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CSR 2010: Construction capital spending £3.5bn higher than expected

Construction capital spending is likely to fall by £3.5bn less than the industry had been bracing itself for.

Chancellor George Osborne annnounced in today’s Comprehensive Spending Review that total capital spending will be around £2 billion higher a year from 2011/12 than he had announced in the emergency Budget in June.

If construction receives the same proportion - 41.1 per cent - of capital spending as in 2009/10, the industry will see £3.5bn more than it had expected over the next four years.

Mr Osborne said that to cut to the previously disclosed level would cause too much harm to the UK’s infrastructure.

However, total capital expenditure will still fall from £68.7bn in 2009/10 to £47.2bn in 2014/15.

Capital spending will be £52bn next year, £49bn the year after, £46bn the year after than and £47bn in 2014/15.

Investment in transport and infrastructure was better than expected, although full details of projects that are not going ahead have yet to be released.

Housebuilding was hit hard, with a reduction of almost 50 per cent to the social housing capital budget.

The changes to the government’s capital spending forecasts are detailed here:

 2010/112011/122012/132013/142014/15
June Forecast59.548.746.543.344.9
CSR Forecast59.550.748.545.647.2
Change (£bn)02.02.02.32.3
Change (%)04.14.35.35.1

Overall spending totals announced today will be the same as those announced in the emergency Budget.

Commenting on the Chancellor’s statement, Michael Ankers, chief executive of the Construction Products Association, said:  “We knew this was going to be a difficult review as far as construction was concerned. However, the Chancellor has, acknowledged the important role that capital spending on construction can play in helping to provide for a private sector-led economic recovery. In particular maintaining transport investment at £30bn over the next four years will sustain employment and help encourage private sector investment.”

“Nevertheless, public sector investment in construction over the next four years will be more than £20bn less than in the last four years and that will have significant consequences for the construction industry.”

The Civil Engineering Contractors Association also welcomed the link Chancellor George Osborne made between investment in infrastructure and economic growth.

Ceca national director Rosemary Beales said: “We await the detailed announcement next week by the secretary of state of exactly what cuts have been made to transport projects. However, the Chancellor has made it completely clear that he links investment in infrastructure with economic growth.”

The association welcomed the fact that cut in capital spending was less than outlined in June’s emergency Budget and the confirmation that the Green Investment Bank would be established.

“150,000 affordable homes over the next four years is also good news for those contractors who deliver the preliminary works for housing developers. This is has been a particularly hard hit area of civils workload since the start of the recession. However, the Communities and Local Government budget has been hit quite severely and it is hard to see how this will help the wider construction industry,” Ms Beales added.

Mr Osborne opened his speech by saying the government is going to bring the years of “ever-increasing borrowing to an end”.

“It’s a hard road but it leads to a better future,” he said.