Government rescue package could halve drop in construction output

The Construction Products Association (CPA) said the Government’s decision to bring forward £3bn of capital spending could mean the drop in construction output is half as severe as previously thought. Based on the Chancellor’s pre-Budget report it predicts a 2.4% drop in output in 2009, compared to a previous forecast of 4.6%, provided the money is spent as the government plans.

The CPA still predicts a 0.3% drop in output in 2010, however, then a return to growth in 2011, reports Building magazine.

The accelerated spending plan will see a hike in spending both this tax year and next, followed by a significant drop in 2010/11. The Treasury said most of the money (£2.6bn) will be spent in 2009/10. However, the extra £365m allocated for the current financial year is only likely to have a marginal effect on construction.

Most of the money will be pumped into education (47%), followed by housing (26%), transport (24%), sustainability (5%) and other projects (4%).

Other measures outlined in the pre-budget report include: A £7bn package aimed at small businesses; a potential £100bn scheme to provide Government guarantees for new mortgage lending; a temporary cessation of empty property rates tax for properties worth less than £250,000; and on Monday VAT will be cut from 17.5% to 15%.

Contract Journal (CJ) said the spending indicates that the Government is turning to construction to dig Britain out of a financial hole.

Industry reaction to the news has been mostly positive. Rob McGregor, managing director of Apollo Group told CJ: “This is great news and we are glad to see that the Government is willing to grasp the nettle and do something positive to help the industry. To have impact the investment needs to be channelled into deliverable projects.”

Speaking to Building Design magazine, RIBA president Sunand Prasad said: “Giving small businesses such as architectural practices more time to pay taxes and extending government guarantees of small-business loans are welcome practical measures.”

However, Prasad added that VAT for home refurbishment and repairs should be cut further. “We believe a reduction to 5% for home refurbishment and repairs would pay huge dividends — both economically and for the environment,” he said.

Meanwhile, the Home Builders Federation described the additional £150m for social housing as “painfully inadequate”. Several industry figures also said the £7bn package aimed at small businesses, which includes a £1bn government credit line to struggling firms and a tax relief package, would not be enough to prevent widespread redundancies and collapses.