June 22nd, 2010
Given the potential for increased pain in the gift of George Osborne there will be a feeling that construction hasn’t come out as badly as it might have from the emergency Budget.
But “unavoidably”, as Chancellor Osborne might say, the construction industry will have to share some of the pain for the folly of the banks as the nation seeks to balance its budget.
There will however have been a great deal of relief when the Chancellor said that capital spending would not be reduced further.
But as the graph shows, in cash terms it is indeed a shade smaller, say £1 billion to £2 billion a year less. And there is a question of where this capital spending will go, that is to say whether construction will get a smaller (or possibly larger) share of the capital budget pie.
My gut feel is that the industry should prepare for smaller. But we should start to get a better clue when the Treasury releases more detailed figures for departmental spending on 20 October.
For many construction bosses, the reduction in corporation tax will have provided some cheer, although obviously not for those that are struggling to break even let alone make a profit.
But the real pain in Budget will be felt by smaller local builders or those larger firms that are heavily engaged in refurb work. I can imagine some spat out there their builders’ tea when the Chancellor said he would raise VAT to 20%, however much this possibility had been expected beforehand.
The fear is that smaller firms operating particularly in the private housing repair and maintenance sector will be hit doubly hard by the tax increase, with less work in their sector being done and with more of what is done being undertaken by shadier operators not charging or paying VAT.
Looking again for some positives (or perhaps “less negatives” may be more appropriate) it was interesting that the Office For Budget Responsibility appears to think that the net effect of this Budget will be relatively neutral of jobs in the short term, with losses of 100,000 or so more than would otherwise be the case.
Given the size of the cuts this seems pretty light. And as the Chancellor delighted in pointing out OBR suggests his Budget will build a base for 200,000 or so more jobs within the economy by the end of the Parliament that would have been there under Alistair Darling’s last Budget.
If this assessment is correct this will provide some relief within the housing market which can ill afford a sharp rise in unemployment which may trip the market into a sharp decline.
The OBR also doesn’t think the Budget will tip the economy into a double-dip recession. The growth forecasts for GDP are pretty “healthy” at well above 2% from 2012 and onward .
Some may find that level of growth a bit juicy given that it is based on a private sector revival sailing into the headwinds likely from the retrenchment in the main markets in Europe.
But as the Chancellor made plain the fiscal squeeze would have one benefit in that it should help to keep interest rates low for some while yet.
Frankly this is bailing out a huge swathe of the UK population who indulged heavily in the debt frenzy of the past decade. But in economic terms it is powerful, as each one per cent less on mortgages saves UK borrowers collectively about £10 billion. Not so good for savers mind you.
Anyway there will be plenty more to say on the Budget I am sure as the fat is chewed and the detail winkled out and digested, but in the meantime here are a few more graphs for those that way inclined.