Return To Growth Forecast Next Year in Budget – with Industry Comment

TODAY’S BUDGET was announced by the Chancellor of the Exchequer, Jeremy Hunt.

The Chancellor said the Office for Budget Responsibility (OBR) forecasts a return to growth next year. After a 0.2% contraction to the economy this year, growth is forecast at a rate of 1.8% in 2024; 2.5% in 2025; 2.1% in 2026 and 1.9% in 2027.

Growth Forecast

Inflation is forecast by the OBR to drop from 10.7% at end of 2022 to 2.9% by the end of 2023.

Underlying debt is forecast to rise to 93.7% in 2024-25.

After freezing fuel duty for another year, the Chancellor announced his updated Industrial Strategy structured in four ‘pillars’: enterprise, employment, education and everywhere.

Budget Business Tax

For business, the main announcements include confirmation of the rise in Corporation Tax to 25% from April. Businesses with profits under £250,000 will pay tax on profits down to 19%, with profits under £50,000 a year staying in the 19% corporation tax bracket.

Also confirmed were 12 industrial zones that will be allowed to propose initiatives collaborating between local government and research organisations to access £80m.

Capital Investment Allowance will be applied in full immediately to all business investments, worth £9bn a year. OBR expects this measure to increase investment by 3% a year.

The Life Sciences and Creative industries receive an enhanced investment credit of 40%.

The Chancellor also pledged up to £2.5bn for a quantum computing project and a £1m ‘Manchester Prize’ for artificial intelligence research.

New medicine sign offs were promised to become swifter, while banking systems will be strengthened and the Stock Exchange made more attractive.

Barriers to Work

The removal of barriers to work were focused on with staged introduction of free childcare extended to children over nine months’ old and wraparound care to be offered by all primary schools in the next three years.

Disability benefits are being reformed to introduce a sliding scale of in-work benefits. Other unemployment benefits will be sanctioned more stringently. A ‘Returnership’ will be created to train over-50s returning to work.

The lifetime pension allowance will be abolished.

INDUSTRY COMMENT

Can they Deliver?

Noble Francis, Economics Director at the Construction Products Association

Construction Products Association Economics Director, Noble Francis, said: “Jeremy Hunt positioned his Spring Budget today as a plan to remove obstacles to investment, tackle labour shortages, break barriers to work and harness science and technology for growth.

“There were a few positives for the construction industry and wider supply chain with the Chancellor announcing large ambitions of £20 billion for Carbon Capture and Storage, £960 million for low-tax investment zones, £200 million for regeneration projects, £400 million for Levelling Up projects and £200 million for potholes.

“In light of the recently announced delays to HS2, however, the key to the impact of the Budget will be whether government can actually deliver on its announcements. The delays to HS2 announced just before the Budget will hit both infrastructure and economic activity in the near-term and increase the cost of HS2 by billions in the medium-term.

“The CPA welcomes the announcement on full expensing of business investment, which allows 100% of qualifying UK capital expenditure to be written off against taxable profits. This could help spur much needed investment in capital expenditure and green investments for manufacturers.

“We also welcome the government’s announcement that it will launch a call for evidence on the critical issue of ‘nutrient neutrality’, which is currently delaying the delivery of 120,000 new homes. Government has said it will also provide funding to support clearer routes for housing developers to deliver ‘nutrient neutral’ sites. Addressing this critical issue will be crucial for developers and the whole house building supply chain to ensure that more homes can be built each year.”

James Talman, CEO NFRC

Retrofit Relief Regret

James Talman, NFRC CEO, said “Firstly, it is positive that full capital expensing will be made available for the next three years on plant, machinery and IT equipment. This will be of assistance to firms for investment in much-needed improvements, and it is vital that steps are taken to ensure they have the cashflow to do so. We would have liked to see an equally significant commitment to relief on any asset that improves the energy efficiency of a building, such as a new roof—particularly as retrofitting our buildings is a crucial step in meeting the government’s net zero targets.

“It will also be a relief to firms that the Energy Bill Discount Scheme will continue for another year, until 31 March 2024. Many have concerns about cashflow and this will be helpful but not sufficient to resolve the pressures placed on firms by the impacts of a period of high inflation, with businesses paying more for labour and materials as well as energy, and blighted by continued late payment. The government should evaluate what more can be done to reassure businesses that they have the cash available to weather the storm and continue to do their vital work on our homes, schools, offices and factories.’

