11 March, 2014 | By Kallum Pickering ! Construction News

Despite last year’s pick-up in economic fortunes, the upcoming Budget could prove a challenging one for the Treasury.

Now that the economy is getting back on track, will the chancellor look to ease the purse strings and cement the recovery or test its durability with a greater push toward deficit reduction?

Either way, George Osborne faces the task of convincing voters that he really is on their side.

Announcements on housing, infrastructure and energy should feature. However, the likelihood of any additional capital investment is low.

The election is only 14 months away and given the lengthy lead times, it’s unlikely the additional spending could have an impact before then.

Outstanding housing issues

Despite a recovery in the second half of 2013 and projections of strong growth during the next two years, ultimately, the core issues within housing remain unresolved.

“This Budget could include either an extension to Help to Buy or a replacement which phases out as credit markets improve”

Still, it is unlikely that this Budget will have a solution to the UK’s housing supply issues.

Starts grew by a quarter last year, and in 2014 and 2015 growth is expected to continue at rates of 16 per cent and 10 per cent respectively. Help to Buy, which is in place until 2015, has been paramount to this growth.

Mortgage availability is likely to remain subpar for the foreseeable future, and as a result growth in starts is expected to slow to 2 per cent in 2016.

This Budget could include either an extension to Help to Buy or a replacement which phases out as credit markets improve.

Infrastructure progress

We should expect an update to the infrastructure pipeline. What form this takes is uncertain and, as in the past, it’s likely there will be more than a few revamped re-announcements.

“Labour statisticians claimed that just seven out of the 576 projects in the National Infrastructure Plan have been completed”

Although the pipeline is already set out, it will remain a topic of controversy until the election and is already both Labour’s and Liberal Democrat’s choice battleground for when capital spending plans are debated

In February, Labour statisticians claimed that just seven out of the 576 projects in the National Infrastructure Plan have been completed, and deputy prime minister Nick Clegg has recently admitted his frustration at the long-delays between the government announcing and completing projects.

Carbon matters

A freezing of the carbon price floor to reduce costs for industry has received widespread support across the construction.

Energy-intensive sectors such as steel, chemicals and bricks have criticised the current tariffs as rendering UK businesses uncompetitive.

It has been claimed that as much as a third of total production costs come from energy, and given that the CO2 price under the EU emissions trading system has fallen, carbon is now cheaper in Europe than in the UK.

Construction has had a tough time since 2008; past Budgets and autumn statements were seen as significant opportunities for the government to support demand and help aid the recovery, but on the whole the government failed to act during some very critical times.

However, this time is different, but not for the government. Construction grew by 1.3 per cent in 2013 and continues to recovery, so the Budget, while still important, ultimately matters less.

Kallum Pickering is an economist at the Construction Products Association

 

Categories: News