Jon Herbert considers the Autumn Budget for 2018 in terms of the construction sector.

There was a broad business and construction consensus that the 2018 Autumn Budget brought some good news, created some frustration and will very probably pave the way to a second Budget with more significant measures in spring 2019 when Brexit is signed off.

Pleasing everyone is hard in any financial announcement and particularly difficult when politics, economics and life in general seem uncertain. However, what is expected to be the Government’s last formal income and expenditure statement before the UK leaves the EU, the Chancellor addressed key issues he thinks vital for the future. He was also under pressure to show, through infrastructure investments, that the Government is committed to ending austerity.

Housing policy and the need to support large-scale homebuilding programmes was high on his list, so were roads. The Treasury has found extra money to repair 2018’s early crop of potholes; a hard 2018–19 winter will make this unpopular problem even worse. More importantly, there will be more funding to upgrade the wider road network.

Productivity, growth and jobs

There is also budget help for small firms and housebuilders, though not yet for larger companies. Housing strategy includes a five-year focus on building new homes where they are most needed, with modern building technologies needed to achieve high targets.

However, Philip Hammond is especially keen to stress that the long-term aim of infrastructure spending is to boost UK’s productivity and growth. With this in mind, there is extra funding for training, apprenticeships and developing the new skills of the future.

Home and hearth

Meeting the housing crisis remains a central Government priority. A further £500 million has been added to the Housing Infrastructure Fund, taking the total up to £5.58 billion. This helps to offset the infrastructure costs developers face in opening up access to residential developments in major schemes and could affect the delivery of some 650,000 new homes.

Other measures are also designed to encourage development. Stamp Duty Land Tax (SDLT) exemptions have been extended on purchases of shared-ownership properties valued up to £500,000. This ends a tax anomaly that does not affect 100% owners. Interestingly, it will be applied retrospectively. Local authorities will also benefit from the removal of a Housing Revenue Account cap, allowing them to increase housebuilding by about a further 10,000 homes annually.

Help to Buy was not mentioned directly in the Chancellor’s speech but will be extended by two years to 2023. However, it will be restricted to first-time buyers and comes with caveats. The Treasury is also forming a £650 million partnership with nine housing associations until 2021/22 to deliver a further 13,000 homes.

Small sigh of relief

The British Business Bank owned by BEIS will be giving guarantees worth up to £1 billion to back lending to SME housebuilders. However, there is some disappointment that help for large companies will be delayed until February 2019, giving the Government time to respond to an Independent Review studying the gap between housing completion times and the amount of land allocated or permissioned.

Small firms will also benefit from extra business rates relief. At 50%, this is said to be too high to be sustainable. To prevent further economic damage, there are calls for a review here too. However, there is considerable relief that apprenticeship levy contributions from small firms will be cut by 50% to 5% as part of a “£695 million package to support apprenticeships”. Modern training is seen as essential to a sector destined to be a high-wage, high-skills driver in the UK’s future economy.

Mr Hammond commented, “We’ve introduced a new system of T-level vocational training, introduced the first £100 million into the new national retraining scheme and through the apprenticeship levy we are delivering three million new high-quality apprenticeships in this Parliament.”

Bump in the road

An extra £420 million to repair potholes and minor roads has been welcomed because it helps to close the local authority maintenance budget shortfall, even though the AA asked for a £1 billion commitment. However, the Treasury’s generosity is lower than the £1.5 billion thought necessary annually to bring roads up to spec to ensure that they can be maintained cost-effectively into the future.

The Freight Transport Association says much more is needed to rectify years of underinvestment. However, a hidden road spending bonus could be a boost for the plant hire sector and investments in machines and methods needed for long-term repair solutions.

Mr Hammond’s overall £30 billion road spending announcement includes £25.3 billion for the second Road Investment Strategy (RIS2) that Highways England is due to deliver between April 2020 and March 2025. The proportion to be spent on capital works and operations will be announced when the final RIS2 Plan is published in late 2019; this could in part be reallocated to local authorities. RIS1 currently has a £15.2 billion budget. A further £3.5 billion has gone into the vehicle excise duty-funded National Roads Fund to be spent on UK wide and local major road schemes between 2020 and 2025.

Looking towards a sustainable future, the Institution of Civil Engineers notes that new forms of road development and maintenance revenue are needed as the UK moves towards an electric vehicle (EV) transition and floats the idea that a pay-as-you-go road charging scheme should be considered for the nation’s busiest roads to ensure long-term funding for maintenance and upgrades.

On the rails

More funding has also been earmarked for rail expansion. This will include spending through Northern Powerhouse Rail, £20 million to develop a strategic business case for East West Rail as a link between East Anglia, central, southern and western England, plus £291 million to help unlock 18,000 new homes in East London through improvements to the Docklands Light Railway. However, the Rail Industry Association would like to see “boom and bust” rail funding smoothed out. It wants a commitment that electrification remains a solution for decarbonising the rail network, plus match funding for new rolling stock R&D.

North of the border

Scotland’s builders want a “level playing field”, according to Homes for Scotland Chief Executive Nicola Barclay, who says the Scottish Government must attach “similar importance” to infrastructure delivery in the forthcoming Scottish Budget. She summarises the vital connections that make infrastructure spending work as a social and economic tool.

“Homes cannot be built in isolation,” she explains. “They need to be connected to existing facilities like roads, water and drainage and the people who move into the new properties need to use local services such as schools, medical facilities and public transport.” She adds that physical infrastructure is expensive to deliver and homebuilders are often asked to make large financial contributions to meet these costs upfront before they have built or sold any properties. This makes it extremely difficult for developments to go ahead.

Ray of sunlight?

Not everyone is happy with the Budget. The Solar Trade Association reports “bitter disappointment” that the renewable sector will continue to face tax disadvantages. Chief Executive, Chris Hewitt, explained that, “Investment in renewable energy has plummeted in the UK and largely for want of fair tax and market treatment.” The association added that the Chancellor had “again missed a vital opportunity to do the right thing, not only by the planet and the thousands of people who want to support clean energy, but by simple fair market principles”.

Chris Hewitt said, “This Government claims to support clean, green technologies, but this rhetoric is far from being matched by even the most modest of actions. Solar is the biggest clean energy market in the world today and by putting obstacles in the path of this technology the Government is frustrating the urgent energy transition and putting British industries at a disadvantage in global clean energy markets.”

Funding models

The Chancellor acknowledged that half of the proposed £600 billion infrastructure pipeline will be still financed and built by the private sector. Following Carillion’s collapse, public building projects will no longer be funded by the private finance initiative (PFI’s) successor, PF2, is also being scrapped. Whether a brand new form of public private partnership will be launched is not yet clear.

Conclusion

The Autumn 2018 Budget was generally reassuring at a time of political, economic and business uncertainty and was widely seen as leaving options open for the Treasury to introduce a second post-Brexit Budget if needed in Spring 2018.

Housebuilding, roads and rail infrastructure announcements are of particular interest to the construction sector. There is also extended support for apprenticeships, training and skills development for an industry that is seen as crucial for a sustainable future open to world markets.

Much of the infrastructure pipeline will still be delivered by the private sector and it is still not clear what models the Government has in mind for future private sector funding.

Published by Croneri on 8 November 2018