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CSR 2010: KPMG welcomes increased capital spending budget

KPMG’s UK head of building and construction, Fiona McDermott has welcomed the increased capital spendign budget says the government needs to do more on the delivery of social housing.

KPMG’s UK head of building and construction, Fiona McDermott said: “The Chancellor has announced today a further £2bn capital investment beyond the commitments made in the emergency budget in June. A sweetener perhaps for what will inevitably be a difficult period for the construction industry.”

“It is clear the Chancellor believes capital funding, particularly on infrastructure projects, is a key way to motivate the economy as the majority of his cuts come from departmental administration budgets.  The news today was, if anything, a little better than expected and certainly we did not see further, rash cutting of capital budgets which had been hotly anticipated some months ago.  He shared with us some specifics on his sector priorities but for more detail we will have to wait until next week when the National Infrastructure Plan is announced.”

“The success of the proposed change in social housing funding depends upon securing tenants with an ability to meet the 80 per cent of market rent rates which will in turn drive appetite for building new stock.  If it works this is good news for house builders but this model must be extended to more than the proposed 150,000 of affordable homes which is a drop in the ocean when compared with the nation’s need.” Ms McDermott said.

“Overall this continues to be a challenged industry.  Let us not forget that current output continues to be 12.5 per cent down over a two year period and more worryingly 30 per cent down on new orders. This will be further exacerbated by the public sector job cuts which will inevitably reduce demand for services, with additional impact on the capital development required.  So, it is important that we don’t get seduced by today’s rather benign announcement which could distract the industry from fully examining its business model and the changes required to survive long term.”

“It seems unlikely that new entrants into any specific sector will have much success. Each sector, e.g. Housing, Education, Health, Energy, has a good number of competitive and quality bidders.  It is important that each of the players in their current sector focus on areas for competitive advantage and further growth, it seems, must come from broadening services or broadening geographies.”