Public sector capital spending will fall by more than half in the next four years, the government’s pre-Budget report on Wednesday revealed

The small print in chancellor Alistair Darling’s report, which confirmed funding for the £16.9bn Crossrail scheme and rail electrification programmes, said public sector net investment would fall from £49.5bn this year to just £22bn in 2013/14. However, the figures also showed spending this year had been higher than previously predicted (see below).

Alistair Darling

The net investment figure includes other expenses, such as government IT schemes, but it is seen as a good indicator of where construction spend is heading.

Noble Francis, economics director at the Construction Products Association, said: “This is particularly worrying, given recent findings that the country benefits by £2.84 for every pound spent on construction. Given what’s required, it’s disappointing.”

Darling also announced:

  • An “Infrastructure UK” unit, which will co-ordinate all infrastructure projects
  • A cut of £340m in spending on regeneration and housing growth to pay for health and education
  • Four pilot carbon capture coal-fired power stations
  • The end of stamp-duty relief on homes costing less than £175,000
  • A £500m Growth Capital Fund to support small businesses
  • A plan to replace 125,000 inefficient household boilers through a scrappage scheme.

The infrastructure unit, which will sit within the Treasury, will combine the functions of Partnerships UK, the Treasury’s PFI team and the £2bn Treasury Infrastructure Finance Unit, set up in April to kickstart £13bn of struggling PFI schemes.

Treasury officials said the new body would focus on drawing up a long-term plan to identify how to prioritise spending on infrastructure, and how to pay for it. It will look immediately at funding options for the proposed high-speed rail link between London and the Midlands, and how to fund low-carbon infrastructure.

Fiona McDermott, head of construction for KPMG, said: “If this new body works it could be a really good thing, but it will require a lot of organisation in a very complex area.”

Behind the numbers

The numbers in the report are interesting, writes Brian Green. The public sector net investment figures show the extent to which the government is propping up the building sector, spending more than it said it would in the Budget for the financial years up to 2010-11.

The figures show net investment of £45.3bn in 2008-09, compared with £37.7bn estimated in the Budget. The 2009-10 figures are £49.5bn against £43.8bn. This suggests the government is pumping money into construction faster and intends to do so for a year or so more.

But the extra money suggests a larger fall when it comes. In 2011-12 public sector net investment drops to £29bn. This then falls to £22bn in 2013/14.

More worrying, the projections are based on what many would say were optimistic growth forecasts.