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Chancellor Jeremy Hunt unveiled the government’s ‘Budget for Long Term Growth’ yesterday (March 6th 2024), promising lower taxes, better public services and more investment. How does all of this affect the construction industry though? Read the responses from industry leaders below.
FMB
Budget is a missed opportunity to build, says FMB
The Budget was a missed opportunity to build new homes and improve the ones we have, to make them more energy efficient, which would have stimulated economic growth across the county, says the Federation of Master Builders (FMB).
Brian Berry Chief Executive of the FMB, said; “The Budget could have been an opportunity to kickstart the housing market with house building rates stagnant, but the Chancellor has done nothing. It was also disappointing there were no new measures to help homeowners improve the energy efficiency of their homes. This was an opportunity to reform the planning system, boost local authority planning teams’ capacities, and review the financial burdens the planning system places on smaller house builders, but again these much-needed reforms have been overlooked.
Berry continued : “The Chancellor could have helped to close the construction skills gap ensuring the UK has the workers with the green skills needed to retrofit the UK’s homes, and provided support to help small builders deal with the administrative burden of training apprentices. All these areas could have grown the economy, instead builders got left behind – this Budget was a missed opportunity.”
Berry concluded: “The Chancellor’s announcement to increase the VAT threshold for small businesses from £85,000 to £90,000 is welcome but the rate has been frozen for seven years so in real terms it makes little difference.”
NFB
Spring Budget is back to finance and not strategy
While the 2023 Autumn Statement saw the Chancellor, the Rt Hon Jeremy Hunt, stray into enabling growth through policy strategy and support, the Spring Budget 2024 was more traditional, with the ambition of growth coming through taxation, rather than business enablement.
Richard Beresford, Chief Executive of the National Federation of Builders (NFB), said:
“The Spring Budget offers opportunities to offset costs, invest in innovations and see paths to growth but apart from a strong hand played on energy, it doesn’t enable growth in practice. With the lack of firm planning and procurement reforms, and retrofit entirely left out, there is disquiet that the major growth opportunities will never be realised by this government.”
Within the full budget release, the Chancellor identified that 2024 was the ‘year of the SME’ and while reduced taxation, investment allowance and investment opportunity will be welcomed, the dire state of planning policy, lack of supply ambition and numerous new taxes will, and is already seeing, SME housebuilders and regional contractors exit the sector or go out of business.
Indigo Group
Indigo Group reaction to the Spring Budget Statement: Chancellor must go much further to help construction companies survive
Indigo Group, which helps construction companies manage their tax and workforce compliance issues, has reacted to Jeremy Hunt’s Spring Budget statement.
While welcoming the tax breaks and incentives which will help all businesses in a time of recession, Ian Cole-Wilkins, CEO of Indigo, has also made it clear that the Chancellor has not gone far enough to specifically help the tens of thousands of construction companies struggling financially. According to the recent Begbies Traynor “Red Flag Alert” report[1], the construction sector has the highest percentage of companies in financial distress.
“Our concerns, which the Chancellor should have done more to address, include the impact of Domestic Reverse Charge VAT, persistent late payment cycles, the lack of credit insurance, escalating cost pressures, project planning delays and general policy stagnation,” says Ian.
“The construction sector, a vital engine of the UK economy, faces unprecedented challenges. A recent report by the Construction Industry Training Board (CITB) highlights the sector’s financial distress, with a significant number of companies struggling to maintain liquidity and operational efficiency due to the 20% cash flow reduction caused by the Domestic Reverse Charge VAT. This policy, aimed at combating VAT fraud, inadvertently places a hefty burden on construction businesses, squeezing their cash flows and hampering their ability to invest and grow. We would have liked to have seen serious reform in this area.”
Relatively high interest rates and higher levels of inflation than we have seen for many years have further exacerbated the financial strain on construction companies, increasing the cost of borrowing. This issue is compounded by the industry’s notorious late and slow payment cycles, which disrupt cash flow and operational planning. The Federation of Master Builders’ latest report reveals that delayed payments are causing significant financial instability, with many firms facing the risk of closure.
“Although previous budget statements have attempted to tackle late payment, we know from our customers that payment terms have in fact got longer, not shorter,” says Ian. “This has a major impact on the survival rates of contracting companies and we will see more casualties if it continues. The lack of credit insurance emerges as another critical concern, compounding the late payment crisis, leaving businesses exposed to the risk of non-payment and hindering their ability to secure new projects. This issue is particularly pressing in the current economic climate, where confidence is key to maintaining business continuity and fostering growth.”
