CIOB responds to 2020 Budget, what does it mean for UK Construction?
‘If the country needs it, we will build it’ proclaimed the new Chancellor, Rishi Sunak, during today’s budget announcement which saw a £30 billion fiscal stimulus to support the UK both on a short-term and long-term basis.
It is no surprise, given the current status of COVID 19 that the Spring budget statement placed public health security at its core. As part of this the Chancellor implied that many of the fiscal rules underpinning the government’s strategy may become more flexible and funding will be temporary, timely and responsive to the needs of the NHS.
Eddie Tuttle, director for policy, research & public affairs at the Chartered Institute of Building (CIOB) said:
“Small and medium-sized businesses (SMEs) account for more than 99% of all UK businesses in the construction industry. We are therefore pleased to see today’s announcement recognising the potential affects that COVID-19 will have on SMEs and acknowledge the government’s efforts to increase funding to help offset any costs incurred. However, a significant number of construction workers are self-employed and may not be covered by this investment and this will need to be monitored across all sectors.
“The Chancellor has also announced that the government will support businesses who experience disruption to their cashflow during the COVID-19 response. An expanded Business Rates relief, a Coronavirus Business Interruption Loan scheme and a £2.2 billion grant scheme for small businesses, with a dedicated helpline for those who need a deferral period on their tax liabilities will also offer SMEs a sigh of relief.”
The wider economic implications of COVID-19 will impact both consumer confidence and economic growth rates. On the day of the Budget, the Bank of England (BoE) has cut interest rates to 0.25% in order to protect the British economy from the impact of COVID-19. Alongside this, the BoE is also launching a new scheme to provide funding for businesses.
The key announcements for construction included a fundamental business rates review, scrapping of the previously planned cut to corporation tax, abolition of Red Diesel tax relief, and the roll out to off-payroll working rules for contractors (known as IR35).
Eddie Tuttle commented:
“A business rates review is necessary, and a suspension of business rates should protect the collapse of businesses. We understand that abolishing the Red Diesel tax relief is an effort to meet climate change targets, however changing the rates of tax could have a disproportionate and costly impact on the construction sector, which contributes significantly to GDP.
"In his statement, the Chancellor said he will consult with other sectors on the impact this could bring and we encourage him to work with us and the built environment to minimise the effects this could have on construction when it is brought into legislation in 2 years’ time."
The government has confirmed that the off-payroll working rules, known as IR35, which relates to the use of temporary contractors will be coming into effect on 6 April 2020.
“Changes to IR35 will add pressure on the construction industry’s supply chain, and we may see a decline in the number of construction businesses operating due to the new costs being inflicted onto the industry. We encourage government to consult further and work with the construction industry to ensure it undertakes a phased approach for implementing these new policies. We also recommend the government reviews whether to push-back any policies relating to business rates in order to help the industry stay afloat during the coronavirus’ outbreak which will undoubtedly have an impact on projects across the globe.”
Education and skills
Now that the government have proposed a new UK points-based immigration system, there is further focus on investing in the country’s talent pool in order to raise productivity and growth across all nations and regions. This move includes an announcement of a £2.5 billion National Skills Fund to improve adult skills, which will help individuals train and retrain over the course of their lifetimes and fill the skills gaps that hold back productivity at a local, regional and national level. This see’s the continuation of the Construction Skills Fund which was launched in June 2018.
The government have also committed £95 million for providers in England to invest in high quality facilities and industry-standard equipment to support the rollout of T levels. Funding will support T level routes being delivered from autumn 2021 including construction, digital, health and science.
Eddie Tuttle commented:
“It is encouraging to see that the government is investing more money into the education and skills of the next generation of future leaders. Importantly acknowledging the need to work with the Metropolitan Mayoralties across the regions is crucial for rebalancing our economy. Construction skills are in significant demand across the country and any additional funding must be tied with campaigns to help attract more people into a rewarding career in the sector.”
Improving the built environment
The government has an ambitious and welcome aim to invest in infrastructure and address regional disparities in economic and social outcomes. By the end of parliament, public sector net investment will be triple the average over the last 40 years and in total, £640 billion of gross capital investment will be provided for roads, railways, communications, schools, hospitals, and power networks across the UK by 2024/25.
The National Infrastructure Strategy, which was set to be published alongside the Spring Budget, has been delayed until late spring.
