Industry chiefs have welcomed chancellor Alistair Darling’s efforts to kick start the economy by bringing forward £3bn in infrastructure spending.
But they warned that more had to be done to prevent shortages of bank finance undermining small contractors and scuppering private finance initiative deals.
In what was considered to be the most important pre-Budget report for more than a decade, Darling pledged to invest £20bn in the UK economy. Measures include a cut in VAT to 15% for 13 months and moves to bring £3bn of key infrastructure projects forward from 2010/11.
Of the £3bn, £2bn is earmarked for schools, hospitals and housing and £1bn for transport. In addition, contractors working on major infrastructure projects such as the M25 widening and London 2012 Olympics are being asked to accelerate programmes.
In what could be a momentous week for construction, further good news is expected in London tomorrow with the confirmation of Crossrail’s £16bn funding package.
And in Manchester, a “yes” vote to congestion charging in the next two weeks would unlock a further £3bn in transport spending.
“This is really, really great. It’s about confidence and all this gives confi dence that government is behind and pushing on infrastructure projects,” said Capita Symonds managing director Jonanthan Goring.
Scott Wilson chairman Geoff French said Darling’s announcement was “very encouraging”. “Road schemes have been pushed back and if they now accelerate them, that would have a positive eff ect on our workloads which would be very welcome. If the schemes come forward it will be good news for next year. “The concept was right, the issue remains whether the scale or period of work will be large enough or long enough to deal with the recession.”
Costain group strategy director Stephen Wells agreed. “We are in extraordinary times and if this is a way of investing in infrastructure it seems to make sense,” he said. “Crossrail is adding just over 1% to GDP, and if you look at countries like China they are all investing in infrastructure to improve their economies.”
ICE director general Tom Foulkes agreed: “Crossrail, for example, costs £16bn whilst the returns are calculated to be £66bn and there are other projects which could produce similar returns. The fast-tracking of such projects would also provide invaluable assurance to the British industry.”
Despite the optimism about public spending, there is still concern about banking sector’s willingness to step up lending. Much of the upcoming £2bn schools and hospitals programme relies on bank fi nance. “The government has got to keep leaning on the banks to make sure the money gets out. They have got to unlock the liquidity issue,” said Goring.
Civil Engineering Contractors Association director Rosemary Beales agreed but also expressed concern about the impact of the banking crisis on smaller contractors.
There is a fear that they will struggle to keep afloat if banks tighten lending terms. “The economic downturn has not only aff ected the civils’ workload. Contractors of all sizes are experiencing cashfl ow problems, seeing work in hand reduced and having payment terms stretched. “Bringing forward infrastructure investment is welcome if it can be delivered quickly and the work offers real opportunity for struggling companies,” said Beales. “The questions are whether the package can be implemented quickly enough to save firms currently fighting for their lives and whether banks will follow the government’s guidance and provide aff ordable credit to those companies struggling. “Only when these are answered will we able to judge if the government has taken adequate action,” she said.
Association for Consultancy & Engineering chief executive Nelson Ogunshakin said more needed to be done to get banks lending again. “We want the government to commit to encourage the recapitalised financial institutions to use part of their bail-out funds to support SME firms and large professional consultancy, engineering and contracting firms during this diffi cult time to ease the pressure on cashflow and mitigate potential insolvency within the sector. They are feeling the pain now and we need action now.”