When delivering the UK’s Budget on 16 March 2016, the Chancellor of the Exchequer warned that we face a “cocktail of risks”. Undoubtedly, this is not likely to be anyone’s first choice from the cocktail menu, however does the 2016 budget offer the UK construction industry the necessary reassurance to stomach what lies ahead?
In 2015, the construction sector was reported as contributing to 6.1% of the UK’s total economic output. As an obviously lucrative area, the 2016 Budget seeks to encourage further growth with promises of commitment to a number of areas. These areas that have been identified are as follows:
One of the areas likely to have the most immediate impact is the planned continued investment into infrastructure. This includes the promise of an investment of £300 million into transport; featuring the Crossrail 2 project in the South East, which has claimed £80 million of the investment monies.
In addition to these new projects, there are plans for general improvement to transport networks nationwide. Including, in light of the widespread flood devastation experienced last year, an additional £700 million of investment for flood defences and extra funding for pot hole repairs.
Another feature of the report is the continued focus on the “Northern Powerhouse”, which aims to strengthen the economy in the north of England through investment in transport links, arts and science and devolution deals with the various cities. One feature of the Northern Powerhouse is the commitment of £60m for the development of the HS3, which will provide an east-west rail link between Leeds and Manchester and which aims to reduce journey times from 50 minutes to 30 minutes. In addition the Budget dedicates £75m to support the development of an 18-mile road tunnel under the Peak District. These plans promise to have created an additional 250,000 jobs by 2030.
It is undeniable that the investment and plans envisaged will generate a great deal of work for the construction sector, however the Budget also confirms that construction of the planned works is not anticipated to commence until after 2020 and that the investment is a commitment to the development of the plans only and not necessarily a commitment to the construction. Therefore the influx of work may not be as imminent as has been suggested.
In 2015 housing was reported as making up 55% of the profit generated within the UK construction industry. However, this profit mostly comes from the private sector. The budget has promised the introduction of 130,000 affordable homes, and has committed to working with Local Authorities to release land for a further 160,000 homes (as a minimum). Therefore the generation of profit from housing funded by the public sector should increase over the next few years.
Given the planned investment in infrastructure and housing, as well as other areas, the Government has rightly recognised the need to increase the efficiency and accessibility of the planning process.
New devolution deals are to be introduced in order to grant new powers at a local level with further plans of devolution in the London area in order to reduce the consultation periods for planning applications. This is intended to work in conjunction with the Government’s plans to increase the consistency of the use of planning conditions, with new legislation and a review of the current processes. As a specific measure to address the time scales over which applications/appeals are dealt with by the Secretary of State in respect of infrastructure and housing, a three month deadline for decisions shall be introduced.
If the plans are implemented appropriately, the planning system should be in a position to keep pace with the proposed increase in infrastructure and housing planning consultations required, and avoid unnecessary delays and the inevitable backlog of applications.
Following the path set by the 2015 Autumn Statement and Spending review, the Budget reaffirms the Government’s desire to improve the apprenticeship schemes available. The “apprenticeship levy” is confirmed to come into effect in April 2017 and now features a 10% top up to monthly levy contributions to be used against apprenticeship training.
The purpose of this levy and the availability of training funding money, is to encourage the recruitment of apprentices in order to bolster employment within the construction sector, and address the skills gap which has arisen in the past few years. In light of the planned investment into various projects across the UK, it is envisaged that there will be work available in order to justify the continued recruitment by construction companies at all levels.
Stamp duty on commercial properties
On 16 March 2016 the way in which stamp duty is calculated on commercial properties changed. Higher rates are now only applicable to the proportion of the purchase price which exceeds the thresholds. In particular, purchasers of commercial properties of up to £1.5 million will pay less in stamp duty. It is envisaged that this will encourage smaller businesses to purchase commercial property, which may increase the demand for the design and construction of smaller commercial properties that fall within this band.
It seems that the 2016 Budget promises a great deal, however how the various goals are going to be achieved and, possibly more interestingly, how they will interact with one another, remains unclear at present.
As a further warning, the 2016 Budget may become more significant as, subject to the referendum, it may be the last to be produced whilst Britain remains a member of the EU. The “Brexit” referendum, that will take place in June, threatens further and potentially more drastic changes, which, if they come to pass, will dwarf the changes proposed in the Budget. Given the uncertainty that the UK faces, and the lack of security offered by the Budget, it seems that all we can say is bottoms up to the cocktail of risk.