2014 Budget: key construction industry implications | Practical Law

2014 Budget: key construction industry implications | Practical Law

The implications of the government's 2014 Budget for the construction and engineering industry, and the industry's reaction to it.

2014 Budget: key construction industry implications

Practical Law UK Legal Update 9-561-3146 (Approx. 10 pages)

2014 Budget: key construction industry implications

Published on 19 Mar 2014England, Wales
The implications of the government's 2014 Budget for the construction and engineering industry, and the industry's reaction to it.

Speedread

On 19 March 2014, the Chancellor of the Exchequer, George Osborne, set out the government's spending and taxation plans in its 2014 Budget. It also published its National Infrastructure Plan: finance update (March 2014), which does not include critical new information, but summarises the types of finance (public, private and mixed public and private) that will fund infrastructure delivery to 2020. It highlights that the electricity generating sector is the key sector for investment, representing up to approximately £52 billion of investment before 2020 (around 14% of the overall value of the pipeline).
In announcing the government's plans, the Chancellor said it was a budget:
"for building a resilient economy... It is all part of a long term economic plan – a plan that is delivering security for the people of this country."
Despite some of the headline-grabbing infrastructure numbers, it seems that, just like in 2013, there is little detail for the construction industry to cheer about, as the spending plans announced will not kick in until after the next general election.
To see all of Practical Law's 2014 Budget coverage in one place, visit our 2014 Budget page.
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Defined terms

The 2014 Budget

On 19 March 2014, the Chancellor of the Exchequer, George Osborne, set out the government's spending and taxation plans in its 2014 Budget. It also published its National Infrastructure Plan update 2014.

Housing

The 2014 Budget confirms that, as a result of government reforms to date, planning approvals and housing starts are at five-year highs, and housing activity recently expanded at its fastest rate for ten years (Budget Report, paragraph 1.139).

Help to Buy

Help to Buy was launched in the 2013 Budget (see Legal update, 2013 Budget: construction industry implications: Help to buy). Since then, the 2014 Budget confirms that there have been over 25,000 reservations for new build homes and over 6,000 households have put in offers for homes supported by the mortgage guarantee scheme in the first three months (Budget Report, figure 1.1).
The 2014 Budget states that Help to Buy is expected to help at least 74,000 households buy a new-build home by March 2016. In addition, to help a further 120,000 households purchase a home and to continue to support house building as the market improves, the government is extending the scheme to March 2020 (Budget Report, paragraphs 1.140 and 2.15).

Housing supply

The 2014 Budget contains a number of measures aimed at increasing housing supply, including:
  • Builders Finance Fund. To support access to finance for small and medium-sized enterprises (SME), the government is creating a £500 million Builders Finance Fund, which will provide loans to developers to unlock 15,000 housing units stalled due to difficulty in accessing finance (Budget Report, paragraphs 1.141 and 2.20).
  • Ebbsfleet Garden City. The government will support a new garden city at Ebbsfleet, which has capacity for up to 15,000 new homes on existing brownfield land. The government will form a dedicated Urban Development Corporation (UDC) to create Ebbsfleet Garden City, and will make up to £200 million of infrastructure funding available. This will be the first new garden city since Welwyn Garden City in 1920 (Budget Report, paragraphs 1.145 and 2.16). In terms of other garden cities, by Easter 2014 the government will publish a prospectus setting out how interested local authorities could develop their own, locally-led proposals for new garden cities (Budget Report, paragraph 2.26).
  • Extending the Gospel Oak to Barking Line. Proposals will be developed to extend the Gospel Oak to Barking Line to Barking Riverside. It is hoped this will unlock the construction of up to 11,000 new homes (Budget Report, paragraphs 1.144 and 2.17).
  • Regeneration of Brent Cross. Proposals for the Brent Cross regeneration scheme will be considered, subject to value for money and affordability (Budget Report, paragraphs 1.144 and 2.18).
  • Regeneration of large housing estates. The government will establish a £150 million fund to kick-start the regeneration of large housing estates through repayable loans, helping to boost housing supply. Bids will be invited from private sector developers, working with local authorities on estates that might be able to benefit. Expressions of interest have already been made through the Greater London Authority relating to the Aylesbury Estate, Blackwall Reach and Grahame Park regeneration projects in London (Budget Report, paragraphs 1.143 and 2.19).
  • Right to Build. For people who want to build their own home, the government will consult on creating a new "Right to Build", giving custom builders a right to a plot from councils, and a £150 million repayable fund to help provide up to 10,000 serviced plots for custom build. The government will also look to make Help to Buy available for custom build (Budget Report, paragraphs 1.142 and 2.21).

