How Can The Government Stimulate UK Construction?

At the end of October, David Cameron wrote in the Financial Times that the government intends to focus on infrastructure projects around the UK...

At the end of October, David Cameron wrote in the Financial Times that the government intends to focus on infrastructure projects around the UK and stated: "In terms of job creation today, getting construction projects off the ground is critical." So, what are Whitehall's proposals to help boost the country's building industry and, perhaps more importantly, how effective are they likely to be? It has been reported that George Osborne is due to announce a plan worth GBP 50 billion focusing on housing and infrastructure projects, with the intention that the private sector will take the lead.

Full details of the scheme are expected to be unveiled in the chancellor's November 29th autumn statement, but it certainly signals intent from the government to help get the construction industry back on firmer ground. This may help allay concerns from some quarters that public spending cuts are holding back the sector's recovery. Brian Berry, director of external affairs at the Federation of Master Builders (FMB), recently commented that the "lack of confidence in [the] government's public spending" coupled with fears over the state of the housing market are dragging sentiment lower among those in the industry. Time will tell whether Mr Osborne's proposed investment in such projects will help boost the sector sufficiently.

One area of government policy where Mr Berry is more upbeat, however, is the Green Deal. The programme to offer energy-efficient retrofitting services to households at no upfront cost will be launched in 2012. The aim is to encourage private firms to carry out the work, with the money for the changes recouped from consumers via instalments on utility bills. The FMB representative explained that the target to retrofit 14 million homes by 2020 is "ambitious". "That, potentially, is a huge market in terms of retrofitting, which offers great opportunities for the construction industry," Mr Berry commented.

He added that it may be slow to take off in 2012, but is optimistic that the scheme will grow as time moves on - and with it the construction industry. He concluded: "The ray of light is in terms of going green." Despite this positive outlook on the Green Deal, other areas of policy involving regeneration are not being viewed so favourably by experts. A statement published by the Communities and Local Government (CLG) Committee at the start of November criticised the reduction in funding to be made available for regeneration projects.

Chair of the CLG Committee Clive Betts MP asserted that having made cuts in this area, the government has "produced no adequate 'strategy' for regeneration sufficient to tackle the deep-seated problems faced by our most deprived communities". He voiced concern that the measures to promote economic growth outlined by politicians "will not attract sufficient investment for renewal into those communities where the market has failed". Mr Betts also criticised the government for cancelling the Housing Market Renewal Pathfinder scheme, which resulted in some areas in the north of England and the Midlands being straddled with boarded-up homes and no funding to carry out the planned renovation of the properties.

In its recommendations, the CLG Committee urged Whitehall to develop a national regeneration strategy, drawing on past experience of both successes and failures in this area. It cited Hulme in Manchester as a useful model to evaluate, after the regeneration scheme here "transformed a deprived area into a thriving community".

House building is another sector where the government needs to take action, the FMB has claimed. A survey published by the organisation this week predicted that demand for new homes will outstrip supply by more than half a million properties by 2015. One of the biggest issues faced by house builders is a lack of finance and restricted lending from banks, particularly to small firms, Mr Berry revealed.

He stressed that the government needs to put pressure on financial institutions to increase lending to construction firms, especially those engaged in residential developments, as well as finding a way to "reduce the financial burdens on house builders". Mr Berry added that uncertainty over the planning system and the proposed reforms as part of the National Planning Policy Framework is also stifling the industry.

- Friday 18 November 2011

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