First blows fall on industry as new regime takes over

The industry voiced its anxiety about the prospect of public spending cuts as the Conservative-Liberal Democrat coalition government began its first days in power.

Amid widespread uncertainty over the extent of any cuts, senior industry figures have expressed fears that the axe will now start to fall on capital spending. Areas of particular concern were:

Crossrail

The Conservatives gave assurances in the run-up to the election that London’s £16bn east–west train link would not be affected, but the chief executive of one major contractor said they did so only “after coming under a lot of pressure. I’d say they have about a week to make their position clear and either back it or say there will be cuts.”

Another senior contracting source with links to Whitehall, said: “My feeling is that the Tories won’t commit major funds to Crossrail for two years.”

Other sources were more upbeat. The boss of a large consultant said: “With £1.5bn committed so far, it would be difficult to turn back. Contracts have been signed feverishly over the past few months with exactly that in mind.”

Social housing

The Homes and Communities Agency (HCA), which spends between £5bn and £6bn a year, has been allocated funding until next April. Although immediate cuts have not been threatened, a senior HCA source said there were “no guarantees”. The Conservatives have not made any commitment to preserving spending on social housing, and many are expecting cuts of up to 20% in 2011.

Planning and private housing

Housebuilders have given the coalition a cautious welcome as doubts persist over how negotiable elements of the Tory’s recent planning green paper are.

These include the removal of planning targets as part of the party’s localism agenda and the introduction of a third-party right of appeal. More alarmingly for the industry, the Lib Dems have talked about imposing VAT on new housing.

The chief executive of one major housebuilder said: “I’ve been to meetings and what Grant Shapps said six months ago and what he says today are different things. I think there’s scope for flexibility as the party realises the practicalities of life.”

My feeling is that the Tories won’t commit big funds to Crossrail for two years

Contracting source

His comments were backed up by a senior director at a medium-sized housebuilder, who dismissed Tory proposals for a third-party right of appeal as “electioneering”.

John Stewart, director of economic affairs at the Home Builders Federation, said he thought the abolition of planning targets was sure to go ahead, but there might be flexibility on the right of appeal.

“Removing the targets is a big leap of faith and puts enormous onus on local authorities to come up with sufficient housing. There need to be some disciplines to encourage councils to perform.

“One area where we hope they are willing to cede ground is the third-party right of appeal, which we find vexatious and hope is not fundamental to their plans.”

In relation to the Lib Dems’ proposal for VAT, Stewart said: “We’d oppose that very strongly. It could only be done at the expense of something else, like affordable housing, or it would force the value of land down.”

As one City analyst pointed out this week: “When you think that the government is the biggest landowner in the country, it seems even more unworkable.”

Prisons

Few fears have been raised about the continuation of Labour’s £5.4bn prison building programme. One source close to the programme said the level of spending would probably not be affected.

Other areas

The coalition has pledged to scrap the third runway at Heathrow airport and has also ruled out additional runways at Gatwick and Stansted.

It has committed itself to a high-speed rail network but agreed routes have not been specified.