The government intends to allocate an extra £3bn a year to infrastructure projects to boost economic growth. Chancellor George Osborne said in his Budget speech today that the increase would come into effect from 2015. He said it meant £15bn more spending in the next decade on roads, railways, power stations and other projects. The move comes in response to growing calls from business groups to boost infrastructure investment as the UK.
Property and construction commentators have given a mixed reception to the Budget.
Jon Poore, public sector director at Turner & Townsend, commented:“Four Budgets and two National Infrastructure Plans later, the Chancellor is still committed to using infrastructure to help the country build its way back to growth.
“The script is well worn – improving Britain’s infrastructure will make us more competitive and give the economy a welcome stimulus.
“Mr Osborne’s promise of an extra £3 billion of public sector infrastructure investment per year from 2015/16 is eye-catching, but also an acknowledgement that his plan for the private sector to step into the breach is struggling.
“In the past year total infrastructure spending shrank by 12% as the private sector steadfastly refused to take on the role of white knight. Progress on the Chancellor’s wishlist of infrastructure projects has been underwhelming.
“So the buck has been passed back to the public sector. The Chancellor says the Treasury is willing to spend, and that the money will come from savings made by other government departments.
“But that money cannot be spent efficiently without clear targets – and these were notably missing from today’s speech.
“Public sector infrastructure spending should not be an indiscriminate spraying of investment around the country. Without focus and carefully costed plans, the Chancellor might as well send a fleet of RAF helicopters to drop bundles of banknotes.
“There was more clarity on the government’s support for shale gas, with the Chancellor giving his most full-throated endorsement yet of the controversial energy source.
“By offering tax breaks and incentives to the industry, the government is determined that shale should play a key part in Britain’s future energy mix. The prospect of a huge new source of gas and the lure of energy independence are clearly too strong for the government to ignore.
“The housing sector could yet be a star performer, with the Help to Buy and the Build to Rent schemes respectively delivering greater demand and supply. There is pent up demand from would-be homeowners, and if these measures can persuade builders to crack on with the slew of shovel-ready projects still in the pipeline, the sector will be able to play an important role in delivering growth to the economy.”
Simon Rubinsohn, RICS Chief Economist, said: “The range of measures announced under the ‘Help to Buy’ scheme to kick start the housing market are much needed. Helping those who can’t afford large deposits by using the Government’s balance sheet to guarantee mortgages and using capital savings to offer shared equity loans on new build for all buyers will help prevent prolonged market stagnation – although it presents a significant risk to Government. The devil will be in the detail about how the Government will treat buy-to-let and those in negative equity. RICS will monitor the impact on the market and prices. However, Government need to be careful this doesn’t create another housing bubble – pushing prices up at the expense of buyers.
“Once again, the Chancellor has reeled off the two infrastructure projects that Government has actually started – Hinkley Point and Battersea Power Station – and vaguely referenced others that are in the pipeline and will one day receive private investment through previously announced guarantee schemes and the much trailed Pension Infrastructure Platform. The £3bn a year announced by the Chancellor is welcome but will not come on stream until 2015-16 – far too late for many businesses that are struggling now. Our members have told us repeatedly that the success of infrastructure projects are about delivery on the ground. RICS believe Government should spend more time and resource in supporting business to gain access to these public sector projects.
“The Government has largely failed to realise that infrastructure projects don’t need to be big to be effective in creating growth. In fact small might very well be beautiful. Across the regions and the nations it’s the smaller repair, maintenance and upgrade projects which can be picked up by medium and small construction businesses. Rail maintenance and school refurbishment are just two areas where a small amount of capital investment would quickly deliver great benefits.
“The Chancellor says he is actively considering extending funding for the Funding for Lending Scheme (FLS) – RICS would urge him to act now. We are confident that an extension of the FLS would assist more would-be homeowners and small businesses. While the FLS has been a key part of the beginning of improving conditions in the housing market, it’s hardly surprising that banks remain more willing to lend on residential mortgages rather than small businesses. Government needs to take a long hard look at the FLS as small businesses are the engine of the UK’s economic recovery.
“In all, a rather lacklustre statement from the Chancellor, which will do little deliver much for the economy in the near term. It’s time Government listened to what voters and businesses desperately need in order to make a real impact at a grass roots level.”
Richard Abadie, PwC Global Head of Infrastructure, commenting on the Budget said: “Every additional pound of investment in infrastructure is to be welcomed in a difficult market where the construction industry is struggling from reduced activity. Infrastructure projects are long term and investments made into them also need to be long term and ongoing.
“Regrettably the announced sum is insignificant relative to the infrastructure backlog and whilst we welcome the announced £3 billion of cost-savings from various Government departments, the reality is it won’t make a significant impact on economic growth as it comprises less than 0.2% of GDP.”
Jonathan Hook, PwC’s Engineering & Construction leader, added: “For construction, the big news for the sector is the Chancellor’s bet on the housing market with the Help to Buy scheme. The commitment of £3.5billion to shared equity loans up to 20% coupled with £130 billion of mortgage guarantees is a big boost to the residential market. The chancellor obviously believes this a quicker and cheaper way to get an economic boost than other areas of capital spend.”
The British Property Federation welcomed the government funding increase to kick start build-to-rent schemes. The £200m made available in December’s Autumn Statement will be expanded to £1bn, and will provide equity or loan finance to support development stage finance.
Ian Fletcher, director of policy at the British Property Federation, said: “It’s encouraging the Government’s confidence in build to rent has been reciprocated and we are delighted to see that the equity funding was heavily oversubscribed. Working in partnership with Government the sector should deliver an exciting and quality array of homes for renters.”