Although the Chancellor has announced planning reform in previous budget statements, Indigo would like to see even more reform that hastens the process and releases land on which to build the homes the UK population badly needs.
“Policy stagnation and a sense of isolation from pivotal government decision-making processes have left many in the construction industry feeling overlooked,” continues Ian. “The sector requires dynamic and responsive policies that reflect its evolving needs and challenges, particularly in the face of global uncertainties and economic shifts. The Chancellor could be doing a lot more to help those construction companies which contribute so much to our economy as a whole.”
Indigo Group has resources and guides on its website for contractors and subcontractors covering worker engagement, outsourced payroll, recruitment and compliance. For more information visit:
https://www.indigogroupservices.com/
Blend Property Finance
Yann Murciano, CEO at Blend: Where was the boost in housing supply…?
“As a development finance lender working closely with SME property developers trying to channel much-needed funding into new housing, we were very disappointed to see that in today’s Spring Budget the government missed a golden opportunity to introduce measures that tackle the supply side of the property market. Failure to support the supply of housing with well-targeted tax incentives will risk further deepening the affordability gap. With a raging housing crisis, it was disappointing to see the government ignore the critical issue of housing and instead focus on less relevant themes such as freezing the alcohol duty.
The past few months have seen statistics pointing to a more positive outlook for the UK property market. But recovering demand without addressing the shortage of supply risks creating a ticking time bomb by further inflating prices in the medium to long term and pricing out first-time buyers.
According to Savills’ latest English Housing Supply Update, delivery of new homes was 9% lower in 2023 than in 2022, with annual completions falling to 231,100 homes. This marks the fifth consecutive quarter of falling annual delivery. Meanwhile Office for National Statistics figures for construction output for housebuilding were at 82% of 2019 levels in November 2023, suggesting an increase in delivery in the near-term is unlikely. Lack of funding, especially among SME property developers and small construction companies, is a key reason for this and today only 12% of new build homes are built by small builders, down from 40% in 1988.
We had expected the Spring Budget to contain some targeted measure to support the country’s housebuilding industry.”
BCIS
Dr David Crosthwaite, chief economist, BCIS
The Spring Budget has continued the trend of fiscal events being distinctly underwhelming for the construction industry. There was very little in it that would give confidence to investors or to firms who are operating in still very challenging conditions.
The Chancellor says he has a plan for ‘sustainable, long-term growth’ but we’re simply not seeing evidence of that in the announced policies and investment.
Despite construction being a key lever of economic growth via the multiplier effect, there was no increase in spending announced.
The repeated commitments to housebuilding were limited to only certain areas and schemes and there remain many questions over how the government intends to increase efficiencies in the planning process.
Construction Equipment Association
Nick Ground, Director of the CEA (Construction Equipment Association) response to the spring budget
In what was inevitably a challenging budget announcement during an election period, there’s some potential positive news for construction equipment users.
CEA Director, Nick Ground, commented, “What can be welcomed is the fuel duty freeze after the unwelcome extra costs associated with the banning of rebated red diesel for construction purposes in 2022.
The much-trailed reduction in employees’ national insurance will be a boost for working families’ household budgets and may reduce some of the pressure on employers for wage increases. Employer’s national insurance contributions remain untouched and are still a significant tax on employment.”
Chartered Institute of Plumbing and Heating Engineering
Kevin Wellman, chief executive officer at the Chartered Institute of Plumbing and Heating Engineering reacts to the government’s announcement of a cut in National Insurance.
“Many will be pleased to hear the Government’s announcement of a cut to National Insurance today. However, these cuts do not go far enough.
“The rising cost of fuel and materials has created the perfect storm for many plumbers and installers, in particular sole traders who have struggled to successfully pass on rising costs due to customers struggling themselves, and even disputing payment. In the heating and plumbing industry, installers have no choice but to make hefty upfront payments for products, such as boilers, meaning they are constantly being left out of pocket.
“This has had a major impact on cash flow, affecting profits and take-home pay. While there are services that can support plumbers in requesting the money they are owed, this can be a timely and costly matter.
“The Government talks of a positive ‘Payment Culture’ but it needs to put its money where its mouth and ensure that consumers can have the work done that they need without plumbing and heating professionals footing the bill.”
The Housing Forum
The Housing Forum responds to the Spring Budget 2024
It was disappointing not to see any significant new funding announced for housing in today’s budget. The housing sector has been struggling with market downturn and a raft of new regulations, making it more expensive and difficult to build new homes. The government is on course to miss its own target of 300,000 new homes a year, and there was nothing today to suggest any plan to remedy this situation.
