THE BUDGET: STAGNATION OR STABILITY

Yesterday’s budget speech revealed little of what we already knew. Critics have pointed out the lack of ‘Green Policy’ and others applauded the inference of growth through investment with the promise of the year-end seeing inflation reduced to under 3%. There was good news for the 1% of wealthy individuals who can afford to reduce their tax penalty with greater contributions to their pensions. Smaller companies that represent 65% of the whole in this country can also take advantage of tax allowances on investment. However before you can invest you must earn and with a 6% graduated corporation tax hike affecting all whose profit exceeds 50k and are already struggling with ever-rising costs and skills shortages, survival more than investment is probably the order of the day.

Here’s what some construction industry leaders had to say on the Spring Budgets impact on the sector.

Graham Harle CEO of Gleeds

“This budget was set against the backdrop of global uncertainty as well as a desire by the Chancellor to pacify the disgruntled Tory right wing. It is a bit like trying to carry a delicate Ming vase coated in olive oil across an ice rink wearing stilettos. One false move and it’s all going to end up in a hundred pieces.

We wanted three things – help to alleviate critical labour shortages, guarantees on infrastructure spending, and tax incentives to impact carbon reduction refurbishment of residential and commercial buildings. What we got was promises of more enterprise zones, investment incentives for mini nuclear power projects and tax breaks for capital expenditure investment. These are all welcomed and admirable but long-term aspirations are not short-term fixes.

Our sector employs up to 7% of the working population, we needed clear strategic vision from Government to promote investment and grow confidence. In spite of the claim that this was a budget for growth, it was in fact a careful economic statement from a pressed Chancellor who had more headroom to invest, due to £30bn less borrowing costs, than he used. I am disappointed that there were no defined measures to assist us operating in the built environment, one of the largest and most impactful sectors in the UK.”

Cara Jenkinson, Cities Manager at climate solutions charity Ashden

“This budget was a terrible wasted opportunity. Mr Hunt referred to four Es in his budget –‘ Enterprise, Employment, Education and Everywhere’ but the two that could have helped all four were missing – ‘Energy Efficiency’.

‘This was a chance for the Chancellor to clearly set out that not only did the UK government recognise that focusing on energy efficiency would support citizens through the energy and cost of living crises, but would show the government is continuing to take action on the climate crisis too.

“Instead, this budget showed a UK government committed to investing £20bn in nuclear and carbon capture. £20bn could retrofit millions of homes and provide the government and society with huge quick wins – tackling the energy, climate and cost of living crises at the same time.

“The chancellor’s thinking needs a rapid upgrade – just like 19 million homes in the UK that need retrofitting. By laying out measures to boost retrofit demand and creating a generation of skilled retrofit workers, he could have not only generated savings for struggling households, but also given businesses the confidence needed to generate over 200,000 new energy efficiency jobs. A missed opportunity, that UK households, workers and businesses will keenly feel in years to come.”

Anne-Marie Mountifield, Director of The Solent Cluster

“The Solent Cluster team is pleased with the Chancellor’s announcement in Wednesday’s budget and as we have the potential to capture and store a third of the government’s annual ambitions for CCS, the impact of this for the Solent region and beyond is significant. It will make a large contribution to attracting significant investment into levelling up the Solent region, as well as creating new jobs and growth.”

Forty percent of all industrial CO2 ever captured has been successfully captured by one of the Cluster’s founding members ExxonMobil. The Cluster is actively developing its own CCS solution, drawing on the global expertise of ExxonMobil at its site in Fawley, Hampshire.

Anne-Marie continued: “Through new hydrogen production facilities, the Solent can lead the way in creating low carbon fuels for the maritime industries, on which much of our region’s economic prosperity depends.

“We are currently awaiting the announcement of Track-2 cluster funding from the government as it works towards its requirement of reaching net zero emissions by 2050. This will enable us to deploy our decarbonisation plans which, as well as offering the prospect of lower carbon energy for homes, businesses, public buildings and transport, will also help decarbonise industries in and beyond the Solent region by capturing, processing and storing their emissions.

Government expects that support for Track-2 clusters may include access to capital support through the CCS Infrastructure Fund and Net Zero Hydrogen Fund, and revenue support mechanisms through technology-specific business models.

David Hannah, Group Chairman of Cornerstone Tax

“The announcement from the Chancellor of 12 new investment zones spread across the West Midlands, Greater Manchester, the North East, South & West Yorkshire, East Midlands, Teeside and Liverpool will drive property prices in these regions. There has been a concerted effort from the government to spread the wealth evenly throughout the UK and the introduction of these investment zones should increase the amount of jobs and businesses in these regions which will inevitably effect property prices.

