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PRE-BUDGET REPORT: Construction industry reaction

The reaction from the construction industry has been largely positively to the pre-budget from Alistair Darling, although some wonder whether it has gone far enough

"The additional £3 billion of capital spending is to be widely welcomed. Construction workers have borne the brunt of the economic downturn. By increasing infrastructure projects and building new social housing out of work construction workers will return to the jobs market and confidence will begin to return to the sector."

Alan Ritchie, General Secretary of construction union UCATT

"The measures to allow contractors time to pay their tax bills are very welcome to ease contractors' cash flow problems. On the face of it reduced VAT is welcome but we are concerned that the temporary nature of the change may distort the market and the compliance costs of changing the rate twice within 14 months could reduce the benefits.

"Bringing £3bn capital work forward is not very significant. Government always struggles to procure construction within its prescribed timescales. More action needs to be taken to make the procurement process more efficient and effective.

"The 2011 National Insurance increases for employed workers will provide a further disincentive to employing workers with the right tax status."

Stephen Ratcliffe, Chief Executive, Construction Confederation

The Chancellor announced the largest ever downward revision of his forecasts for 2009. This is despite a £20 billion fiscal reflation, mainly based on a temporary cut in VAT to 15 per cent for the rest of 2008 and for 2009, with an employment package, an infrastructure package and a package for pensioners.

The package will take borrowing up to £118 billion in 2009/10. The reversal of the fiscal stimulus and major rises in taxes in the out years are forecast to bring a return to a zero deficit on current account by 2015/16.

Whether the package works or not will depend on whether the forecast return to economic growth takes place. Given the scale of fiscal retrenchment predicted for each year, especially in 2010 when VAT goes back up to 17.5 per cent, achieving the predicted growth of 1.5 to 2 per cent is likely to be a tough ask.

The City will initially respond positively to the package with rather greater tax rises in future years than had been expected.

But after examining the small print and particularly when external forecasters like us cast doubt on the growth forecasts, we suspect that both equity prices and the pound will fall back.

One thing is clear – the Chancellor, who is expecting inflation to fall to 0.5 per cent by the end of next year is relying on interest rates remaining very low for the next few years – probably with a base rate of around 1 per cent until at least 2011. He will need the banks to resume lending and also require the world economy to pick up. Basically he has to keep his fingers crossed and also his toes.

Douglas McWilliams, chief executive, centre for economics and business research

"I am unconvinced that a 2.5 per cent drop in VAT will have a positive impact on the construction industry because tax on fuel is reported to be increasing to offset the VAT cut".

"The fast-tracking of public building and civils projects will hopefully have a positive effect on the construction sector".

"The scrapping of empty property business rates on rateable values of less than £15,000 is good news but it doesn't go far enough. The tax, which has stifled speculative development, should have been scrapped completely".

"Cashflow is the biggest problem facing companies in the construction sector so the Chancellor's proposal to extend the timeframes for the settling of PAYE, CIS, VAT and Corporation Tax for struggling companies is very welcome. The government has realised that it is better to receive these payments late rather than not at all, which is what happens when a company goes under".

"The fact that the Chancellor is going to put pressure on the banks to treat struggling businesses fairly is a positive step, however, will this include preventing banks from tipping small businesses over the edge by calling in overdrafts at very short notice? Most small business owners have put up their homes as collateral against their company's overdrafts so it is not just their businesses that are at risk".

Said Lisa Cardus MD of construction credit reference agency Top Service

"We welcome the bringing forward of £3 billion of capital spending from 2010/11 to be spent on housing and road projects though we had hoped for more. We look forward to seeing the detail of the construction and infrastructure projects being fast-tracked".

"The setting up of a lending panel to monitor loans to businesses and individuals is a welcome step but it does not go far enough. Much more needs to be done to get the banks lending again. ACE wants the government to commit to encourage the recapitalised financial institutions to use part of their bail-out funds to support SME firms and large professional consultancy, engineering and contracting firms during this difficult time to ease the pressure on cash flow and mitigate potential insolvency within the sector. They are feeling the pain now and we need action now."

"Government should also commit to guaranteeing funding for projects that have already been given the go-ahead, such as Crossrail, Building Schools for the Future, Olympics-related developments M25 motorway widening and other strategic infrastructure and institutional building investment projects across the country. They should also consider bringing forward projects that have already reached an advanced stage of design. An example is the Manchester Metrolink extensions programme, Birmingham western orbital route and other highways improvement projects."

"We hope that the bringing forward of £3 billion of capital spending will include the examination and revision of the Building Schools for the Future programme. This should involve shortening the procurement process, increasing the number of suppliers to enable small firms to take part, increasing the size of the programme, reducing the capital spend per school and refurbishing more schools as apposed to complete new build."

Nelson Ogunshakin, Chief Executive, Association for Consultancy and Engineerin