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Construction inflation set to soar

Soaring construction inflation could see the gap between actual construction costs and Treasury expectations widen to £8bn by 2015, the ICE has warned.
Research carried out for the ICE by the University of Warwick Institute for Employment Research shows that last year this gap had already reached £1.8bn.

The figures are presented in the ICE's annual State of the Nation report, published yesterday.

The ICE fears that if left unchecked, the gap between construction inflation and Treasury forecasts will threaten vital investment.

This is because the government, which is by far the biggest infrastructure client, only allows for cost increases in line with Consumer Price Index (CPI) inflation in its future spending plans.

This inflation is being fuelled by several factors according to the ICE report.

They include "poor coordination of public procurement" leading to publicly funded projects "competing with each other for resources."

This situation then "increases the cost to the taxpayer and introduces a boom-bust cycle for the delivery of infrastructure, making it very difficult for companies to make long-term investment in skills and innovation."

This cycle looks set to continue in 2008 with the ICE predicting "very busy periods followed by dramatic slowdowns."

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