Autumn Statement 2012

Special Report

December 2012Prepared by Glenigan

This report is copyrighted. Information contained herein should not, in whole or part, be published, reproduced or referred to without prior approval. Users may download and print extracts of content from this report for their own personal and non-commercial use only. Brief excerpts may be used, provided full accreditation is given to Glenigan. Republication or redistribution of Glenigan content is expressly prohibited without the prior written consent of Glenigan.

Disclaimer: This report is for general information purposes only. It should not be relied upon as a basis for entering into transactions without seeking specific, qualified, professional advice. While facts have been rigorously checked, Glenigan can take no responsibility for any damage or loss suffered as a result of any inadvertent inaccuracy within this report.

Glenigan December 2012

2 www.glenigan.com

Autumn Statement - A Special Glenigan Report December 2012

Established in 1973, Glenigan currently invests £3.1million and makes over a million research telephone calls per year to provide details on every construction project in the UK. This enables us to provide the most up-to-date and comprehensive construction sales leads and analysis, to help companies win new business.

We also have exclusive partnerships with key industry associations such as the Builders’ Conference and the Building Research Establishment (BRE), enabling us to offer project data that’s not available elsewhere in the market.

Glenigan’s detailed insight is used across all levels of our customers’ businesses. Different departments have much to gain from using our industry knowledge and product features to deliver results for their specific job role.

SwitchboardPhone +44 (0)1202 786700Fax +44 (0)1202 316680info@glenigan.com

Subscription SalesPhone 0800 373 771info@glenigan.com

For further information, visit glenigan.com or contact us on the details below.

Address5th Floor, 80 Holdenhurst RoadBournemouth, BH8 8AQ

Account ManagementPhone 0870 443 5373accountmanagement@glenigan.com

TA

RG

ET L

ISTS

MARKET AN

ALY

SIS

COMMUNICATION MANAGEMENT

MArketing

RE

LATION

SHIP BUILDING INDUSTRY IN

TELL

IGE

NC

E

SAleS

LEAD

GEN

ERATION PIPELINE MANAGEM

ENT

BE

SP

OKE REPORTING INDUSTRY FOREC

AS

TIN

G

MAnAgeMent

TR

END

TR

ACKING COMPETITOR AN

ALYSIS

The Chancellor’s Autumn Statement provides some specific good news for the construction industry. In particular, the Government is to squeeze current spending, investing the released funds in new education, science and transport programmes. the Private Finance initiative has also been re-launched as PF2, with education again being a prime beneficiary via the £2.4 billion Priority School Building Programme.

However, the official OBR forecast for weak economic growth in 2013 and 2014 indicates that the anticipated recovery in private sector construction activity will remain constrained over the next two years.

The long awaited re-launch of the Private Finance Initiative is welcome, but it is vital that delayed projects are now quickly brought to financial close. The Government’s decision to reallocate funds if projects have not selected a preferred bidder within 18 months may help to concentrate minds, but also is also an indictment on how long it has often taken to deliver such projects to site in the past.

Similarly, the re-direction of £5 billion of public sector efficiency savings towards infrastructure, science, further education and school projects can act as an important catalyst for wider economic growth if supported projects are quick to start on site. Alongside some major projects the announced funding package includes smaller priority projects that should be ‘quick wins’, being faster to bring to site and delivering earlier benefits such as tackling traffic bottlenecks and unlocking private sector investment.

The importance of prompt action is underlined by the official OBR forecasts for weak economic growth in 2013 and 2014, indicating that the anticipated recovery in private sector construction activity will remain constrained over the next two years.

As a result the Office for Budgetary Responsibility (OBR) has cut its forecast for growth in the economy over 2012 from 0.8% in March to -0.1% today. Growth in 2013 has been cut to 1.2% from 2% from the March forecast. The main reasons cited for the worse than expected performance are the Eurozone crisis and the global uncertainty that has remained as a result.

The OBR also predicts that higher inflation will continue for longer; March’s forecast saw inflation rising to meet target level in 2014 after dipping below 2% in 2013. Inflation will now remain above target through 2013 and 2014 and will fall back to the target level of 2% by 2015.

3 www.glenigan.com

Autumn Statement - A Special Glenigan Report December 2012

Economic Summary

GDP growth forecasts for this year and next have been downgraded since last March’s Budget statement. The export led recovery that was seen as the country’s saviour the end of last year, failed to emerge as problems of the Eurozone persisted. Fixed investment, especially from the public sector has also been much weaker this year than was expected in March.

