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The autumn statement: construction highlights and reactions

5 Dec 13 Construction industry commentators have been lining up to give their verdict on the chancellor’s autumn statement speech, despite the fact that it only mentioned the word 'construction' just once.

Chancellor George Osborne
Chancellor George Osborne

All the big news for construction came yesterday with the publication of the updated National Infrastructure plan and construction pipeline.

However, there remains much of interest within the autumn statement, which is regarded as the second most important annual event in the government’s calendar, after the budget.

The announcement with the most direct impact on construction is the release of a billion pounds of loans “to unblock large housing developments on sites in Manchester and Leeds and across the country”. The housing revenue account borrowing limit is also being increased by £300m.

“If we want more people to own a home, we have to build more homes,” chancellor George Osborne told the House of Commons. “The good news is the latest survey data showed residential construction growing at its fastest rate for a decade. And our hard-won planning reforms are delivering a 35% increase in approvals for new homes. But we need to do more.”

Among other measure, he also announced that fuel duty would remain frozen next year and business rates in England and Wales will be capped at 2% rather than linked to retail price index inflation. Businesses moving into vacant properties will have their rates cut by 50%.

The Federation of Master Builders (FMB) was once again disappointed not to see any reduction in VAT on domestic renovation and repair. FMB chief executive Brian Berry said: “In his autumn statement George Osborne says he is backing British business and British families, and correctly named housing as the general public’s top infrastructure priority. However, the government continues to focus on big-ticket projects such as road and rail, which will be years in the planning and are unlikely even to begin within the term of this parliament. The chancellor has missed an opportunity to reduce VAT on housing renovation and repair. This would deliver an instant economic fillip to millions of households that are struggling with the ever-increasing cost of living and give Britain’s builders the boost they need to capitalise on the recovery.”

The National House-building Council (NHBC) was rather warmer. Chief executive Mike Quinton said: “We welcome today's Autumn Statement highlighting measures to support house-building in the UK. As our new home registration statistics show, the number of new homes being registered continues to improve on last year’s figures with an overall 24% increase for the rolling quarter August to October compared to the same period in 2012, but this recovery has been from a very low base.

“It is therefore crucial that the government delivers these policies, such as the £1bn loans to unblock stalled housing developments and continued support of Help to Buy, to help the UK get back to producing the volumes required to meet the demand for quality, new homes.”

Alan Aisbett, a partner at law firm Pinsent Masons, said: “Increasing the housing revenue Account (HRA) borrowing ceiling is good news for affordable housing as local housing authorities will be able to use revenues to improve estates and build more new homes.

"However, with the restriction to £300m over two years and incentives promised for right to buy this will be offset by the potential loss of stock. To keep up it is likely that local authorities are going to have to continue to find other models for housing estate redevelopment primarily outside of the HRA through self-build or joint ventures.

"The government’s continued commitment to housing as part of national infrastructure can be clearly seen with LEPs [local enterprise partnerships] set to determine a significant part of affordable housing spending priorities in their areas in much the same way as they will determine expenditure for retained business rates from enterprises zones and the priorities for the single local growth fund. This is the first time that major housing expenditure decisions have been allocated to LEPs.”

James Pargeter, head of residential projects at Deloitte Real Estate, said: “The chancellor’s autumn statement acknowledged that the UK housing market has ‘started to normalise’.  However, this improvement is from a low starting point and it is noted that current weakness of housing supply means continued strong growth in house building is needed.  The headline message is that the government will ‘take further action to increase housing supply’, but a closer inspection of the specific measures indicates that the residential sector will be left wanting more. One of the key measures will fund the development of infrastructure to unlock large housing sites.  This £1bn fund appears to be new and sites mentioned in the speech are in Manchester and Leeds rather than the southeast.  However, the funding will come in the form of loans and will be spread over six years, which many will feel is too diluted to make a really significant difference to overall UK supply.  Nine sites have been identified in the first year, 2014-15.

“A small step in the right direction is more funding for new affordable housing, which is being made available by raising the limits on Housing Revenue Account borrowing. The Chartered Institute for Housing (CIH) had calculated that an increase of £7bn would allow the building of 75,000 homes over five years.  The measures announced today are for an additional £300m borrowing to be permitted. Furthermore, funding is proposed to come from the sale of vacant high-value social housing stock, which will be a controversial move due to the potential erosion of mixed communities in high-value areas.  Securing additional borrowing for development against these assets, rather than selling them off, might seem worthy of consideration as a long-term alternative.”

Consulting engineer WSP approved of the tax allowances being extended to shale exploration. WSP’s energy director Scot Parkhurst said: “There will no doubt be outrage at tax breaks for shale gas, but the chancellor is right to keep our options open.  The government has an important role in encouraging energy development using the tax system and the reality is that all energy generation gets government support. Shale gas could play an important role in reducing gas imports and improving the UK’s energy security.  As a result, a variety of mechanisms need to be adopted by the government to encourage the exploration of our shale gas reserves. It’s far better to establish now whether shale gas could be a viable alternative to coal, and a way to deliver energy security, than regret it later.”

Construction Products Association chief executive Diana Montgomery said: “The cancellation of the fuel duty increase for next year, capping the business rates at 2% from next April whilst allowing 12 monthly instalment payments, all will help.  In addition, we’re encouraged by the further investment to promote exports, and the chancellor’s strong support for increasing apprenticeship schemes together with the scrapping of national insurance for some under-21s, which could prove a boost.

“Missing from today’s announcement was any mention of relief for our energy intensive manufacturers or changes to the carbon price floor. The supply and cost of energy is as important an issue for business as it is for households, and the lack of attention in this regard will be sorely noted by investors and boards of directors alike. 

“Another missed opportunity was the absence of clarity around the future of Help to Buy, the main driver in our industry’s resurgence this year.  This, together with the recent diminishing of government support for ECO – one of the only effective initiatives helping to improve the performance and energy efficiency of the existing housing stock – leads us to believe that this important sector both for construction and the wider economy is being ignored at great cost.”

There was a surprising positive comment from the construction union Ucatt, albeit with a guarded caveat.  The chancellor promised that the government would “amend existing legislation to prevent employment intermediaries being used to avoid employment taxes by disguising employment as self-employment.”

Ucatt general secretary Steve Murphy responded: “Hundreds of thousands of workers are having their lives blighted by being forced to work through payroll companies and other forms of false self-employment. Workers are denied holiday pay, sick pay and pension rights and can be sacked without warning.”

“If the government is serious about removing payroll companies this is to be welcomed. However, it is only by ending false self-employment that the government will increase revenues and ensure workers are not denied even the most basic employment rights.”

Mr Murphy was less enthusiastic on the idea of construction workers having to work until they are 70 years old before they are entitled to a state pension. “This is a kick in the teeth to construction workers, many of whom are forced to retire before they reach pension age due to ill health and injury,” he said. “More construction workers will find themselves in limbo, too old to work but too young to retire and will be forced into poverty relying on benefits to survive.”

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