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Funding must be turned into work on-site

What trends does last week's Government Comprehensive Spending Review reveal and how does it compare to the past? By Allan Wilen

Last week the Chancellor of the Exchequer painted a bright picture for the UK economy, government revenues and spending on public services.

While recent turbulence in financial markets and a marked slowdown in consumer spending are expected to restrain UK economic growth next year, the Treasury anticipates that the UK will quickly return to trend growth from 2009. This in turn is expected to lift tax revenues and help sustain a rise in government spending.

However, closer scrutiny of the figures behind the rhetoric reveals a more challenging outlook.

In contrast to recent years, overall Government spending will now grow more slowly than the wider economy. In particular, government current spending will rise by only 1.9 per cent a year in real terms. This is likely to intensify the budget squeeze in construction-related areas such as local highways maintenance, which will be in direct competition for limited funds with spending on front-line services and public sector pay.

Growth in the economy

Capital funding fares better. Overall net government investment is set to rise by 2.25 per cent a year in real terms.

But this too is slower than trend growth in the economy and far below the rapid growth enjoyed since 2000-01.

Furthermore, stripping out depreciation charges and asset sales from the figures, actual government investment (much of it construction related) is set to rise by 4.4 per cent a year (in cash terms). This compares with average annual rises of 13.2 per cent over the last seven years.

Encouragingly, to the benefit of the industry, capital funding is to rise more quickly in the Government's priority areas of health, education, social housing provision and transport.

The past seven years have seen a massive expansion of investment to upgrade school buildings and provide modern facilities fit for 21st-century learning requirements.

The Government was already committed to further increases in funding provision over the Comprehensive Spending Review period, 2007-10.

In the event the Chancellor announced an additional £200 million over and above previous plans that should take capital funding to £8.2 billion in 2010-11.

However, with capital funding already topping £6 billion a year, the pace of funding growth will be half that seen since 2000-01.

Nevertheless, the greatest challenge for the Government will be to ensure that the substantial funding allocations translate into work on-site.

The following boxes give more detail on how the Comprehensive Spending Review compares with past investment and the outlook for the four priority areas.

Social Housing Average annual growth

8% Since 2000/01

9% Since 2000/01

The overall English budget is set to rise by around 9% pa over the next three years. A growing share of the available funding is likely to be directed towards boosting new social housing provision rather than bringing the existing stock into line with the Decent Homes standard.

School Buildings Average annual growth

18% Since 2000/01

9% Over CSR period 2007-10

The flagship Building Schools for the Future programme has got off to a slow start and is behind schedule - only six BSF schools are expected to be open by the end of this year against a target of delivering around 350 schools by 2008.

Transport Average annual growth

15% Roads since 2004

7% Over CSR period 2007-10

Investment in transport infrastructure has fluctuated wildly over the last seven years. Early priorities will be delivering Thameslink and planned schemes to widen the M1 and M25. Crossrail is scheduled to start towards the end of the CSR period in 2010.

Health Average annual growth

10% Since 2000/01

13% Over CSR period 2007-10

The NHS has attracted a marked rise in funding, climbing to œ6.1 billion in 2010-11. The funds will help deliver over 20 new hospitals, 150 new walk-in centres and 100 new GP practices. The priority should be to tackle the repair backlog, which remains high at œ3.7 billion.