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Contractors welcome chancellor's infrastructure boost

5 Dec 12 Chancellor George Osborne has announced a £5.5bn infrastructure package in his autumn statement today but warned that current austerity measures will be needed until 2018 at least.

Chancellor George Osborne
Chancellor George Osborne

The infrastructure package is to be funded by welfare cuts, a reduction in overseas aid and a squeeze on departmental spending.

Other measures include a further one percentage point cut in the main rate of corporation tax from April 2014, to 21% and a temporary increase in the additional investment allowance from £25,000 to £250,000 for two years to support small and medium-sized businesses.

Unsurprisingly, the chancellor's statement was broadly welcomed by the construction industry.

The Civil Engineering Contractors Association (CECA) said that today’s autumn statement demonstrated that the government was listening to the needs of the infrastructure sector.

In advance of today’s statement CECA had worked with other industry bodies to press the case for immediate action to unlock activity in the sector. Based on analysis of figures published today, CECA believes that around £775m of work will be released in 2013/14 as a result of the chancellor’s actions. More than £1bn further additional work is due to follow the year after.

CECA director of external affairs Alasdair Reisner said: “CECA has long argued that there is a pressing need for the government to take action to unlock new work in the infrastructure sector to achieve growth in the economy.

“Today’s autumn statement show that the government has listened. A combination of new projects and investment in repair and maintenance work offers the potential of additional work worth £775m for CECA members in 2013/14.

“Investment in the infrastructure sector offers the best rate of return, but for larger infrastructure projects it can take time for these benefits to be realised, particularly due to the planning system. It is thus vital that government and industry work together to identify ways of unlocking work in the sector that will show an immediate benefit.”

Mr Reisner continued: “By announcing new work in the fiscal year, the chancellor has recognised the need to stimulate infrastructure activity in the short as well as the long term, as the best means of returning UK plc to economic health.

“Clearly we will need to be sure that this is genuinely new money, rather than recycling of funds that would otherwise have been spent on infrastructure elsewhere. But on the face of it, this appears to have been a good autumn statement for the industry.”

Jonathan Hook, construction leader at consultant PwC, commented: "All in all, this statement appears to be positive for the construction sector.”

Institution of Civil Engineers (ICE) director general Nick Baveystock said: “Clearly government has heeded the advice of many across the industry to increase capital expenditure on infrastructure and get ‘shovel ready’ road schemes moving – demonstrating to investors that the National Infrastructure Plan is leading to visible activity. The danger however, as with the £5bn capital boost announced this time last year, is that this will fail to materialise and breed further scepticism. The Highways Agency’s will have a crucial role to play here, accelerating the delivery of the schemes while still ensuring they deliver value for money.”

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CBI director-general John Cridland said: “The CBI has been crying out for real action on infrastructure, investment and exports. £5bn on near-term infrastructure, like the tube to Battersea, half a billion a year tax relief for small firms, and £1.5bn extra export support should boost investment and create jobs.

“The government now has everything to prove by delivering. Businesses need to see the chancellor’s words translated into building sites on the ground. It is no surprise that after a difficult year the economic realities dictate that austerity and debt reduction will take longer.

“The chancellor has stuck to his guns on deficit reduction - avoiding deeper cuts or more borrowing in order to retain international credibility.”

Jack Kelly, head of Deloitte’s contractors group, said: “It appears that all the prerequisites for investment are being put in place. This will undoubtedly bring renewed confidence to an industry that has been struggling over the last year with falling order books and a number of administrations.

“The transparency announced should also assist an industry that is looking to retain its skilled workforce and whose biggest risk at present is the financial position of its supply chain. However, that investment has to start soon. The economic benefit of infrastructure investment is well documented, but that investment has not been forthcoming. It is needed now. Too many companies have failed because they have made pricing and employment decisions based on the belief that growth will return in a constantly moving fourth quarter.”

Not everyone was totally enthusiastic though.

Richard Threlfall, UK head of infrastructure, building and construction at KPMG, said that there was “little to draw from the autumn statement that will give much comfort to the UK’s beleaguered construction industry".

He said: “£1bn extra for 100 new schools and £1bn extra for roads are both welcome, but overall it is a drop in the ocean that can’t outweigh the economic drag. 70% of our infrastructure investment is from the private sector. More valuable than the £5bn of public investment would be incentives to the private sector to invest, such as the reintroduction of tax relief for infrastructure investment.”  

Scottish Building Federation chief executive Michael Levack said: “Of course, the redirection of additional public funds towards capital investment is hugely welcome, particularly at a time when the construction industry continues to suffer reduced output and weak confidence. But the release of these funds places an even greater onus on policy-makers to implement urgent reforms to our constipated public procurement system so this money can put more shovels in the ground as soon as possible. In addition, the chancellor could have given a much greater boost to smaller building companies in particular if he’d cut VAT on building repairs and improvements as the industry has long campaigned for him to do. From that point of view, today’s autumn statement is another missed opportunity for more radical action to get the building industry back on its feet.”

Steve Murphy, general secretary of construction union Ucatt, said: “The promised investment in construction is to be welcomed but it in no way replaces the money government cuts have removed from the industry, policies which have forced construction into recession and damaged the entire economy. For example the investment in new schools is totally dwarfed by the cuts made to the Building Schools for the Future programme.”

Mr Murphy said: “There will be a significant delay between today’s promise of new investment and work actually starting on sites. Major infrastructure projects take a long time to organise, much of the new investment promised last year still has not resulted in any new work being undertaken.”

He added: “Given the short turnaround time in beginning house building and the desperate need for new homes due to the growing homelessness crisis, it is deeply disappointing that the chancellor has failed to provide significant investment into new social house building. This would be the most effective way of kick-starting the construction industry and getting skilled workers back into employment.”

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