The emergency Budget and its impact on built assets
With the sense that the coalition
government has increasingly got the mood of the public on its side,
an emboldened Chancellor defined three main ‘types’ of cuts in his
first Budget speech:
Political posturing
These announcements, including closing the Euro Preparation Unit
within the Treasury, have very little financial impact in real
terms, but Osborne has signalled a very clear shift in direction by
overturning decisions made by the previous administration.
Snowballs
Rather innocuously, Mr Osborne offers ‘help’ for local
authorities who commit to zero increases in Council Tax. The effect
of this will be to cause councils across the country to stop and
think about their spending decisions. The size and scale of their
impact will increase as they roll out across the country. There
will be a delayed impact, but it will be a very real and
significant one.
Revenue cuts
The most significant category of announcements in the Budget as
these presented the biggest area of opportunity for savings. The
chancellor announced a raft of measures to reduce the cost base of
Government. However, these may be difficult to implement due to
inertia and the fact that every public sector employee will be
impacted in one way or another.
The impact of these announcements on built assets
The major headline that the capital spending programme is to be
protected is greatly welcomed. Non protected departments will see
25% cuts over 4 years, but we will have to wait for the detail
until the Comprehensive Spending Review (CSR) on 20th October to
see who the real winners and losers are. In the meantime, the
emphasis will be on bringing forward projects that deliver the
maximum economic benefits, so expect to see infrastructure,
transportation and other social infrastructure schemes supported -
especially where jobs will be created.
Education
The Budget announcement recognises the importance and relevance
of the education spend in the country, in support of its future
economic and social development. The Chancellor stated that capital
programmes are not to be cut further - subject to the longer term
CSR - which is good news for the sector as a whole. However, the
targetingof that capital could change to facilitate greater
efficiency and delivery of ‘value adding projects’. What that
efficiency actually looks like will be the subject of further
review.
The announcement signals that there will still be opportunity
for creative solutions in the market for infrastructure development
– but ‘more with less’ will clearly become a mantra for the
future.
Health
Although spending in the sector is currently being protected, we
still expect a sizeable head-count reduction within the NHS. Major
schemes are under review (we already see schemes stalling) and
resources will be targeted towards front-line service delivery. As
trailed, there will also be a pay-freeze for the majority of public
sector workers for two years with a major impact in the NHS given
its position as the biggest single employer. There is undoubtedly
still major opportunity in the health sector to drive operational
efficiencies and achieve better healthcare outcomes.
Affordable housing
With the TSA disbanded, the HCA will take on the responsibility
for regulating the financial governance of social landlords.
Registered providers will come under increasing scrutiny and with
this clearly in the sight of the Chancellor, the sector will be
forced to look at innovative new models to unlock capital and
sustain delivery. The tax decisions made by Mr Osborne may also
have serious, unintended consequences.
Our prediction is that the social housing sector will be radically
reformed with £1.8 billion to be saved within the parliament term.
Priority will be placed on the provision of appropriately sized
affordable homes matched to households, with maximum limits of
benefit introduced. The income of registered providers will be
squeezed significantly and radical and fast reshaping will be
necessary.
Government
For central and local government, reduction in the operating
cost base is now the prime focus. With property the second biggest
cost after staff, expect this to figure high in terms of focus and
priority for savings. Most are now aware of the potential savings
from New Ways of Working, but more may be needed in terms of
workforce reform to unlock the maximum savings for this sector.
There are still significant opportunities to drive value
here.
Regeneration
So what about regeneration and growth? With billions of pounds
of potential value locked up in stalled schemes, the impact of the
Regional Growth Fund and targeted capital investment outside the
South East will help this sector to be part of the solution, making
a positive contribution towards public sector finances.
Contact
Graham Kean
Partner, Head of Public
e graham.kean@echarris.com
m +44 (0)7776 227 060
w echarris.com/public
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