The chancellor’s Autumn Statement provided little in the way of surprises for the construction industry, but the concurrent update to the National Infrastructure Plan goes some way to firm up confidence in a pipeline of projects for long-term investment and growth.
Despite being less than six months away from a general election, business and consumer giveaways were limited by the chancellor’s need to balance a commitment to reducing government borrowing against weak wage growth holding back tax receipts.
‘Helpfully, the government provided an update on the start, completion dates and progress of its top 40 projects”
The much called-for reform to stamp duty looks to have garnered the most headlines and is certainly pro-consumer, but represents yet more demand-side stimulus for a housing market reporting inflation of 12.1 per cent in September, according to the Office for National Statistics.
The widened middle band of properties priced between £250,001 and £925,000 means buyers and sellers will be less concerned about offered and asking prices straying into a higher tax band and may boost transactions in the middle part of the housing market.
Existing demand stimulus such as Help to Buy has supported house purchases with an average price of £211,217 and with the ONS reporting the average house price in London hovering around £500,000 – the old threshold for a 4 per cent slab tax – we could see more transactions creeping above this level.
For the cynics among us, measures to sustain growth in the housing market will provide a timely confidence boost for the home-owning electorate as the May 2015 election approaches.
The OBR’s forecast suggests house price inflation peaking in the current quarter, with full-year inflation averaging 10.2 per cent in 2014, but house price growth will be maintained over the forecast horizon and is expected at 7.4 per cent in 2015, before averaging 5.6 per cent over 2016-18.
Much like Help to Buy, expectations of sustained demand should shore up sentiment among house builders and maintain momentum in private housing output.
In a similar vein to last year, the statement offered little to the rest of the construction industry, except for a few niche policies geared towards RM&I rather than new work: £15m for a church roof repair fund and £25m for heating installations in homes not on the gas grid.
While abolishing national insurance contributions for apprentices aged under 25 from April 2016 acknowledges the importance of developing new skills within industry, apprentices in construction and manufacturing are often older than this threshold and the measure risks doing little to alleviate concern over skills shortages plaguing our sector.
The added sweetener of a promised review of the structure of business rates hints at a potential reform to an unpopular cost for businesses post-election.
“The CPA forecasts that energy and roads will lead growth in the infrastructure sector in the next few years”
The measures more pertinent for non-housing construction were published in a series of announcements in the lead-up to the Autumn Statement.
Treasury chief secretary Danny Alexander’s unveiling of the National Infrastructure Plan allocated funding announced in Spending Review 2013 to specific projects, including a £2.3bn investment in flood defences and £15bn of roads investment in more than 100 new schemes, ranging from smart motorways to construction of a tunnel under Stonehenge.
Source: HM Treasury
This, along with the addition of Hinkley Point C, after the EDF strike price was recently cleared by the European Commission, bolstered the value of projects in the Infrastructure Pipeline to £466bn of investment spanning the next 15-20 years.
This should firm up confidence that projects in the infrastructure sector will go ahead, especially now that money has been allocated to named construction projects.
Helpfully, the government responded to earlier criticism that progress on key projects has been sluggish and difficult to measure by providing an update on the start, completion dates and progress on its top 40 projects. In an era of fiscal prudence, when two-thirds of NIP projects will be drawing on private finance, this kind of clarity is important.
However, scant detail on the £25bn of investment in infrastructure by six insurance firms in the last Autumn statement a year ago threatens to undo this progress.
Source: ONS, CPA
The association forecasts that energy and roads will lead growth in the infrastructure sector in the next few years.
Output from the roads sector has fallen by 45.5 per cent in the four years since 2010 Q2, and on the association’s forecasts is set to recoup this decline by 2018, while the Highways Agency anticipates investment tripling by 2020.
Unanswered skillls question
For roads, assurance of announced projects precedes the expected government ownership of the Highways Agency in 2015, which, in turn, will boost confidence by providing a ring-fenced five-year funding cycle enjoyed by the water and rail sub-sectors.
Source: OBR, CPA
The question remains, however, whether the construction industry can provide an adequate supply of materials and skilled workers to meet the requirements of ramping up output in these sub-sectors.
What is of more value is the focus on infrastructure and steps to improve transparency and clarity on delivery and the pipeline of long-term work.