The Budget has placed built assets at the heart of nurturing economic recovery, achieving efficiency savings and delivering better public service outcomes. 

The Chancellor is now forecasting a budget deficit of £175 billion this year and £173 billion in 2010/11, peaking at 79% of GDP in 2013/14. He is also forecasting a contraction in GDP of 3.5% this year and an optimistic rebound to growth of 1.25% in 2010.  The fact that the black hole of public spending is now not forecast to be closed until 2017/18 indicates that the post election Chancellor will need to introduce a further significant wave of efficiency savings and tax increases.

Central Government

The further increase in Treasury efficiency savings set out in Lord Carter's review yesterday sets a tough challenge.  Even with the assistance of the new central property function it is difficult to see how this will be achieved without a major reduction in back-office functions and a greater focus on shared services all under-pinned by new and clear asset management strategies.

The pre-requisite will be for departments to re-engineer their business activities as well as their property portfolios.  It will be hard to turn "the big picture" Operational Efficiency Programme, in particular property, into cashable savings in the short term.  Central Government departments' implementation of existing initiatives has been patchy so far, with some departments having a long way to go to catch up with the highest performers such as BERR and DCSF.   The key to success will be strong leadership and a re-shaping of Whitehall over the next few years to meet the targets and timescale set by the Chancellor.

Housing

A good day for the Homes and Communities Agency.  Its three main business drivers were dominant in Darling's budget today, namely:  Housing Delivery; Employment & Training; and Environmental Sustainability.  A £1 billion financial stimulus package no less, 50% of which is made up of "kick-start" funds for new starts on site. However, impact will be dependent on flexibility; it will need to be able to provide "gap or equity funding" - a matter the Treasury will need to get its head around. The rest of the package includes £80m extra for Homebuy Direct; which we estimate will support the purchase of some 4,000 standing stock units (not enough in our view), a much needed £50m to provide better homes to accommodate our returning war heroes and £100m for councils to build energy efficient housing.

Darling extended financial support to those in fear of losing their homes due to loss of income and pledged significant measures in tackling worklessness and insufficient training opportunities. The housing market will need to seek its fair share of this support to tackle its skill retention issues; a matter for the new HCA Academy no doubt.

A further £1bn financial stimulus package was announced to tackle carbon reduction. It is uncertain at this stage how much of this will impact directly on housing, but it does feel like Labour's Eco Town initiative has finally bitten the dust and turned into a meagre £100m council-led building programme!

Local Government

The challenge to create additional efficiency gains across government by 2013/14 from back office services, IT and procurement will require local authorities to adopt and implement fundamental business process change coupled with radical built asset solutions, and to work on shared solutions in an unprecedented manner.

The additional demand for a further £16 billion of capital receipts from asset disposals for reinvestment into new programmes over three years from 2011/12 will also require local authorities to take a fundamental look at their property assets and make transformational change in how they deliver frontline services.

The new initiatives to assist the unemployed in getting back to work will not take effect quickly enough to address the increasing costs for local authorities in 2009/10 in supporting the rising number of unemployed local citizens.

Education

Investment in education has been and remains the Government's key priority, with no significant new announcements this time around.  Even the £800 million fiscal stimulus package is hidden on page 120 of the 268 page Economic & Fiscal Strategy Report that sits behind the Budget speech.   However, also hidden within the appendices is a drive for efficiency - a key theme of this budget.  These include savings around schools, back office functions, Non Departmental Public Bodies, and greater efficiency in the take up of post 16 places, totalling £5.14 billion.

We are now part way through the largest capital investment programme in generations that will last for some twenty years. The Government's continued commitment should provide opportunities for small businesses and allow schools and children to benefit early from important projects.  However, there is, as a result of the proposed efficiency savings a requirement that schools and FE/HE are more efficient with investment funds to generate savings in running costs.

To deliver meaningful economic stimulus we need to find a way for those firms whose traditional markets have evaporated to maximise their contribution to delivering in education. If we crack this, it will head off the resource shortage (a root cause of cost inflation) and allow the money that is being brought forward to deliver a real upturn in economic activity, further supporting the drive for education transformation both efficiently and affordably. 

Health

Whilst the headline Health budget now moves to £119 billion for 2009/10 it is clear that there are storm clouds approaching. Although the PCT allocation increases in funding by 5.5% per annum for the next 2 years, conversely there doesn't seem to be any new capital monies available, bar those announced for GP surgeries last year. It is equally clear that the NHS will have to respond to the challenges set out in the latest Carter Review.  The NHS's challenge is to find an additional £2.3 billion efficiency savings in 2010/11.

The Department of Health is already making progress in the drive for better value through the world class commissioning programme. The budget statement

"deliver billions of pounds per year of cash savings and quality improvements by 2013/14" now demonstrates a real need to move the reform process forward. 

The shorter length-of-stay reductions are forecast to save £500m alone, this combined with commercial operating, pharmaceutical price and improved commissioning adds up to nearly £1.6bn alone per annum. The NHS tariff reductions for provider units will similarly lead to an internal need for efficiency savings to obviate the financial burden.

Graham Kean is the head of public sector at consultants EC Harris

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