“Whilst the Chancellor made numerous announcements on getting more people into work, it is not clear that this will resolve gaping skills gaps. Roofing firms report that they are still finding it too difficult to recruit the people they need. Funding for skills needs to be focused on meeting national skills needs, and for construction the government should be ensuring everyone, regardless of where they live in the UK, can access a wide range of high quality construction training and upskilling. The announcement that roofing has been added to the Shortage Occupations List means that contractors will find it easier to access skilled labour from overseas, but in the long term the government needs to show that it is serious about preparing our domestic workforce to meet industry needs.”

Brian Berry, Chief Executive of the Federation of Master Builders

Retrofit Ignored

Brian Berry, Chief Executive of the FMB, said, “It was disappointing that measures to improve the energy efficiency of our homes didn’t feature in this Budget. It is one of the most pressing issues and could result in a huge boost in jobs and economic activity at the local level. We had seen small measures rolled out in the last Budget and had hoped the Government would embrace retrofit as a major long-term infrastructure project but this opportunity has been lost. Keeping the energy price guarantee is a big win for homeowners’ pockets for now, but ultimately money will keep leaking out of our draughty, inefficient homes until a sustained retrofit programme gets political backing.”

Skills Training

NBS CEO Russell Haworth, said, “The increase in corporation tax to 25% will no doubt be unpopular in a number of sectors, however, this could be an opportunity to boost UK investment if the Government thinks strategically when it comes to capital allowances.

“Targeted incentives are needed to tackle chronic skills shortages in the labour market, starting with substantial tax breaks for the technology sector. While the priority is to fill job vacancies and attract new talent by opening the UK’s doors to more foreign workers, longer term the Chancellor needs to prioritise inward investment by incentivising skills training and education.

“Offering tax breaks for tech businesses looking to upskill their workforce in deprived areas will help tackle UK productivity and competitiveness, delivering a boost to the economy. This could see innovation continue to accelerate right across the construction sector as firms commit to investing in new technologies and sustainable solutions.”

Positive Support

Paul Fakley, Engagement Director at British Safety Council, said:

Paul Fakley, Policy and Engagement Director, British Safety Council

“Well over a million people in the UK say they would like to work but are currently ‘economically inactive’, which is why actions taken to reduce barriers which prevent many people staying in or returning to work are welcome. This includes better support and incentives for disabled people, those with long-term health conditions, the over 50s and parents of young children.

“We know the biggest cause of ill-health or absence from work is stress or poor mental health, followed by muscular-skeletal disorders, so the extra money and support announced here is positive, as is funding to help prevent suicide. There was also some extra funding announced for SMEs to provide occupational health support.

“The cost of living will continue to have a big impact on people’s wellbeing, despite the projected fall in inflation this year. Some employers can’t match this with pay increases, but there is much they can still do to support their staff, through financial awareness, flexible working and other incentives like vouchers and rewards.

“We know that good work is good for our mental and physical health, and employers have a vital role in improving the wellbeing of their staff both in and outside of work, which is why we are calling on the Government to go further and develop a National Wellbeing Strategy.”

Beacon of Hope in Underwhelming Budget

Dr David Crosthwaite, Head of Consultancy
Building Cost Information Services

Dr David Crosthwaite, Head of Consultancy Services at the Building Cost Information Service (BCIS), said, “The announcement that five construction occupations will be placed on the Shortage Occupation List is a beacon of hope in an otherwise underwhelming Spring Budget, that lacks a clear industrial strategy to encourage construction investment and stimulate economic growth.

“The announcement of measures to boost the number of Ukrainians entering the labour market and returnerships, targeted at the over 50s – will do little to replenish construction’s dwindling workforce. We need a more concerted approach that prioritises investment in apprenticeships and training, to tackle ingrained labour shortages.

“BCIS welcomes the continued commitment to capital investment programmes. But the fact that many of these have been postponed – such as parts of HS2 and Lower Thames Crossing – will inevitably push up the price of these projects in the long term, due to their budgets being eroded by inflation.

“The government’s commitment to public sector investment is encouraging and we look forward to the publication of the National Infrastructure and Construction Pipeline later this year, to see how much of the £600 billion is invested in construction.”

Important Step

Tim Balcon, CITB CEO

Tim Balcon, CITB Chief Executive, said:“The inclusion of in-demand construction occupations on the Shortage Occupation List is an important step in bridging the current skills gap identified in CITB’s recent Construction Skills Network report, as construction rebounds from the pandemic.

“We will continue to work in partnership with government and the construction industry to grow the skills of the domestic construction workforce and create a dynamic migration system to ensure industry is able to deliver its pipeline of work.

“We also look forward to working with government on returnership, following the Chancellor’s announcement on Wednesday.”

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