10 policies that will affect construction in the summer budget
1. The government is to compel social landlords to reduce rents paid by tenants in social housing in England by 1% a year for four years from 2016. The Office for Budget Responsibility predicts there will be 14,000 fewer affordable homes built as a direct result of social housing rent cuts.
Dr Anthony Lee, senior director at BNP Paribas Real Estate, said: “Social housing rents have – until now – increased annually by RPI plus 0.5% per annum, underpinning housing associations’ business plans and making social housing an attractive investment proposition. This announcement is likely to undermine housing association finances and risks making bond issues less attractive.
“There is also likely to be an adverse impact on the viability of new developments. The rent reduction will reduce the amount housing associations can pay developers for the affordable housing element in their schemes. This will put pressure on viability and ultimately reduce the overall percentage that schemes can provide.”
Melanie Leech, chief executive of the British Property Federation, said: “The ultimate solution to reducing rents and the housing benefit budget, however, is to increase supply of all housing tenures. We urge the government to focus on devising and delivering ways in which to dramatically increase housing supply.”
2. The government this week also launched the £100m Housing Growth Partnership, aimed at improving access to finance for SME housebuilders.
Mike Quinton, chief executive of the NHBC, added: “We welcome the launch of the Housing Growth Partnership earlier this week, which gives vital financial support to small and medium sized housebuilders. It also helps to increase the supply of new homes that our country so desperately needs.
“Small housebuilders and developers have contributed to UK housing output throughout history. However, in recent years the number of smaller builders have not returned to the market at the same rate following other recoveries. Research by NHBC last year found that access to finance is one of the biggest barriers preventing smaller housebuilders.”
3. The government announced plans for a new apprenticeship levy, which would be paid by all “large employers”. The idea is linked to a report by the Social Market Foundation called Fixing a Broken Training System: the case for an apprenticeship levy, published earlier this month.
In it, Professor Alison Wolf puts forward the idea of a National Apprenticeship Fund, where employers would pay 0.5% of payroll costs, and those that employ apprentices would be able to withdraw more funds than they contributed. One possible mechanism could be to offer employers the e-vouchers to be used for training costs in the new Trailblazer and employer-led apprenticeships. The report says that similar schemes operate in Denmark, France and Austria. A full consultation is expected in the autumn.
Eddie Tuttle, senior policy and public affairs manager at the CIOB, said: “The government has set itself an ambitious target of delivering 3 million apprenticeships over the next five years – equivalent to 600,000 new apprenticeships a year. The introduction of a new apprenticeship levy is a big ask for business, but one that recognises the acute skills shortages industries such as construction will face in the future unless significant investment is made in training. And if the government is to deliver on its ambitions, more needs to be done to promote construction as a viable career path.
Steve Radley, director of policy and strategic planning at the CITB said: “Like any initiative which puts skills funding in the hands of employers, there are some critical conditions for success. These include buy-in from employers; collaboration across sectors and through supply chains; and enabling employers to influence the type of training the funds will pay for. There is also a need for accurate forecasting to identify which skills are required.
“It’s also essential that employers can shape the apprenticeships on offer. The Trailblazer model has made a start on this but there is much more to do in making sure apprenticeships in construction and other sectors match current and future market demands.”
4. An increase in the national minimum wage, now branded the “National Living Wage” that will rise to £9 by 2020, should help some low paid workers.
Eddie Tuttle, senior policy and public affairs manager at the CIOB, said: “The introduction of the National Living Wage is another promising addition, and the CIOB now asks whether the government should go further and increase the minimum wage for apprentices, which is likely to improve the appeal for individuals considering this route into industry.”
Iain McIlwee, chief executive of the British Woodworking Federation, says: “And looking at the direct impact on SMEs in the construction supply chain, while an increase in the minimum wage for the lowest paid is welcome, we cannot ignore the fact that such increases have a knock-on effect throughout a business, creating inflation in a firm’s total wage bill.
“Our latest State of Trade survey among Britain’s joinery manufacturing firms already reveals that 73% of respondents had seen a sharp increase in labour costs, and this is fast becoming a constraint on business.
“Wage inflation and other increases in the cost of doing business, such as the insurance premium tax increase, will need to be properly offset by the cuts in corporation tax and increases in employment allowances.”
5. From April 2017 corporation tax rates will fall to 19%, with anticipation of a further fall to 18% from April 2020, and the annual investment allowance will be set permanently at £200,000 from January 2016.
John Hicks, UK head of government and public at Aecom, said: “Reduced corporation tax brings benefits to all, fostering an environment that is good for job creation and a boost for the built environment sector, which thrives on a strong economy and the promise of a sustainable pipeline of work.”
6. The government is inviting bids for a new round of Enterprise Zones, which will encourage towns and districts to work with local enterprise partnerships to develop bids.
Melanie Leech, chief executive of the British Property Federation, said: “Enterprise Zones can galvanise government incentives, increase local government commitment to an area, and help businesses set up or expand. We therefore support the government announcing a new round of Enterprise Zones, and agree with its emphasis on LEPs having a role, and that they are seeking to support a broad spectrum of different business areas, whether that be industrial or retail, urban or rural.”
7. Road tax will be reformed and the money raised spent on the road network from 2020.
John Hicks, head of UK government and public at Aecom, said: “We welcome the move to direct revenues from the new Roads Fund directly into rebuilding Britain’s highways. Coupled with delivery vehicles such as Highways England, this could prove interesting. However, timing remains an issue as revenue will not be generated from this initiative till 2017 or after. The longer-term nature of infrastructure therefore leaves the question of interim funding currently unanswered.
8. The government will fund a High Speed Rail Investment Summit in Birmingham, to attract overseas investment into regeneration projects in the region.
Simon Robinson, the head of BNP Paribas Real Estate’s Birmingham office, said: “HS2 has now entered the Midlands psyche as ‘something that is definitely happening’. Better connectivity with London will encourage more corporate moves to Birmingham, increasingly driven by differences in property and labour costs, following the lead given by Deutsche Bank and most recently HSBC. Any impetus to encourage inward investment into the regions generally and Birmingham specifically can only be viewed as a positive for this city.”
9. Public sector pay will increase by 1% a year for four years from 2016-17.
Mark Robinson, chief executive, Scape
Group, comments: “The public sector is being asked to work harder than ever
before with the raft of initiatives touched on in the summer budget such as the
implementation of an Oyster ticketing system in the north, creating new roads
as well as being handed more powers to focus on infrastructure."
This is all great news in theory, but much like the skills shortage which is causing a mismatch between demand and supply in the construction industry, the public sector is also suffering from a skills shortage. The pay award in the public sector of 1% for four years from 2016/17 is negligible, and represents a fall in real terms. With public sector budgets also under pressure in order to achieve savings, this more with less approach will eventually prove unsustainable.
Mark Robinson, Scape, Group Chief Executive
10. But there were no policies to address energy efficiency or the retrofit agenda.
John Alker, director of policy and communications at the UK Green Building Council, said: “George Osborne promised a Budget that would be bold in delivering infrastructure. Yet energy efficiency, which should be seen as one of the UK’s biggest infrastructure priorities, failed to even get a look in.
“Energy efficiency is an economic no brainer – cutting bills for households, creating jobs and growth, and improving our energy security. Government’s failure to support this industry at a time when uncertainty about the future of ECO and Green Deal is rife, represents a major missed opportunity for the economy.”
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