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

Darling’s spending plans will hurt industry

Chancellor Alistair Darling’s package of measures to stimulate the economy could hurt the construction industry in years to come after it was warned his estimates for private sector recovery are too optimistic.

While many in the industry have welcomed the fast-tracking of £3 billion of public sector work, the Government has also outlined just how sharply public sector spending will drop off from 2010/11 onwards.

Economics consultancy the Centre for Economics and Business Research says the plans will lead to a marked reduction in public expenditure growth beyond 2010.

Pre-Budget figures show Government investment has grown 9.75 per cent this year, with an estimated growth of 10 per cent next year, compared with private sector investment dropping 1 per cent this year and 8.25 per cent next year.

But in 2010, Government investment is now expected to drop 4.25 per cent compared with private sector investment growth of just 1 per cent.

And the Pre-Budget Report reveals the Government is not expecting to return to sustainable levels of investment – by borrowing only to invest – until 2015/16.

The Government will borrow over £400 billion in the next five years, with debt peaking at 57 per cent of GDP in 2013/14.

Despite the increased spending next year, the Construction Products Association said 2009 will see the sharpest fall in output since the early 1990s.

Analysts also warn that the Government forecasts for a fall in GDP in 2009 in the range of 0.75 per cent and 1.25 per cent are optimistic.

The CBI forecasts a fall of 1.7 per cent and the International Monetary Fund has predicted 1.3 per cent.

The Government is then anticipating the start of a recovery in the second half of next year with a return to growth in 2010.

Construction Products Association economics director Noble Francis said: “You can understand why bringing forward capital investment had to be done because next year is expected to be so bad. But the forecasts look optimistic.”

Rok chief executive Garvis Snook said: “I have been quietly impressed with the determination of the efforts to tackle the credit crunch.

“But it will take us into debt and that scares me. For construction, £3 billion is a pin prick.”

The chancellor’s £3 billion will help for now

The construction industry is bearing the brunt of the downturn, with the Glenigan Index showing the value of new projects is 20 per cent down on a year ago.

The chancellor’s decision to bring forward £3 billion of capital spending on school, social housing, transport improvements and energy efficiency measures will provide a welcome boost.

The Government’s approach has been to direct the additional funds at existing capital programmes and repair programmes that should be quicker to deliver than flagship projects.

But it is essential that spending departments and local authorities respond to the challenge and accelerate their procurement processes.

However, these additional funds come at a cost, with leaner times to come. While the industry will benefit from an 8 per cent rise in gross Government investment this year and next, expenditure will fall back by 9 per cent during 2010/11, with below inflation increases for following years.

The fluctuation in investment by the key departments for construction related spending, covering social housing, health, schools and transport will be even more dramatic.

Capital expenditure by the four key departments is set to climb a third during this financial year and next.

Funding will fall back sharply in 2010/11 and is likely to remain constrained in subsequent years.

Allan Wilen is economics director at information provider Emap Glenigan