Spending review: What’s the damage?

The dust will take time to settle, the numbers will take weeks to be crunched. But at last, we have some certainty. All the decisions you had put on hold can now be taken. Although making them won’t be pleasant, for the first time since the coalition gathered up the reins of power, in-depth business planning can resume, and your forecasting no longer has to resemble the kind of consistency usually reserved for the England football team.

So what does Osborne’s grand plan mean for construction? As one leading contractor succinctly put it on Wednesday: “George Osborne has slapped some lippy on a pig”. Or in long-hand, there will be about £3bn more public sector construction spending than the government originally set out earlier in the year. There were even some moments in Osborne’s speech where you might have felt inclined to cheer, but as always what the government giveth with one hand, it taketh away with the other. Look past those small sweeteners, and be clear that this is going to hurt.

As one leading contractor succinctly put it on Wednesday: ’George Osborne has slapped some lippy on a pig’

About £20bn worth of work will be lost during the four-year period, and that’s including the grandiose promises on transport as well as the detail behind the infrastructure masterplan to be released next week. The industry landscape is already changing dramatically: Cabe has been abandoned by the culture department (p26) and other industry bodies await their sentence with trepidation.

What Osborne has achieved is to cut and shuffle the numbers skilfully to condense the pain into shorter periods of time. Schools spending is one example. On the face of it, the government has greenlit 600 schools projects - but these were previously announced and do not affect the hundreds stopped by Michael Gove. The hard fact is that there will be a 60% reduction in the education capital programme over the period. Then take housing. Osborne expansively promised 150,000 affordable new homes will be built as well as a massive refurb programme to existing stock, which is in keeping with the government’s green agenda. But also note that the communities department has endured a 74% cut to its capital budget and the £1bn earmarked for the Green Investment Bank has been delayed until 2013/14. For a fuller breakdown of the impact of the review, see pages 9-14.

Unsurprisingly given this perfect storm, forecasters such as the Construction Products Association point to a mixed picture over the next five years, with the construction industry looking set to endure short-term pain over the next 18 months, and its eventual recovery still dependent on the performance of the private sector. The argument is that the private sector will only regain confidence once the political and economic landscape is relatively stable, which the government hopes this spending review will achieve. Like so much else, this remains to be seen.

For companies, whether you’re a winner or a loser depends, as always, on where you sit. But in broad terms, investment in transport and infrastructure, as predicted, is going to be huge and now it is there for all to see in black and white. The companies that have postured, planned or successfully re-positioned for this will reap dividends while the contractors that fail to look past their 18-month order book are set to suffer the most. This industry understands the need for austerity, but the government must understand the need for confidence to return to the private sector - and how to go about achieving that.

Tom Broughton, brand director