
Developers will consider it a success if none of the major parties passes a motion calling for the withdrawal or serious watering down of the NPPF. Hints on what may be being considered in an autumn housing strategy may also emerge.
Procurement and PFI
The publication this summer of the government’s construction strategy, authored by Paul Morrell, has set the agenda for the industry. It calls for fully integrated supply chains, the introduction of BIM, and 20% savings on procurement costs.
Though widely supported, small builders are concerned the strategy’s reaffirmation of frameworks and standardisation only helps the big boys. They also want more action on standardisation of pre-qualification, although the government has already pledged to abolish it for minor jobs and standardise it for all others. Architects have particular concerns around the procurement of design, which they say does not ensure that good design is rewarded.
On PFI, an announcement is expected in the autumn of a “son of PFI” scheme that will allow private financing of public projects. James Stewart, chair of global infrastructure at KPMG, says: “Might politicians rename it? Possibly, yes. Overall I’d expect them to stress that PFI is just one part - a relatively small part - of the picture of overall procurement.”
What to look out for
Much more detail on procurement is unlikely, although plenty of rhetoric on helping SMEs is a certainty. While an announcement on PFI is expected soon, politicians of all colours may shy away from mentioning it at conference to their grass roots.
Infrastructure/Green Investment Bank
Nick Clegg announced this week that investment in 40 major infrastructure projects would be speeded up, essentially a preview of the National Infrastructure Plan promised before the end of the year. And the government has let it be known that infrastructure will be at the centre of its Plan for Growth, to be published in the autumn.
For infrastructure contractors, who have suffered less than others at the hands of the spending review, the key thing is to achieve cross-party support for whatever measures are put forward in the autumn, in order to give developers the confidence to invest cash in schemes. An example of this is the reform of the energy market, but it is also seen in recent hints that the Department for Transport may be considering allowing toll roads to pay for highway construction.
Arguments over the funding and exact role of the Green Investment Bank continue - critics say it should be allowed to borrow money from the markets earlier than 2015, and that £4bn of funding is too little to have a great impact. Alasdair Resiner, director of external affairs at the Civil Engineering Contractors’ Group, says: “The major power companies are poised to make huge investment decisions on schemes - they need to know the next government signs up to the same objectives otherwise they won’t do it.”
What to look out for
Signs of consensus on infrastructure funding, and any comments on specific projects such as Crossrail, nuclear power, or High Speed 2. The likelihood of senior coalition ministers being caught making off-colour comments about HS2 is high. On the Green Investment Bank, relaxing its borrowing rules may be a way for Osborne to show he is listening to concerns about growth.
Invest to recover
By Steve Hindley, chairman of CBI Construction Council and chairman of Midas Group
There is a major opportunity now for the government to really drive recovery, not just within construction, but across the economy as a whole. This would not only create jobs, but also increase investment, boost long-term competitiveness and help the UK meet its carbon reduction targets.
Firstly, reform of the planning system is paramount. The government must continue in its resolve to reform the system and give businesses the confidence that projects can progress from conception to shovel-ready in a shorter timeframe to enable a step change in infrastructure investment.
That investment of course requires capital, and this is my second point. It is essential the private sector remains involved in the delivery of infrastructure investment, and that the right channels are there to make that happen. The use of private capital has unlocked hundreds of billions of pounds of investment and closing that channel now would seriously damage growth and confidence. The government must evolve existing PPP and PFI models and ministers must stand up for the role that private finance has to play and publish a clear, long-term pipeline of projects.
Thirdly, the UK has a major housing shortage. A vibrant housing sector drives growth and job creation in every region of the UK. Removing barriers to development is essential to ensure that the UK economy doesn’t suffer from housing shortages that may threaten not only the economy, but also social cohesion. Getting the balance right on planning reform is, again, essential, as are financing innovations to support first-time buyers.
And finally, a huge opportunity for growth exists in embracing the sustainability agenda. The Green Deal programme to promote energy saving in homes can boost jobs and investment, as well as reduce the UK’s carbon emissions. The initiative has the full support of the sector, but the government needs to do more to ensure that the take up of the Green Deal is widespread.
Construction is one of the best ways of stimulating economic activity. One pound spent on construction output generates a total of £2.84 in total economic activity, which would make a huge difference to both the local and national economy.
The CBI will be channelling its efforts into these areas to ensure that they are prioritised in the forthcoming Growth Review and National Infrastructure Plan. Planning reform, supporting private investment, boosting housing and seizing the opportunity to embed sustainability will boost growth and enable us to really put the recession behind us.