“Not to mention providing more job opportunities for those who are currently unemployed causing a rise in wages and potential property buyers.The chancellor did outline employment as a priority in the announcement and a measure which the government introduced of having apprenticeships available in the skills trades for over 50-year-olds could positively affect the chronic undersupply of properties in the housing market.

“This is a good measure that helps address skills shortages, which are currently affecting 83% of businesses within the construction industry, according to research by recruitment specialist Search Consultancy. I think anything that they can do to expand the construction sector is welcomed – it is a supply crisis that we are seeing in the property market, not a demand crisis. They are focusing on getting workers to return back to work and that should inevitably speed up construction.

Jonathan Carr-West, Chief Executive, Local Government Information Unit (LGIU)

“There was some good news for localists in today’s budget. Multi-year finance settlements and a single budget for Greater Manchester and the West Midlands is a positive step and one that we have long called for at LGIU. We should note though, that this budget only covers devolved policy areas, so large elements of public service spending are left outside it.

There will be few tears shed in the sector over the demise of LEPs. Local government is more democratically accountable and better positioned to drive strategic economic development and to facilitate the necessary local partnerships.

Three quarters of councils in our recent State of Local Government Finance report called for a 100% business rate retention and will be pleased to see the Chancellor confirming his intention to introduce this.

But while we should welcome moves to localise growth and empower local leaders, other aspects of the budget appear to confirm the Government’s unfortunate tendency to command and control.

More competitive bid funding in the Levelling Up Fund, investment zones to be decided on by central government, even the £63 million on swimming pools will be within the Government’s gift.

On top of which we see reports that the Mayor’s in West Midlands and Greater Manchester will now be subject to scrutiny from committees of MPs. This is a move in the wrong direction when we should instead be strengthening their accountability to local people, not Westminster.

Overall this feels like a budget of a government that recognises the importance of local leadership but just can’t bear to let go.”

Subrahmaniam Krishnan-Harihara, Head of Research at Greater Manchester Chamber of Commerce

“After the market reaction to last September’s mini-budget and the rather sombre note Chancellor Jeremy Hunt struck in his Autumn Statement, it was apparent that today’s Spring Budget had to strike a balance between measures for enabling business growth and maintaining fiscal stability. Positioned as a “Budget for growth”, today’s announcements were an attempt by the Chancellor to deliver a more upbeat tone using the additional headroom in public finances. The macroeconomic environment for this Budget is best described as uncertain. The British economy displayed unexpected resilience and grew by 0.3% in January, albeit after an equally unexpected 0.5% decline in December 2022. The UK may be past peak inflation but wage inflation and input prices remain concerns for businesses. Consequently, businesses do not have the confidence to commit to capital investment projects. Business investment in the UK has lagged behind other OECD countries for nearly a decade. At the same time, the UK labour market remains tight: unemployment is low, employment increased by 0.1 percentage points in the three-month period between November 2022 and January 202 and the estimated number of open job vacancies still remains high at 1.12 million.

“For businesses, the new scheme allowing full expensing of eligible capital spend will be welcome and it encourages business investment providing there is clarity in the economic outlook and on government plans for business taxation. The numerous fiscal events since the pandemic have brought about a mix of changes, rollbacks and tweaks. That very system of constant revisions itself presents uncertainty to businesses and the ambition to unlock business investment cannot be brought about without giving clarity and certainty.

Dr David Crosthwaite, Head of Consultancy Services at BCIS (Building Cost Information Service)

The announcement that five construction occupations will be placed on the Shortage Occupation List is a beacon of hope in an otherwise underwhelming Spring Budget, that lacks a clear industrial strategy to encourage construction investment and stimulate economic growth.

The announcement of measures to boost the number of Ukrainians entering the labour market and returnerships, targeted at the over 50s – will do little to replenish construction’s dwindling workforce. We need a more concerted approach that prioritises investment in apprenticeships and training, to tackle ingrained labour shortages.

BCIS welcomes the continued commitment to capital investment programmes. But the fact that many of these have been postponed – such as parts of HS2 and Lower Thames Crossing – will inevitably push up the price of these projects in the long term, due to their budgets being eroded by inflation.

The government’s commitment to public sector investment is encouraging and we look forward to the publication of the National Infrastructure and Construction Pipeline later this year, to see how much of the £600 billion is invested in construction.

