Is the new coalition government good news for the construction industry?

That’s the question we asked readers in our website poll – and 63% of you said “no”. But what do our three commentators think about the new government so far?

Mike Cuthbert, Drivers Jonas Deloitte

Cuts are the reality

Mike Cuthbert

Partner at Drivers Jonas Deloitte

It says much about the state of the construction industry that at this year’s round of awards ceremonies, one figure stood out. At both the Building Awards in April and the Public Private Finance Awards last month, the Outstanding Contribution Award went to Tim Byles of Partnerships for Schools. That a single civil servant has managed to have such an impact on our industry speaks volumes for how the construction industry has survived since the start of the recession in autumn 2008 – government largesse!

The major programmes associated with schools, hospitals, primary healthcare, further and higher education are all likely to slow down to a trickle and possibly be abandoned altogether. In light of this, the industry will have to regroup and refocus if it is to survive.

Any incoming government was bound to need to make cuts in capital spending, regardless of whether that government had been blue, red or yellow. This blue and yellow striped government will be no different and, despite the industry campaigns to highlight the importance of the industry to the economy as a whole, I could find no reference to construction in the 30 pages of closely typed text that make up the coalition’s “Programme for Government” document. All we can hope is that by reducing the deficit, we get back to a period of economic stability sooner rather than later.

The only rays of sunshine for the construction sector relate to “green investment” and infrastructure, where private finance will be used to develop new high-speed rail and toll road projects. There is also likely to be encouragement for large-scale renewable and carbon capture projects as well as nuclear power. There also seems to be a recognition that PFI may be the only way in which major capital investment can be funded and we should expect a return to this politically unpopular form of procurement.

However, all of these projects require contractors of scale and it is difficult to reconcile this with the commitment to SMEs elsewhere in the document [the Programme for Government refers to “an aspiration that 25% of government contracts should be awarded to small and medium-sized enterprises”.] The only way to reconcile these two policies will be an increased focus on integrated supply chains and the use of specialist and regional SMEs contracted to major organisations.

There are other contradictions as well. For example, centralised procurement bodies are coming under pressure to demonstrate best value whilst themselves being subject to 
cuts, while a commitment to “free” procurement makes the levying of charges, for example on government website Buying Solutions, inconsistent.

Overall, there is no doubt that any change in government would be bad for the construction industry because, to quote the out-going chief secretary Liam Byrne: “There is no money left.” However, it is difficult at this stage to view this government as any worse than the other available options. 

John Alker, UK Green Building Council

Green agenda needs continuity 

John Alker

Director of policy and communications, UK Green Building Council

Surprise, surprise, the UK Green Building Council believes that good policy on sustainability is good news for the construction sector. The UK-GBC is politically neutral, of course, but on sustainability, we’re looking for consistency and continuity in some areas, and renewed impetus in others.

So what impact will the Lib-Con coalition have, what can we expect in the months to come, and will it be good for business?

On the new build side, it was a slightly inauspicious start, with a commitment in the coalition’s “Programme for Government” to simply “require continuous improvements to the energy efficiency of new housing”. We felt this was a missed opportunity to state unequivocally that the coalition fully supports the existing target for all new homes to be zero carbon from 2016.

Happily this was cock-up, not conspiracy, with housing minister Grant Shapps making the commitment to the target one week later.

Similarly, we want to see renewed commitment to the target for all non-domestic buildings to be zero carbon from 2019, and for progress to be made on setting out what this trajectory looks like.

More positive is the commitment to a smart grid and smart meters, feed-in tariffs that provide an incentive to install renewables and in particular, a Green Investment Bank, which should be able to raise private sector finance for investment into green infrastructure, including renewables and energy efficiency.

There is also a commitment to “encourage home energy efficiency improvements paid for by savings from energy bills”. This refers to a scheme designed to overcome the biggest barrier to mainstreaming home energy efficiency. Under a so-called “Pay As You Save” scheme (the Conservatives call it the “Green Deal”) the measures don’t cost anything up front, but are paid for by spreading the cost over a long period, through savings in energy bills. This could mean £5bn a year is funnelled into refurbishment projects.

We also need to see much more action on the refurbishment of non-domestic stock. The coalition says: “We will also take measures to improve energy efficiency in businesses and public sector buildings.” Hardly inspirational stuff. With 17% of emissions coming from our non-domestic buildings, to add to the 26% from homes, it’s an important area that hasn’t been high enough on the agenda to date.

In an age of austerity, the government’s role as an enabler of sustainable buildings becomes even more important. It can do that through clear target-setting on the new build side, to inspire confidence, innovation and investment, and it can help create the conditions for a refurbishment revolution in our existing, leaky building stock.

It can also play a crucial role in helping to facilitate the joining up of sustainable infrastructure, with public buildings acting as anchor-loads for district heating systems and local authorities taking a lead in joining up the delivery of energy, water, waste and ICT systems at a community scale. 

John Frankiewicz, Willmott Dixon Capital Works

Change will bring opportunities

John Frankiewicz

Chief executive officer, Willmott Dixon Capital Works

Yes, we are facing the toughest spending cuts for a generation, and that will clearly have an impact for construction, as capital projects will be included in the cuts. But, we have seen this coming, and investment in capital projects would have fallen under a Labour government – just look at its March budget. Hidden in the small print was the fact that gross investment in the capital budget was going to fall from £60bn in 2010-11 to £45bn in 2013-14. So whichever party came into power, we were going to face austerity as it dealt with the structural deficit and reduced our debt mountain.

For companies that have adapted business models to suit the new age of reduced spend, there are opportunities. National and local government will look to outsource non-core services to reduce costs, and companies like Willmott Dixon will look to provide these services at better value.

Clients will also want support as they tackle their legal requirement to reduce carbon emissions. Our industry can provide specialist advice in helping clients achieve better carbon efficiency.

The new government is committed to the sustainable low-carbon agenda, and
I think there will be huge steps over the next 10 years towards our transition to a low-carbon economy. Companies that are in the vanguard of delivering low-carbon solutions that are affordable and replicable will be highly valued. In this I include solutions for education and housing, especially the low-carbon retrofit of housing, where social landlords owning homes built in the 1940s and 50s look to contractors to provide a whole package that includes a possible financial element. 

Decentralisation of power from central and regional government to local authorities is a key objective for the government. In housing, we expect communities secretary Eric Pickles to devolve greater powers to councils and local communities.

The Conservatives have long wanted to give local authorities more autonomy over house building. Rather than being forced to build homes to meet regional targets, councils could be incentivised through financial rewards, including matching council tax revenue from new homes for the first six years after construction. This could present opportunities for us to work in partnerships with councils to deliver their housing needs.

So while we face tougher spending decisions, there is opportunity too. We can help advise public sector clients on how to get more for their reduced capital spend. This includes co-locating facilities to share costs, which is happening with health and leisure facilities, while education facilities are being designed to raise revenue from community use.

I also think a hybrid model where buildings are part refurbished and part rebuilt will take off as clients look for more imaginative ways to make their spending go further. The need to renew and refresh accommodation will still be there, it’s how we do it in the current fiscal climate that is our challenge.

The new government certainly presents challenges to our industry. But who said that business was easy?