About all we could hope for

The big disappointment was the lack of a cut in the VAT rate for refurbishment, but Alistair Darling did announce enough new measures to bring some relief – and even a little cheer – to construction firms. This was mixed with the usual financial smoke and mirrors … and a few genuine surprises.

Perhaps the biggest winner was the housebuilding industry. The £600m earmarked for 10,000 extra affordable homes this year is not a vast sum but added to the extension of the HomeBuy Direct scheme, the underwriting of mortgages and the stamp duty waiver, it may help to kindle some flickering flames in the housing market: sales were up in March, as were housing starts and mortgage lending, albeit from catastrophically low levels.

The industry can give a couple of rousing cheers to Darling for his support of the credit insurance market, which, as we reported last week, is dying on its knees. A trade guarantee scheme is at last on the table, and this should help many firms – although it won’t be extended to firms that have had all their credit insurance withdrawn, as has happened to many that work solely in construction. There’s £300m of new money for the Learning and Skills Council to reboot the frozen college-building programme, and more funds for training – although neither will fill the gap that has opened up between aspiration and reality. As we report this week, the prospects for apprentices continue to get grimmer. Then there’s the green measures: £500m for wind power, tax breaks for combined heat and power plants and the (extremely tough) target of cutting carbon emissions 34% by 2020, which will give even greater urgency to the nuclear new-build programme. Most importantly, there was a commitment to keep capital investment at current levels – although “efficiency” savings will mean mounting pressure to cut costs.

So there is some short-term relief. But with national debt rising to 80% of GDP by 2013/14 (based on a growth forecast that most economists regard as optimistic), there will have to be a reckoning after the next election, and that will put a cold lump in many stomachs.

The lack of a cut in VAT was a big disappointment, but Darling did announce enough new measures to bring some relief – and even a little cheer – to construction firms

Tesco turns the screw

“This is a good time to expand, because expansion costs less during a recession. Capital costs are down 20%, so we can build more stores more cheaply.” So said Tesco boss Sir Terry Leahy after the supermarket colossus posted a staggering profit of £3.1bn on Tuesday, its highest to date. Indeed, all the barriers to Tesco’s growth seem to have fallen away. Yet the promise of more construction work (it currently spends £1.4bn a year) will not console the teams that build all those stores. Leahy’s words mean they face the prospect of further cuts in their fees and profits. Tesco would argue that it isn’t holding guns to their heads – it is simply enforcing the law of supply and demand in a buyer’s market. It would also point out that it is not alone in looking for cuts. Of course, this neglects the power imbalance between client and supplier. Furthermore, there’s something particularly brutal about the way Tesco has demanded the cuts. Nelson Ogunshakin of the Association for Consultancy and Engineering, says: “Telling consultants at the front end of delivery to cut their fees by 40% is not the action of an enlightened client.” So far, his is about the only industry voice to be raised against this tactic. Maybe it’s time for others to join him?

Denise Chevin, editor