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Fears grow over impact of public spending cuts

A prolonged downturn could hit the industry if public sector cuts are as severe as is feared, industry figures have warned.

Companies are preparing for unprecedented levels of cutbacks as the Government slashes public spending in a bid to reduce the UK’s budget deficit.

Projects across health, education, housing and transport are all likely to be hit, although schemes that are part of plans to cut carbon emissions are thought to be less vulnerable.

Construction Products Association economics director Noble Francis said the cuts were likely to be more significant than previously thought due to weakening economic growth forecasts.

He said: “Health investment has tripled in recent times and we’ve come to the end of a natural cycle of hospital building, so that is vulnerable.

“Building Schools for the Future is worth up to £55 billion over 15 years, but that’s money we just don’t have.”

Mr Francis said the association was waiting to see details of the emergency Budget, released after H&V News had gone to press, before altering any growth predictions for the industry, but said: “Next year we currently have only 1 per cent growth in construction projected.
“Around 40 per cent of that is public sector, so big cuts there could tip the figure into the negative and then a three-year recession becomes a four-year recession.”

Chief economist at the Royal Institution of Chartered Surveyors Simon Rubinsohn said there was nervousness in the industry, especially outside of London.

“It’s really a case of damage limitation,” he said. “The housing minister, although committed to the principle of improving some of the problems in the housing sector, made it clear that there isn’t going to be an awful lot of money around.

“BSF might be affected; there’s a lot of money that was still to come. Private finance initiatives, too - some ministers have talked about the weakness of how the plans have been put together.”

Mr Rubinsohn said that contractors and clients would have to look at additional and alternative ways to fund projects.

“It will be about trying to get private money into the public sector and get money to work as efficiently as possible. The challenge for the Government is to not make the cuts so drastic that they have a negative impact on the private sector.”

As public sector construction investment declines, the increased competition for work will also raise the pressure on contractors to offer better value for money.

Mr Francis said: “A lot of the bigger contractors have been relatively isolated from the recession because of public sector finance, but as that work falls away they will have to move into the type of work that mid-tier contractors do.

“That work has already been falling away and with the added competition it will increase pressure on prices.

“The Government will be looking for more value for money from contractors - it already thinks that it pays comparably more than some other countries in Europe.”

There are also concerns over a potential skills shortage. Mr Rubinsohn said: “We’ve already seen the beginnings of a possible dip in skills in the sector, and although it’s a long way off from becoming a problem, the spending cuts will only contribute to that likelihood.”