Autumn statement: The big takeways for construction plus reaction

Philip Hammond

Housing and construction organisations have reacted positively to the chancellor’s Autumn Statement which has set out new funding to boost affordable housing and infrastructure as part of a bid to increase productivity.

The money forms part of a £23bn National Productivity Investment Fund to be spent on innovation and infrastructure over the next five years.

Among the new spending pledges was £2.3bn for civil engineering infrastructure work to pave the way for 100,000 new homes and a further £1.4bn will be provided to deliver 40,000 new affordable homes.

There were also pledges to reboot PF2 and a new treasury-backed panel to oversee the delivery of new infrastructure.

Philip Hammond said that the UK economy had shown resilience since the referendum, growing 2.3% in the year to Q3 2016. But he added that we were going into a considerable period of uncertainty and GDP growth was likely to slow to 1.4% in 2017 and then to recover to 1.7% in 2018 and 2.1% in 2019 and 2020.

National Productivity Investment Fund (£m)

Allan Wilen, chief economist at Glenigan, said: “The extra resources announced by the chancellor in today’s Autumn Statement for social housing and infrastructure investment will be welcomed by the construction industry. The promised additional funding should help to address the need for more affordable homes and tackle the shortfalls in the UK’s transport infrastructure. It will also help to offset the impact of faltering in private sector investment on industry workloads.

“Social housing providers already have a strong development pipeline, but the realisation of planned projects has been frustrated by recent changes in government policy. It is vital that the measures announced in today’s statement are implemented as soon as possible to enable projects to be quickly brought to site.”

However, Richard Threlfall, head of infrastructure, building and construction at KPMG UK, was less upbeat: “The chancellor was proud to explain that it represents an increase on the current 0.8. Whilst that may be true, it is still low by international standards, and the continued focus on economic infrastructure in isolation, ignoring both social infrastructure and housing, is another missed opportunity to grasp the bigger picture.

“Overall, the UK spends about 2.7% of GDP on infrastructure today. Canada spends more than 4% and China at least double that.

“Today’s Autumn Statement felt fairly business-as-usual with lots of small initiatives, all welcome, but nothing transformational.”

John Hicks, director and head of government & public sector, Aecom, agreed: “As a man renowned for both detail and caution in delivery, the lack of fanfare in chancellor Hammond’s final Autumn Statement comes as no surprise. In many ways it was more a prelude to the next Budget. Examination of the detail will be necessary to see what can be done to enhance productivity and economic gain.

“The new £23bn National Productivity Investment Fund and the £2.3bn for a new Housing Infrastructure Fund are welcome boosts to the UK economy, while the £390m investment in future transport technology holds promise.

“The missing component in today’s Autumn Statement was a new pipeline of transparent, viable projects for much-heralded high-value investment, which the chancellor wants linked to productivity in order to secure public funding.”

Mike Putnam, Skanska UK’s President and CEO, said: “Clearly, the government’s pledge to focus investment on improving the country’s infrastructure is good news for the construction sector and good for employment. But the industry also faces some challenges if it is to deliver on the government’s promises.

“We have to improve skills training, recruit people with the skills relevant to new technologies and work hard to build a much more diverse and inclusive workforce. Only by doing these things will we have the people with the capabilities required to deliver on the government’s commitments as effectively as it rightly expects.”

Extra spending for housing and infrastucture is wrapped up in a bigger pot earmarked for increasing productivity. This also includes research and development and economic infrastructure including 5G. This builds on existing plans for major investment over this Parliament.

The NPIF will take total spending in these areas to £170bn over the period from 2017-18 to 2021-22.

Nick Baveystock, director general of the Institution of Civil Engineers, commented: “The chancellor is right to make infrastructure’s ability to enable economic growth and thriving communities the main feature of the Autumn Statement.

“Infrastructure is the cornerstone of strong and growing economy and the way to generate prosperity for our everyday way of lives – whether it is through housing, transport or 5G broadband, it transforms lives and strengthens communities.”

The Autumn Statement in brief

Treasury-backed infrastructure bonds

The Autumn Statement recommits to the UK Guarantees Scheme, and commits to extend it beyond the life of this parliament, to at least 2026. The UK Guarantees Scheme has to date issued nine guarantees that have delivered £1.8bn of Treasury-backed infrastructure bonds and loans, supporting more than £4bn worth of investment. The statement says that the government is working with industry to understand the demand for construction-only guarantees. 

Private Finance 2 (PF2)

The statement says that government will develop a new pipeline of projects that are suitable for delivery through the PF2 Public Private Partnership scheme. As yet only a handful of projects have been signed off under PF2. It says that a list of projects to make up the initial pipeline, covering both economic and social infrastructure, will be set out in early 2017.

