Your browser is no longer supported

For the best possible experience using our website we recommend you upgrade to the newest version of your browser.

Your browser appears to have cookies disabled. For the best experience of Construction News, please enable cookies in your browser.

Welcome to the Construction News site. As we have relaunched, you will have to sign in once now and agree for us to use cookies, so you won't need to log in each time you visit our site.
Learn more

Budget prompts housing fears and infrastructure questions

Amid the headlines on wages, welfare and taxes, the Budget offered cause for concern on social housing and precious little on infrastructure.

The chancellor’s Summer Budget gave us a welcome first glimpse of the policy direction of the Conservative government.

With lots of talk of moving to a higher-wage, lower-tax and lower-welfare economy, the top-line announcements of lower corporation tax, introducing a national living wage and cuts to welfare spending such as tax credits and housing benefit took up the lion’s share of George Osborne’s speech.

From a construction point of view, however, it’s probably easier to look at what wasn’t included.

Short on housing

Following a manifesto based heavily on housing, this Budget was noticeably lacking in either demand or supply-side measures for the housing market or housebuilding.

You could argue that private housebuilding has had its prospects shored up by the many incarnations of Help to Buy announced in previous Budgets, which should keep demand – and consequently building – sustained until 2020.

Housing starts 2010 vs 2014_DCLG

Source: DCLG

But while the private sector is benefiting from this stimulus, of more concern is the detrimental effect that £12bn in welfare cuts will have on construction by housing associations.

From April 2017 the maximum amount of benefits that an out-of-work family can receive will be cut from £26,000 to £23,000 in London and £20,000 elsewhere in the UK, which will undoubtedly affect welfare payments made to cover costs for social housing tenants.

Housing completions 2010 vs 2014_DCLG

Source: DCLG

Furthermore, 18 to 21-year-olds will be restricted from claiming housing benefit, and neither will this age group be eligible for the new national living wage, which comes into force only for the over-25s.

This has the potential to reduce housing associations’ rental revenue, which is used to secure borrowing to finance the building of social housing.

Social revenue squeeze

What is more concerning is that this revenue stream will be further reduced by the announcement that social rents will be cut by 1 per cent annually over the next four years, starting from 2016/17.

This has been calculated by the Treasury to amount to a £4.28bn cutback in income from social housing tenants.

Only £1bn of this is expected to be countered by an increase in income resulting from the ‘pay to stay’ policy, which forces social tenants on higher incomes (£40,000 in London, £30,000 elsewhere) to pay market rental rates.

Certainly, the government points out that social housing rents have risen 20 per cent since 2010, but this is most likely because of the shift in focus from traditional ‘council house’ rents to affordable rent, which can be charged at up to 80 per cent of the local market rate, rather than greediness on the part of social landlords.

In fact, it was only in April this year that housing associations were able to plan their borrowing against the expectation that rents were mandated to increase in line with CPI inflation +1 per cent for the next 10 years.

Department budgets March vs July Budget 2015_HM Treasury

Source: HM Treasury

The Office for Budget Responsibility estimates that reducing housing associations’ rental income in this way will reduce their housebuilding capacity by 14,000 units in the four years to 2019/20.

Rough workings from the National Housing Federation put this figure at 27,000.

Coupled with the prospect of selling off properties under the extended right to buy when the Housing Bill is passed, it seems construction by housing associations will be severely constrained over the coming years.

Budget quiet on infrastructure

The infrastructure sector received a minor airing in the Budget and it was encouraging that the £15bn commitment to fund road improvements was confirmed, as well as the announcement that all the revenue raised from changes to vehicle excise duty will be assigned to a ringfenced roads fund from 2020.

This will support a second Roads Investment Strategy until 2025, giving certainty beyond 2020 under published plans.

Yet there were no new announcements on funding infrastructure for the ‘Northern powerhouse’, other than a mere £30m to support the creation of a Transport for the North body.

After projects to electrify the Midland mainline between London and Sheffield and the TransPennine route between Leeds and Manchester were postponed earlier this year, making Oyster-style travel cards a priority for the region is likely to be less welcome than much-needed improvements to its transport infrastructure.

London vs North infrastructure output 2014_ONS

Source: ONS

Perhaps the reason for the lack of detail is that, as discovered in a written parliamentary question last week, the government is undecided on its definition for the ‘North’.

This fact was picked up by seven local authorities in the North-east, which noted the exclusion of their region from the devolution plans mentioned in this Budget, highlighting a question that hangs over the Northern powerhouse plans.

More likely, the lack of detail on transport spending could be due to the fact that the Department for Transport’s capital budget for this financial year has been slashed from £9.7bn in the March Budget to £6.1bn – a cut of 37 per cent in just four months.

This is largely due to a change to the way that Network Rail’s grant is recorded in government accounts, but it also shifts a proportion of funding away from defined three-year plans to a more volatile ‘as and when’ spending pattern.

The construction industry is set for a strong performance over the next five years, but while private housing, offices and retail construction will be steered by strength in private investment, social housing and infrastructure have been dealt a tough hand that will affect activity in the next couple of years.

Rebecca Larkin is an economist at the Construction Products Association

Have your say

You must sign in to make a comment

Please remember that the submission of any material is governed by our Terms and Conditions and by submitting material you confirm your agreement to these Terms and Conditions. Links may be included in your comments but HTML is not permitted.