Construction Products Association warns accelerating inflation will raise cost of Olympics at least £90m

A Construction Products Association report has warned that rising energy prices have added £1.3bn a year to the cost of construction projects.

This includes an additional £500m a year to the cost of public sector projects beyond what has been budgeted for, and a total increase of £90m to the cost of constructing facilities for the London Olympics.

John Colley, the new president of the association, criticised the government for not taking account of the impact of increased energy.

Colley, who was making his inaugural speech, said: "I don't believe the government understands the impact energy price increases are having. Companies have reported increases of up to 300% over the past three years, far outstripping those in their European operations, leaving UK firms at a considerable competitive disadvantage. We have responded with a number of ideas but I am not sure how willing the government is to listen."

The association is to put its concerns directly to Malcolm Wicks, the energy minister, in a meeting scheduled for May.

The CPA report warns that the rate of cost increase may be about to accelerate. Although gas prices have increased up to 300% since 2003, it says the most dramatic rises have taken place in the past six months and that it is "extremely likely" that these have not yet filtered through to manufacturers' selling prices.

I don’t believe the government understands the impact energy price increases are having

John Colley, president of the Construction Products Association

Allan Wilén, CPA economics director, said: "These figures are based on today's prices but we expect further increases. Some have not worked through the system yet.

"The UK is showing a more rapid cost increase in energy prices than the European Union. We definitely got the short end of the stick."

Colley's concerns were echoed by contractors. The Construction Confederation said: "This is of obvious concern. The government will not get the same bang for its buck so the impact on the public spending programme is significant."

The confederation added that contractors would not be able to pass on all the costs of the rises, which would "put a squeeze on margins even further".

Peter Rogers, director of developer Stanhope, was more upbeat. He said: "Steel prices are coming down again. It's difficult to say how much raw materials prices hit a project - there are so many other influences."