Industry comment

David Orr, chief executive, National Housing Federation

"We welcome the Chancellor's focus on housing and the announcement of a new garden city, but we think the Budget is a missed opportunity. Measures like Help to Buy are likely to stimulate demand for housing but the Budget does not go far enough to boost the supply of homes needed to meet that demand.
The Chancellor says the 23% increase in house building is not enough and we agree with him. An effective release of public land for house building, increasing the borrowing capacity of housing associations and extending Government guarantees to back financing for new development, would all have made a significant and immediate boost to the supply of affordable homes.
We welcome the announcement of the new garden city in Ebbsfleet, but it will only make a difference if it is the first of many. The new homes in Ebbsfleet must not merely replace homes that would have been built elsewhere."

Grainia Long, chief executive, Chartered Institute of Housing

"Following the credit crunch small builders have found it more difficult to access finance, so the government's announcement of £500m to help them get building is welcome."

Simon, Rubinsohn, chief economist, RICS

"While plans for regeneration and new homes in Barking, Brent Cross and the new garden 'city' at Ebbsfleet - which is really just a garden village - will contribute a little housing in the South East. These numbers are a drop in the ocean and do nothing to help others in the UK. More importantly, they don’t deliver the mix of homes we need across society, from the private rented sector to affordable and social housing.
RICS has long called for an investors' prospectus for garden cities, which we welcome today. But we need a more ambitious approach than 15,000 homes at a time. To provide investors, communities and developers with greater confidence, what we need is a proper political vision for garden cities and the wider economy."

David Sheridan, chief executive, Keepmoat

"The extension of Help to Buy will give the house building industry more confidence to plan ahead for the next six years so we can now begin to think about hiring more staff to build more homes and investing in apprentices. As a result, we are looking to increase our number of apprentices by 50%, by employing at least another 100 apprentices over the next 12 months."

Anna Scott-Marshall, head of external affairs, RIBA

"We welcome the Government's announcement to take forward our policy on allocating land for self and custom build homes through the Right to Build programme and the promise that the government will finally publish its long promised prospectus on garden cities.
However, changes to Help to Buy to deliver 120,000 homes by 2020 and the introduction of the Builders' Finance Fund will fall short of providing the boost to housing supply we desperately need. The Government needs to stop tinkering around the edges of the housing crisis and start taking serious steps towards solving it."

Julia Evans, chief executive, National Federation of Builders (NFB)

"The NFB welcomes recognition of the contribution of smaller builders with the creation of the £500 million Builders Finance Fund. However, it was disappointing not to hear any announcements on boosting retrofit measures, which would have helped people to improve their homes and bring down energy bills. The Chancellor should not only fix the roof while sun is shining but should have made sure it is insulated by providing additional support through a VAT cut on retrofit measures from 20% to 5%."

Brian Berry, chief executive, Federation for Master Builders

"The Chancellor's Budget announcement of a £500m Builders Finance Fund for small house builders will provide a major boost for housing supply. Unfortunately today's Budget overlooks the need to make our existing homes an infrastructure investment priority. A reduction in VAT to 5% on housing renovation and repair is the simplest and most effective way to empower home owners to refurbish their properties to make them more energy efficient and cheaper to run. This cut in VAT would provide a £15bn economic stimulus over five years and up to 95,000 jobs which are much needed while our economy is still in recovery."

Mike Quinton, chief executive, NHBC

"We welcome today's announcement which places the house building industry at the heart of the Budget. Although our statistics show that new home registration numbers went up by 28% in 2013 compared to the previous year, it is vital to recognise that the recovery is from a low base and numbers remain well below pre-recession levels.
Help to Buy has given the UK house building industry a shot in the arm. The extension now provides much-needed certainty and confidence for it to plan for the future. The Chancellor's announcement to extend the Help to Buy scheme, which has already given the sector a welcome boost, until the end of the decade will give tens of thousands of people the opportunity to own their brand new home."

