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Osborne – Sleight of Hand or Masterful Conjurer?

Standfirst            Budget goes some way with encouraging building sector and investment but no cut in VAT reports Michael Gannon



It really doesn’t matter what political party is in power, the Budget is usually a matter of moving money from one hand to another without the electorate noticing. It’s a ploy that works less and less these days, when there is little spare money to hand to one sector or group.


However, on this occasion, Chancellor George Osborne appears to have struck a more favourable response from those operating in the building, manufacturing and small to medium businesses sectors. This is no mean feat, given that he ignored the perennial calls for lowering VAT to 5% on building works as well as the well reported flopping of the Green Deal. So, why has it seemed to have ticked some boxes this time round?


For example, the Federation of Master Builders (FMB) regarded the announcement of a £500 million Builders Finance Fund for small house builders as providing a major boost for housing supply. “Access to finance is a major stumbling block for viable SME house builders, so this government intervention is much needed as many major banks are still reluctant to lend for small residential developments,” stated Brian Berry, Chief Executive, FMB. “This additional support will provide the necessary finance to small house builders and help increase the overall supply of new housing through a well functioning SME sector.”


It wasn’t all good news as far as the FMB was concerned and Berry bemoaned the Budget’s failure to deliver on a VAT reduction to 5% for existing homes on renovation and repair.  “It is the simplest and most effective way to empower home owners to refurbish their properties to make them more energy efficient and cheaper to run,” Berry argued. “This cut in VAT would provide a £15 billion economic stimulus over five years and up to 95,000 jobs which is much needed while our economy is still in recovery.”


Leaving the VAT question to one side (which seems to be something of a lost cause at the moment) the favourable reaction continued with the market analyser, Glenigan. “Over the last two years it has been the larger housebuilders that have had the resources to bring forward new build projects as the market has improved,” stated Allan Wilé, Economics Director, Glenigan. “Therefore, it is encouraging that the government is creating a £500 million Builders Finance Fund to help SMEs that have struggled to secure bank lending. This is predicted to unlock 15,000 plots that have been stalled due to difficulty in accessing finance.”


The good news for Osborne continued with the Construction Products Association (CPA) chipping in with its thoughts. It felt that the government was recognising the need to make the UK an attractive place for manufacturing investment, and that it was important that he was now supporting ‘energy intensive’ manufacturers with a £7 billion package, including the cap on the carbon price floor until the end of the decade, along with new compensation for the rising costs of the Renewable Obligation and the Feed-In Tariffs. But not forgetting the smaller businesses, Diana Montgomery, CPA’s Chief Executive said that “we were pleased by plans – which exceed our recommendations – to double the annual investment allowance to £500,000 and extend it to the end of 2015, benefiting millions of SMEs”.


But Montgomery added a caveat to this glowing report when she criticised what was “starkly missing”. She argued that there was as yet little if any indication that energy efficiency was being treated seriously enough in terms of the future of the UK’s built environment. “We continue to press the government to recognise the tremendous potential for improving the housing and commercial building stock, and thereby not only back British builders and manufacturers but also improve the cost of living for home owners.”


When it came to the Chancellor’s measures for to help manufacturers, Osborne appears to have received the thumbs up. These were not there to be just of benefit to the big boys, a point made by the British Plastics Federation’s (BPF) retiring Director General, Peter Davis. His assessment of the performance and change of policy focused on the positive. “This is a good Budget for manufacturing. In the BPF led Seven Associations letter to the Chancellor in February, we asked him to extend the £250,000 tax free allowance to upgrade equipment and expand production. In fact he has doubled it to £500,000 until December 2015. This will boost investment and productivity in the plastics’ industry.”


It is not often that the Chancellor of the Exchequer get a positive response from trade associations and other bodies in the construction industry, so in the cause of balance, here is a more critical look at what occurred in the Budget. Property and construction consultancy, Tuffin Ferraby Taylor (TFT) has warned that the government’s measures to stimulate the construction industry focus too much on boosting demand for new homes and pay little attention to the current skills shortages and long delivery lead times of basic building materials. It argues that continued measures to stimulate demand, coupled with constrained supply risks pushing up house prices further.


“Supply constraints arise from the fall out of the downturn,” contended David Mann, Executive Partner, TFT. “There is a skills shortage owing to retrenched skilled workers being permanently lost to the sector, who have not yet been replaced. This is combined with a backlog of planning applications arising from slimmed down local authority planning department. Added to this, are shortages and long delivery lead times of materials such as bricks and tiles as manufacturers permanently closed or mothballed plants across Europe and the UK. The increased demand and lack of supply of these basic building materials is pushing the cost of construction upwards too.”


At the time of going to press, we were awaiting responses from the Glass and Glazing Federation and the Council for Aluminium in Building but hope to carry their comments next week.

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