Will the spending review create a perfect storm in 2011?

Paul Reed, sales and marketing director from Marley Eternit, gives his views on the impact of the 2010 Comprehensive Spending Review: “My concern for the construction industry next year has always been that it could be facing what may almost be classed as a ‘perfect storm’. In other words, the potential convergence of a number of factors will continue to put pressure on all sectors of the industry leading to an overall shrinkage in construction activity. “Whilst the cuts in capital expenditure outlined in the spending review are slightly less severe than those set out in June’s emergency budget, there will still be £20 billion less public sector capital investment in the next four years compared with the four years ending in March 2011. This does make it likely that we could see a scenario next year where the impact of public expenditure cuts hit the construction industry before there is sufficient recovery in the private sector. “For example, the government has indicated that the cuts in social housing will be met by an increase in private house building activity, but there are many factors making this difficult at the moment, not least the most recent downward trend in the number of mortgage approvals according to the British Bankers Association. House prices are also still under downward pressure as sellers outnumber potential buyers, according to the RICS, which said in October that 44% of its members had seen prices fall in the past three months. “My other concern is about the level of social house building anticipated in the spending review, which suggests that 150,000 new affordable homes could be built over the four year period. That would be great for the industry but we have to be realistic given the levels that we are currently building at. As a country, we are going to have to output a growing number of social homes at the same time as capital expenditure falls from £7.4bn to £2.5bn by 2014. “There were positives for the RMI market with the announcement that Decent Homes programme will continue, although with ‘details to follow’ common sense dictates that this is likely to be at a lower level. This ongoing repair and maintenance programme for social housing has been extremely beneficial for the roofing industry over the past few years. There was also the announcement of the Green Deal, which will eventually replace the Warm Front programme, enabling households to improve the energy efficiency of their homes at no upfront cost. This offers opportunities for the private RMI market in terms of both internal and external insulation, for example in the form of over cladding to improve the energy efficiency of a building. “I was also pleased to see that feed in tariffs will continue until March 2013, after which there will be some reduction in levels - there was concern before the CSR that these would be cut now. Under this scheme energy suppliers have to make regular payments to householders and communities who generate their own electricity from renewable sources such as solar tiles. It is true that manufacturers have invested significantly in this area, although they would have been aware that in other countries the feed in tariffs started off high and then reduced down, so the later reduction isn’t unexpected. “It’s clear that there is a requirement for the private sector to fill any shortfall in capital expenditure in the public sector and I’m confident that if credit becomes more available, sectors such as private house building will make a resurgence. However, it is now all a question of timing and 2011 looks set to be a fragile time with some potentially varying outcomes. As they say, the proof of the pudding will be in the eating.”

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