Education capital funding to fall 60% and housing 70% as chancellor takes hatchet to public sector

The industry this week braced itself for a 29% decline in public sector demand over the next four years as George Osborne set out the coalition’s departmental spending budgets.

Capital spending, about 40% of which is construction, will fall from £51.6bn in the present financial year to £40.2bn in 2014-15. Two sectors that are particularly hard hit are the construction of schools and houses. The government has made £15.8bn available for renewal of the schools estate over the next four years, but this equates to a 60% cut in spending.

This was worse than many had feared but better than the fate of housing and regeneration: its funding was cut by 70%, from £6.8bn to £2bn by 2014-15.

Overall construction spending is expected to be about £3.5bn more over the next four years than was expected in the Budget, but several industry figures also expressed concern that the overall impact could be worse if an increase in private investment does not materialise.

A little over £2bn has been set aside to build out the existing legal commitments of the Homes and Communities Agency, after which the construction of housing for highly subsidised rent will end.

Most of the remaining £2.5bn for new build will be spent on homes for rent at 80% of the market rate, with an aim to build 150,000 homes over four years. Other capital spend will go on social housing refurbishment.

The green sector fared relatively well, with spending rising over the period. About £1bn has been set aside for a Green Investment Bank to fund projects such as refurbishing energy-inefficient homes; however, that is less than many had hoped for and there are question marks over whether it will be enough to attract the £100m of private investment needed to upgrade the target 14 million homes by 2020.

John Alker, director of policy and communications at the UK Green Building Council said it was disappointing. “The bank needs to be able to leverage private sector finance to meet climate change targets and boost job creation in the construction sector”.

There were also fears around the availability of private investment to fund projects in the transport sector, another relative winner in the review. Osborne gave the go-ahead to Crossrail but it is understood £1bn will be shaved off the budget and it will begin to open at least a year later than expected, in 2018.