GDP

Household Consumption

Fixed investment

Housing Investment

House prices

Inflation

2.8

2.9

8.7

9.7

4.0

2.0

2.7

2.4

8.7

10.0

4.0

2.0

2.3

1.8

8.5

10.0

3.8

2.0

2.0

1.6

8.1

9.5

2.5

2.2

1.2

0.9

2.1

-1.1

0.7

2.5

-0.1

0.5

1.0

2.4

1.4

2.8

0.9

-0.9

-2.4

0.3

-1.0

4.5

2017201620152014201320122011Change on previous year

OBr economic Forecast

4 www.glenigan.com

Autumn Statement - A Special Glenigan Report December 2012

Specific Measures

general taxation: Corporation tax—further 1% cut in Corporation Tax rate planned for 2014/15, taking the main rate to 21%. Annual Investment Allowance in plant and machinery will be temporarily increased for two years from £25,000 to £250,000 from 1 January 2013 Fuel duty— the 3.0ppl fuel duty increase scheduled for 1 January 2013 will be cancelled.

Business Support: The UK Guarantee Scheme will provide up to £40 billion of guarantees to ensure that priority projects in the infrastructure pipeline can raise the finance they need despite challenging credit market conditions. The scheme has received 75 enquiries from project sponsors to date, of which projects with a capital value of around £10 billion have been prequalified as eligible for consideration of a guarantee. The scheme is open until 31 December 2014. One of the first beneficiaries of the scheme will be the planned extension of the Northern Line to Battersea, with £1 billion of guarantees earmarked for 2013. Newly completed buildings will be eligible to a “long grace period” exempting them from empty property rates from next October.

Despite a raft of Government measures to stimulate the housing market the latest forecast dictates that we will not see significant investment into dwellings until 2014. The March forecast saw a 10% rise in housing investment over 2013 continuing through until 2017, the Autumn statement has now put this surge off until 2014.

Borrowing for the 2011-12 and 2012-13 years is actually set to be below the level forecast in March by £16bn. However this will be offset in the following years from 2013-14 to 2016-17 an additional £64bn of debt will need to be taken on than was expected in the March budget.

Significantly for the construction industry, public sector gross investment (PSGI) will be higher over the next four fiscal years than forecast in the March Budget, with an additional £5.5bn to be spent on roads, rail and education investments.

Current expenditure over the next four years will be £12.3bn less than was forecast in March. (see specific measures below).

Government Gross Investment

Government Expenditure

Public Sector Net Borrowing

49.2

716

31

48.3

707

49

47.3

697

73

49.5

682

88

48

672

99

41.7

661

80

47.8

643

121

2017-182016-172015-162014-152013-142012-132011-12£ billion

Public Finances

•

•

•

•

•

5 www.glenigan.com

Autumn Statement - A Special Glenigan Report December 2012

investment

An additional £5.5 billion of additional infrastructure investment and support for business over the current Spending Review period. This includes:

Road network - investing over £1 billion to improve the network and tackle areas of congestion. It includes funding for schemes on the A1, A5, A30 and M25.

An additional £120 million to build new flood defences.

Housing – an extra £683 million is to be provide through capital grants and financial transactions to support housing and commercial developments.

Schools - £1,170 million to support an estimated 100 additional Free Schools or academies and to expand existing schools to accommodate growing pupil numbers.

Further education - £270 million for capital investment in English further education colleges.

Private Finance

The Private Finance Initiative has been re-launched as PF2. The new regime is intended to provide a faster, more cost effective and transparent approach to securing investment in public infrastructure:

The Government will become a shareholder in future projects, to ensure a more collaborative approach to improving project performance and managing risk, and will share in the financial rewards alongside private sector shareholders.

The competitive tendering phase from project tender to the appointment of a preferred bidder, will not be allowed to take longer than 18 months.

To streamline further the procurement process, a comprehensive standardised document will be lunched.

PF2 will continue to combine asset design and construction with responsibility for maintenance and renewal in a single contact. This is welcome as it should encourage a whole life costing approach to project design.

To improve the flexibility, transparency and efficiency of services, soft services such as cleaning and catering will be removed from projects

To improve value for money there will be greater management of risks by the public sector, including the risk of additional capital expenditure arising from an unforeseeable general change in law, utilities costs, site contamination and insurance.

The Priority Schools Building Programme will be the first programme to be procured through the PF2 programme using a central unit in the Department for Education, the Education Funding Agency. Other departments with PF2 pipelines will be encouraged to establish a similar central procurement unit when they embark on a new programme.

•

•

•

•

•

•

•

•

•

•

•

•

•