Comprehensive Spending Review: Brace yourself for bad news

How will the government pay for infrastructure investment? What will happen to capital expenditure in the health sector - given that the government only promised to ringfence “front line” spending? And what does localism really mean for housebuilders? These are just some of the questions being asked by the panel of economic experts we set up to explain exactly what next week’s Comprehensive Spending Review means for your business.

On pages 24-26 we estimate the megatonnage of explosives in the chancellor’s bombshell, and set out departmental spending budgets over the past two financial years to provide a point of comparison for whatever 2011 onwards turns out to be; there is also analysis of the policy areas to watch out for. But if you are hoping that Osborne’s statement will at least put an end to the anxiety of waiting for bad news to arrive, you are likely to be disappointed.

What we will find out are the departmental budgets. How that money is then allocated within a department’s area of operations depends on the fine mesh of its policy framework, and it’s by no means clear that this has been worked out yet. Take the Department of Energy and Climate Change, for example: Chris Huhne has to decide how to divide his settlement between decommissioning nuclear, cleaning up coal, paying for homeowners’ eco-refurbishments, setting a level for feed-in tariffs to the National Grid and developing wind farms. All that will have to be decided before we can say whose bank account the money will end up in. Our panel will do their best to pin down the details of government priorities as they evolve over the coming months.

This kind of transparency is vital for those engaged in the parallel process of planning budgetary priorities within individual companies. The importance of this for the contracting sector is underlined by our business barometer for the September (pages 18-19). Here Kier topped the monthly chart thanks to contracts worth £160m. This time last year it was also in the lead, but then its haul was £660m. Housebuilders may be in an even worse position: the latest housing statistics reveal just how bad September was for them, and this seems to be partly the result of another crunch in the mortgage market (pages 12-13).

Another source of anxiety is the continuing effect of the buyer’s market on suppliers’ margins. The position here was eloquently summed up by Steve Brewer, Grosvenor Estates’ director (page 17). After agreeing to put Sir Robert McAlpine on its framework, he commented: “This is a unique proposition because there are not many other businesses with a critical mass of development opportunities. The construction market has gone through a tough time and bluntly we want to take advantage of that before costs rise.” As if the contracting game wasn’t hard enough right now.

The response to all this is likely to be more repositioning, restructuring and downsizing. Just this week Richard Vining, Shepherd Construction’s new chief executive, became the latest player to outline plans to focus on the relatively healthy South-east, with the collateral benefit of establishing the firm’s reputation as a national player (page 19). More will no doubt follow. Next Wednesday has been firmly fixed in the calendar as the bottoming out point for business sentiment and confidence; come Thursday, the only way things can go is up.

Tom Broughton, brand director