Infrastructure performance

The chief secretary to the Treasury will chair a new ministerial group that will oversee the delivery of priority infrastructure projects. The Infrastructure and Projects Authority will lead a review to identify ways government, working with industry, can improve the quality, cost and performance of UK infrastructure. The review will report in summer 2017. 

Grammar school expansion 

In what will be a controversial move the government has earmarked £60m per annum until 2020/2021 for the expansion of grammar schools. 

Housing

In a wide-ranging set of measures around housing, the chancellor pledged:

• To ban upfront fees charged by letting agents in England “as soon as possible”.
• £2.3bn Housing Infrastructure Fund to help provide 100,000 new homes in high-demand areas.
• £1.4bn to deliver 40,000 extra affordable homes.
• Government grants will be relaxed to allow housing providers to deliver a wider range of housing types.
• London will also receive £3.15bn as its share of national affordable housing funding to deliver a commitment for more than 90,000 affordable homes.
• There is £250m earmarked for covering the costs of the extended pilot for the Right to Buy for housing association tenants.

David Orr, chief executive at the National Housing Federation, said: “The government is absolutely right to see housing infrastructure as critical to improving the nation’s productivity. Housing associations are ready to step up and deliver the homes people in this country need.

“We have been calling on the government to relax restrictions on existing affordable housing funding, so we are delighted with this announcement.

“Increased flexibility and extra investment will give housing associations the freedom and confidence to build even more affordable homes, including for rent, more quickly across the country.”

John Tutte, chief executive officer at Redrow, commented: “The announcement of the £2.3bn Housing Infrastructure Fund to overcome local objections and unlock 100,000 new homes in areas of high demand is very welcomed. To be successful, new communities must be supported by improvements to local infrastructure and services and these proposals recognise this.

Duncan Field, UK head of planning, global law firm Norton Rose Fulbright, commented: “We will have to wait a little longer for the detail of the Housing White Paper which promises a radical shake-up of the housing market, but already there is a much more realistic and welcome message coming from government about the need for a mix of housing types to meet the needs of people in different circumstances and at different stages of their lives, rather than an unhealthy obsession with home ownership.

“In London, all eyes will be on the promised exploration of further devolution of powers in the coming months.” 

Transport/infrastructure/regions

Hammond also confirmed another £1.1bn to be spent on local transport schemes in England and £220m for improving pinch points on the strategic road network.

In the longer term he said infrastructure spending would rise to between 1-1.2% of GDP by 2020 compared to the current rate of 0.8%.

Money from the National productivity infrastructure would include funding for:

• £1.1bn extra investment in English local transport networks;
• £220m to reduce traffic pinch points;
• £23bn to be spent on innovation and infrastructure over five years;
• £2bn per year by 2020 for research and development funding;
• £110m for East West Rail and commitment to deliver Oxford to Cambridge Expressway;
• More than £1bn for digital infrastructure and 100% business rates relief on new fibre infrastructure;
• £1.8bn from Local Growth Fund to English regions;
• £7.6m for repairs to Wentworth Woodhouse, near Rotherham, said to be inspiration for Pemberley in Jane Austen’s Pride and Prejudice.

Chris Temple, PwC’s UK engineering and construction leader, said: “The chancellor’s commitment to allocate £1bn to small ‘shovel-ready’ schemes like local road improvements is a much-needed and welcome move.

“Today’s statement recognises the need for a variety of projects going forward – not only a handful of high profile, multi-billion pound mega projects that will deliver benefits in years and decades to come, but also a plethora of smaller schemes dispersed around the country which can be completed and deliver benefits to the general public much more quickly. However, this represents only one stage on the UK’s long journey to achieve an infrastructure base fit for the 21st century.

“It’s clear that we now have an administration that’s serious about tackling the UK’s long-standing infrastructure challenges and recognises the link to increased productivity and economic growth. The creation of the National Infrastructure Commission and Infrastructure & Projects Authority point to a renewed readiness both to get to a firm grip on the nation’s infrastructure needs, and to ensure the wherewithal is in place to meet those needs effectively and efficiently.

“However, if the government’s laudable ambitions for the UK’s infrastructure base are to be realised, the real hard work may be only just be beginning, particularly in respect of the skills agenda and creating a stable policy environment allowing those involved in infrastructure to invest for the future.”

Glenigan’s Alan Wilen said: “The provision of an additional £1.3bn of additional funds for local and national road projects should help Highways England and councils to accelerate small scale improvements to address ‘pinch points’ in the road network.

“These schemes can potentially help tackle congestion and improve the UK’s competitive position. Glenigan data reveals a firm pipeline of projects that have cleared the planning hurdles and could potentially be quickly brought on to site. The government’s commitment to supporting a sustained increase in investment in built environment is also encouraging.”

His first Autumn Statement will be his last

Hammond also confirmed that this would be the last Autumn Statement with the main Budget moving to the Autumn outlining only one set of major fiscal policy changes a year.