Stewart Baseley, Executive Chairman at the Home Builders Federation (HBF)

“It is disappointing there is not more in the Budget to facilitate the delivery of much-needed new homes at a time when all indicators are predicting a fall in output caused by planning policies, the interpretation of EU laws on ‘nutrient neutrality’ and a drop in affordable mortgage availability.

“Whilst welcoming the acknowledgement of the Chancellor on the seriousness of the nutrients impact, we continue to stress the need for urgent, workable and affordable solutions that reflect the minimal contribution new homes make to the issue.

“For the first time in more than two decades there is no Government support scheme in place to assist first-time buyers to buy new build homes and the Budget represents a missed opportunity to help households onto the ladder.”

Suneeta Johal , Construction Equipment Association Chief Executive

Although there were no great surprises from Jeremy Hunt’s Spring Statement today – as many of the announcements were ‘leaked’ earlier this week, there were some positive announcements that will boost productivity within the construction sector.

Hunt claimed that this budget was for “long-term, sustainable, healthy growth” and said the Government would deliver 12 new investment zones, which he labelled “12 potential Canary Wharfs”.

The CEA welcomes this announcement and the £80 billion funding to support a range of interventions including skills, infrastructure, tax relief, and business rates retention, particularly after the delays to HS2 announced last week. Although investment funding is subject to application, where “an area must identify a location where it can offer a bold and imaginative partnership between local government and university or research institutes in a way that catalyses new innovation clusters”, it does offer an excellent opportunity for collaboration and innovation.

Another positive announcement was the new £9 billion policy of ‘full capital expensing’ for the next three years, which is to be saluted. Although currently a welcome short-term boost for business investment as we see the end of the super deduction this month, we hope to see Hunt follow through on his aim to make it permanent to encourage investment and provide stability in the long term. Hunt says the OBR believes this will boost business tax by 3% a year.

Hunt said, “I can announce we will introduce a new policy of full capital expensing for the next three years with an intention to make it permanent especially can responsibly do so that means that every single pound the company invests in IT equipment plant or machinery can be deducted.”

A new ‘enhanced credit’ for research-intensive businesses, worth £27 for every £100 it invests is a great incentive for start-up companies investing in R&D. A qualifying small or medium-sized business must spend 40% or more of their total expenditure on R&D.

The extension of the climate change agreement scheme for two years was another welcome move to allow eligible businesses £600 million of tax relief for energy efficiency measures, particularly important as we head down the road to net zero.

The fuel duty freeze is also well received and will be of great benefit to the construction and infrastructure sectors. Hunt said: “For a further 12 months I’m going to maintain the 5p cut and I’m going to freeze fuel duty too.”

The business tax hike was confirmed, with Hunt keeping the planned increase in corporation tax from 19 percent to 25 percent in April – despite opposition from some Tory MPs. The Chancellor’s predecessor Kwasi Kwarteng had attempted to scrap the hike at the disastrous mini-Budget in 2022 – but there was a U-turn after financial turmoil.

The Chancellor set out the four pillars of our industrial strategy – Enterprise, Employment, Education and Everywhere – Hunt said that he had already allocated nearly £4 billion in over 200 projects across the country through the first two rounds of the Levelling Up Fund and a third round will follow, another welcome announcement.

Whilst the CEA welcomes the announcement of more places on ‘skills boot camps’ to encourage over-50s who have left their jobs to return to the workplace – it is not the silver bullet we were hoping to fill the chronic skills gap in our sector – we need more tangible solutions and partnerships to tackle the shortfall.

Brendan Sharkey, head of Construction and Real Estate at MHA

“Unfortunately, the four “E’s” do not deal with one of the key issues facing the economy, namely the lack of housing, particularly affordable housing.

“Housing is basic human necessity and wherever you look there is a shortage. The growing number of homeless people, the frenzy when accommodation is made available for renting and the increasing cost of renting all bear this out.

“For housing, there is a big disconnect between the what the sector needs and government policy.

“All the major house builders are publicly saying they will build fewer houses this year than last year. What we needed from the Chancellor today was a stimulus for the housing market. Unless our housing stock increases significantly, the problem will only get worse. Stamp duty reductions and tax relief on mortgage interest for first time buyers would have really helped but the budget did not address these issues at all.

“In addition the government wants to see an improvement in the quality of housing stock. However, it is not doing anything to help with supply and the enforcement of Minimum Energy Efficiency Standards (MEES) could mean that some housing becomes unlettable. The lack of incentives for retrofitting such as VAT exemptions and grants and financial support such as soft loans is hard to understand.

“Construction, like many sectors, is struggling to find the staff it needs so hopefully the proposals to increase employment and help the economically inactive back to work will bear fruit.”