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Stimulus reaches end as public sector work falls

Public sector starts on site have plummeted this year, signalling the end of the government’s stimulus package and the start of a pre-election hiatus.

The drops, revealed by construction intelligence service Glenigan’s analysis of starts on site, will be a blow to government attempts to insist it is continuing to pump cash into the economy amid a faltering recovery.

Chancellor Alistair Darling will present his Budget next week. Starts on public sector projects fell by 15 per cent in the three months to the end of February 2010 compared with a year earlier, according to the Glenigan index.

Utilities, education and infrastructure projects were the worst affected, down 36 per cent, 30 per cent and 28 per cent respectively.

Community projects dropped 10 per cent and health projects 3 per cent, with only social housing growing - up 13 per cent.

The figures are the most concrete evidence yet of a pre-election slowdown in public sector starts. Until now, most indicators had seen strong growth in public sector work on the back of stimulus cash.

Public sector project starts were up for most of 2009 from April onwards. The most recent construction output figures from the Office of National Statistics - for Q4 2009 - show a rise in public sector work in 2009 of 17 per cent compared with the previous year.

Some have hoped that the public sector work would continue to sustain construction while a private sector recovery gathers momentum, but that looks increasingly unlikely.

Glenigan economics director Allan Wilen said: “Glenigan recorded a sharp rise in public sector project starts from last April onwards following the Government’s decision to bring forward budgeted investment.

“The official output statistics released earlier this month highlighted how these additional projects were providing an important boost to sector activity during the final quarter of last year.

“The recent weakening in project starts and the expectation of lower government investment from April points to a weakening in public sector output as 2010 progresses.”

The index also shows commercial and industrial project starts remain weak, with the only bright spot being housebuilding.

Construction Products Association economics director Noble Francis said: “We are maybe seeing a hiatus with a
slowing down of things while there is a pause due to the uncertainty of the general election.

“Some projects may still be going through now because of a rush from departments to get things happening while they still have the budget to spend.

“But the major drop off will be post-election.”

Figures from the Pre-Budget Report in December 2009 show there will be a 16 per cent fall in capital expenditure in key departments for construction covering education, health, communities and transport.

Capital expenditure in 2009/2010 totalled £29.8 billion, but that amount is set to drop 16 per cent to £25bn in 2010/2011.

The Royal Institute of Chartered Surveyors chief economist Simon Rubinsohn said the public sector slowdown signalled by Glenigan is broadly consistent with the comments from respondents to the latest RICS construction survey for Q4 2009.

He said: “Some projects are clearly now being put on hold with the election fast approaching.

“On the other hand, there is some evidence that housing activity has begun to pick up - albeit from very low levels - in part as a result of Kickstart finance.”