Now that the dust has settled following the General Election in May 2015, one of the many sectors likely to be affected by the outcome is that of construction.
Prior to the election, statistical models predicted a hung parliament and there was a great deal of uncertainty over what form the next Government would take. It was thought likely that it would be:
A coalition Government
A minority Government, supported by other parties on a vote-by-vote basis or Confidence and Supply in which minor parties support the governing party in exchange for support on their own issues.
In fact, the polls got it wrong, and a small Conservative majority emerged. While this has eased the short-term political uncertainties, there are likely to be wide reaching implications for the construction industry over the next few years.
The media indicated that the months leading up to the election had seen a slowdown in the UK construction industry, with growth in April 2015 being described as at its slowest in nearly two years. It appeared that spending decisions were being delayed ahead of the General Election.
How then do the Conservatives intend to bolster the growth of the construction industry, and which are the Bills that will have the most impact upon it? Further, what will be the political realities facing the Government as it seeks to pass those Bills through Parliament?
The Government has promised investment in the construction industry, including the building of the first phase of High Speed Two (HS2) rail link, due to be started in 2017. The service will cost £50 billion, and is due to slash journey times, and help to build the “Northern Powerhouse”.
There are plans to invest in the road network, and to devolve powers relating to infrastructure outside London and the South East. This will further assist in attempting to redress the North/South economic imbalance, and is intended to assist in attracting investment into northern towns and cities.
Housing was an important issue in the election, and the Government is attempting to address the shortfall in affordable housing over the next few years.
Airport capacity in the South East remains a contentious issue, with plans afoot for a new runway at either Heathrow or Gatwick, heavily opposed.
The Conservatives have also pledged to protect the greenbelt, and are encouraging local communities to have more control over it through neighbourhood planning. The construction industry should further benefit from the Government’s plan to create three million apprenticeships, to improve the skill sets of young people. However, it remains to be seen whether these initiatives will contribute to a kick starting of the sector.
The following bills, outlined in the Queen’s Speech 2015 will have a direct impact upon the construction industry:
- High Speed Rail (London-West Midlands) Bill (HS2)
This proposes to grant planning permission and compulsory purchase powers for the first phase of the HS2 route from London to the West Midlands.
- Housing Bill
The Prime Minister, in his introduction to the Queen’s Speech 2015, described Britain as split between people who can afford to own their own homes, and those who are unable to do so. The Government proposes to address this through a Housing Bill. The Bill outlines the building of 200,000 discounted Starter Homes for first time buyers. It also proposes to extend the Right to Buy to tenants of Housing Associations and will require councils to sell vacant high-value council houses, and reinvest the proceeds into building affordable homes. The Bill also intends to ensure that suitable brownfield land is ready for development through the introduction of a statutory register for brownfield land.
- Cities and Local Government Devolution Bill
A new bill intends to provide for powers over housing, transport, planning and policing to be devolved to England’s cities outside London and the South East, as part of Government plans for “a balanced economic recovery”.
- Enterprise Bill
This aims to reduce regulation on small businesses by cutting red-tape. It also proposes to introduce a Small Business Conciliation Service to handle business-to-business disputes, for example, payment issues, without the need for Court action.
The next five years
Conventionally, one might anticipate following a Conservative victory, a wave of optimism for new growth in the construction sector. Commentators and market representatives have to some degree reflected that mood in post-election statements.
In reality, over the next Parliament the UK faces five years of potential constitutional change with a promised referendum on the UK’s EU membership by 2017, the prospect of further Scottish devolution and potentially another vote on Scottish independence.
The economic uncertainty posed by the European Referendum in particular, is a potential threat to private sector investment over the next couple of years.
Given that the Conservative majority is comparatively small, it may be that the leadership is unable to push through bills against the will of rebel backbench MPs. The Government will need therefore to build on cross-party support. There remains the possibility that important long-term and far-reaching decisions, such as HS2 and additional airport capacity in the South East, could be blocked by local Conservative backbenchers.
Public sector capital expenditure programmes could also suffer, as the new Government attempts to keep its promise to reduce the Budget deficit.
Although the Government’s proposal for investment in the strategic road network appears to be positive in terms of the construction industry, in fact, the largest increase in capital funding is not due to take place until after the next general election.
The Housing Bill and the Government’s drive to create new homes will be a welcome focus for the construction industry, as will the development of brownfield land. The proposed devolution of various powers to England’s cities should further help the industry to increase growth in local communities and to help to build the “Northern Powerhouse”. The new HS2 rail proposal will also create new jobs.
Further, the Government’s proposed plan to create three million new apprenticeships should go some way towards reducing the current skills shortage in the construction industry. In addition, the Enterprise Bill should assist in cutting red tape for small businesses and help resolve disputes more quickly.
Nonetheless, natural optimism within the construction industry following a Conservative Election win, may yet have to be tempered by the political facts of life, in which the Government’s proposals for growth may be hampered by its small majority. Interesting times indeed…