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Autumn Statement: 6 things we learned for the construction industry

Here are six key takeaways from the chancellor’s 2016 Autumn Statement.

1) Look to the Treasury (and it’s time to look again at PF2 / risk)

In the Autumn Statement document we learned some interesting tidbits not mentioned by Mr Hammond.

They include: a new list of PF2 projects (remember them?) will be published early in 2017; chief secretary to the Treasury David Gauke will chair a new ministerial group that will oversee the delivery of priority infrastructure projects; and, intriguingly, not only will the government extend UK Guarantees to 2026 at least, it is also “working with industry to understand the demand for construction-only guarantees”. 

These are all measures that add to the growing sense of genuine desire to rely on infrastructure to boost the economy. It suggests a more sophisticated approach than in the past, when we heard lots about ‘shovel-ready projects’ and attached names like ‘Northern Powerhouse’ to media-friendly concepts of how to grow / improve the market.

These measures, taken together with the reliance on the NIC (see point 3) suggest a government that is listening to the industry, and willing to act to shake things up.

2) Forget about ‘fixing the roof while the sun shines’; this is about future-proofing

Philip Hammond said today (presumably to the chagrin of the listening former chancellor George Osborne) that he had deliberately not set out a list of projects that would receive support.

Instead, this was an Autumn Statement that had a strong focus on improving the way business and industry operates, and that can only have a massive effect on construction. This marks a departure from the style seen under former prime minister David Cameron and Mr Osborne.

Among the announcements were a welcome focus on boosting R&D spending; a National Productivity Investment Fund which will invest £23bn between 2017/18 and 2021/22; a commitment to invest up to 1.2 per cent of GDP in economic infrastructure (up from 0.8 per cent this year and while still low, it offers a promising vision for the future); and a return to support for Innovate UK (which will, among other things, manage a cross-disciplinary fund to support collaborations between business and the UK’s science base).

The government has also asked the NIC to undertake a new study on how emerging technologies can improve infrastructure productivity.

3) This government is placing its trust in the National Infrastructure Commission

In the Autumn Statement document, it says: “The government’s long-term investment decisions will be informed by the NIC to ensure they are targeted at the UK’s most critical infrastructure needs.”

Mr Hammond has heard the anger that the NIC won’t be on a statutory footing, and appears determined to hammer home the government’s support for the commission. Rather than going to the industry piecemeal, as it still does currently, the construction sector needs a body that can advise on the infrastructure that will work for the industry and the economy. The NIC will be used to recommend projects that will make up spending of between 1 and 1.2 per cent of GDP each year from 2020 to 2050.

The government is providing £27m of development funding based on the NIC’s recommendation for an Oxford-Cambridge expressway. It will also bring forward £100m to accelerate construction of the east-west rail line western section and allocate £10m in development funding for the central rail section.

It may not be on a statutory footing, and the next government could reverse these measures, but this bodes well for the short-term future and the NIC needs to be communicated with effectively by industry as a primary way to lobby government, as well as provide support.

What does it mean for construction?

4) Devolution is still high on the agenda

There will be £1.8bn for LEPs, while the government will consult on “lending local authorities up to £1bn at a new local infrastructure rate of gilts + 60 basis points for three years to support infrastructure projects that are high value for money”.

The GLA will receive £3.15bn to deliver more than 90,000 housing starts by 2020/21; we have a Northern Powerhouse strategy; the British Business Bank will make its first investments from the Northern Powerhouse Investment Fund in early 2017 and its first investments from the Midlands Engine Investment Fund shortly after; and all Scottish cities will now have a City Deal opportunity.

5) Choose civils

There was little to enthuse businesses that aren’t interested in civils or housing. We’ve seen a shift towards civils from major players like Mace and Sir Robert McAlpine in the last year. The focus here appears to back those decisions. If you’re on the buildings side and not interested in housing / resi markets, your business model will need to work harder to succeed.

There was no mention of new prisons (an MoJ spending announcement was limited to extra recruitment of officers). There is £60m of annual spend to expand existing grammar schools from 2017-18, but no mention of hospitals. The new list of PF2 projects may offer some respite in 2017, but otherwise for those businesses who made their crust in public sector social infrastructure, it may be wise to sharpen up those R&M skills.

6) A word of warning

The financial figures are a bit scary. The OBR reckons the EU referendum will cost the UK 2.4 percentage points of projected growth over the next five years. Public sector net debt will peak at £90.2bn in 2017/18. The OBR also now forecasts UK GDP to grow by 1.4 per cent next year, down from its prediction of 2.2 per cent made alongside March’s Budget.

But as in point 2, this government appears to be focusing on fixing productivity and business performance. Rather than reannouncing project funding as we’ve seen in previous years (although the transport secretary will be setting out priority schemes in the coming weeks), this appears sensible and explains in part the government embracing the Modernise or Die report this year.

Oh and this line crops up in the part of the document marked economic infrastructure, lest any of us forget: “The government will take all final spending decisions.” Quite.

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