Eddie Tuttle commented:
“We look forward to working with government on their plans for a new construction strategy and infrastructure strategy. We encourage government to ensure they provide a clear route map for how additional spending will be utilised and look at smarter ways the built environment can be used to tackle numerous socio-economic issues the country faces. Whether that is the quality of our built environment or rebalancing and pushing for greater regional investment.”
The Chancellor announced there will be a £10.9 billion increase in housing investment to support the commitment to build at least 1 million new homes by the end of the Parliament, and an average of 300,000 homes a year by the mid-2020s. Our position is clear on the need for quality homes as opposed to simply focussing on quantity. Ensuring housebuilders are held to account and are delivering for the consumer remains paramount. If we can build more homes that are higher quality, we are ensuring a stable pipeline of construction activity whilst improving trust in the sector.
“Following the Grenfell tragedy, one of the most important objectives is to ensure residents have a voice and feel safe and secure in their home. We welcome the announcement that the government will invest an additional £1 billion to remove unsafe cladding from residential building above 18 metres to ensure buildings are safe for residents.
“The failures of quality that resulted in the recent incidents at Grenfell highlighted the need for an urgent review of the way in which quality is managed within the UK construction industry. We are glad the government is committed to remove not just ACM cladding but all unsafe cladding from buildings above 18 metres. We urge that government ensures that any new home is built to a high quality standard and ensure that buildings are fit for use.”
The impact of construction
In addition to the budget announcements the Office for National Statistics (ONS) published today’s GDP figures for the three months to January 2020. The report saw the economy stagnate with no overall growth in the last three months. However, despite volatility, construction continued to grow which helped offset yet another decline in manufacturing and no growth in the service sector.
The construction industry is recognised as crucial to the economy. Construction continues to shape the built environment and has increasingly influenced how we live, the quality of our lives and the world we live in. While the influence of construction ranges well beyond its economic impact, its contribution to the UK economy is substantial.
Eddie Tuttle commented:
“Given today’s Budget announcements we encourage government to work closely with the construction industry in order to produce a clearer vision and a smarter, more focussed, attention from policy makers to ensure the industry continues to thrive in a more conducive environment.
“In our Real Value of Construction 2020 report, we showcase the true value of the construction industry and the wider built environment, outlining the socio-economic contribution of the industry on a regional level. In it we called for creating clusters of construction-related businesses and activities to increase innovation and productivity, better measures to understand the value of construction, devolved and smart funding for training, boosting support and networking to promote international trade and to review the current business model to ensure it is fit for purpose.”
To find out more, download the report here.
Other announcements for the construction industry
The Chancellor’s Budget 2020 contains a raft of other announcements set to affect and impact the construction industry and wider built environment, some of the most relevant include:
The Green Book review
It has been announced that government are reviewing the Green Book which provides guidance issued by HM Treasury on how to appraise policies, programmes and projects. We expect this will have a more regional focus once reviewed and a lot of the calls we made in the Real Face of Construction report, especially around better understanding value, ties into this review.
Tackling Construction Industry Scheme (CIS) abuse
To prevent non-compliant businesses from using the CIS to claim tax refunds to which they are not entitled to, the government has announced they will legislate to avoid CIS abuse. In addition, government will also publish a consultation which introduces option on how to promote supply chain due diligence.
VAT domestic reverse charge
As announced in September 2019, the implementation of the VAT domestic reverse charge for building and construction services will be delayed until 1 October 2020. This legislation helps to prevent losses through so-called ‘missing trader’ fraud.
National insurance threshold
The Budget confirmed that the government’s commitment to increase the thresholds at which employees and the self-employed start paying National Insurance contributions (NICs) to £9,500 from April 2020 will go-ahead. Around 1.1 million people will be taken out of paying Class 1 and Class 4 NICs entirely. This is the first step in meeting the government’s ambition to increase these thresholds to £12,500, which would save a typical employee over £450 per year.
It was apparent today that the government is committed to invest more in the regions. Today it was announced that the government has agreed a devolution deal with West Yorkshire to establish a Mayoral Combined Authority with a directly elected Mayor from May 2021. This deal will provide £1.1 billion of investment for the area over 30 years, as well as devolving significant new powers to the area on transport, planning and skills.
The Chancellor also announced £400 million in funding for ambitious Mayoral Combined Authorities and local areas to establish housing on brownfield land across the country. Finally, the HM Treasury will be moving 22,000 civil services roles out of central London within the next decade to most of the other regions and nations of the UK. This will allow the civil service to reflect the public it serves and understand local economic issue
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