Infrastructure projects

The 2014 Budget confirms that over 1,900 infrastructure projects have been completed since 2010, including over 550 road and rail projects. Further, that between 2011 and 2013, the average annual public and private infrastructure investment was around £45 billion (Budget Report, figure 1.1).
The government also published its National Infrastructure Plan: finance update (March 2014). While this does not include critical new information, it summarises the types of finance (public, private and mixed public and private) that will fund infrastructure delivery to 2020. It highlights that the electricity generating sector is the key sector for investment, representing up to approximately £52 billion of investment before 2020 (around 14% of the overall value of the pipeline).

Flooding

During 2014, many parts of the UK suffered from severe flooding. The 2014 Budget provides £140 million of new funding to repair and restore the condition of vital flood defences that have suffered damage. This is in addition to the government's long-term strategy, which allocated capital funding of £2.3 billion from 2015 (Budget Report, paragraphs 1.133 and 2.27).

Greater Cambridge

The 2014 Budget confirms that the government will commit £100 million to Greater Cambridge until 2019-20 to support its transport and infrastructure proposals through a Gain Share mechanism (Budget Report, paragraphs 1.150 and 2.244).

HS2

The 2014 Budget confirms that the government has commissioned HS2 Ltd to develop proposals for accelerating the project and opening the line to Crewe by 2027, six years earlier than planned, as well as exploring options for undertaking a substantial redevelopment of Euston station, one of the biggest undeveloped commercial opportunities in Central London (Budget Report, paragraph 1.136).

Mersey Gateway Bridge

In 2012, the government introduced the UK Guarantees scheme, to avoid delays to investment in UK infrastructure projects by providing a government backed guarantee to investors. The 2014 Budget announces approval of a guarantee of up to £270 million to support the Mersey Gateway Bridge, allowing work to begin on this infrastructure project, which will help relieve traffic congestion across the Mersey and promote regeneration in the area (Budget Report, paragraphs 1.138 and 2.248).

Potholes

The 2014 Budget provides an extra £200 million to set up a potholes challenge fund. This emergency funding will allow local authorities to repair up to 3.2 million potholes following the severe weather (Budget Report, paragraphs 1.134 and 2.28).

Industry comment

Steve Bromhead, head of UK infrastructure, industry and utilities, EC Harris

"Today's Budget was, as feared, a damp squib. It's been clear for some time that we need to turn the National Infrastructure Plan into a long term integrated plan. What is becoming clearer is the need to turn this plan into action and to integrate infrastructure policy. We must get these initiatives off the ground and ensure the investment, regulation and other enablers are put in place by the government to allow this.
In response to flooding investment, whilst that investment is welcome, it only deals with short-term recovery, and we are surprised that there has been no reference to long-term flood prevention."

David Tonkin, chief executive for UK and Europe, Atkins

"The budget announcements around new housing and infrastructure projects such as the new garden city at Ebbsfleet, continued support of HS2 and the £270 million guarantee for Mersey Gateway bridge, are not only great examples of investments which will improve people's lives now and in the future, they send a clear message to investors that the UK is a great place to invest and do business. It is vital that the funding is released quickly and that planning processes do not unnecessarily slow down the delivery of these projects, so the economic and social benefits they will bring can be realised as soon as possible."

Andy Wheeler, head of energy and utilities, Aecom

"£140m to repair flood defences is good, but that will only put us back to where we were before the floods. We need new measures to protect life and property when it rains."

Duncan Symonds, head of infrastructure, WSP

"The £200m for potholes is a knee jerk reaction, and while welcome because there are urgent repairs needed due to the flooding, if there was better long-term funding we could potentially avoid the problem in the first place. The road repairs backlog already stands at £10.5 billion and to avoid it getting worse local authorities need funding to undertake regular resurfacing which will save money in the long-run."

Stephen Ratcliffe, director, UK Contractors Group

"The good news is that better than expected economic recovery will start to drive private sector investment in infrastructure...
Tax incentives to encourage our supply chain to take on more apprentices will support the work UKCG is doing to ensure the industry has a well trained workforce.
...There will also be some frustration that there were no 'carrots' to stimulate greener construction."

Land release

The 2014 Budget confirms that the government has taken action to free up land, mainly brownfield land, for economic use.
The Government Property Unit's Strategic Land and Property Review has identified scope to generate £5 billion of receipts from land and property to support growth and drive efficiency. Departments have already committed to reforms that will release £3.5 billion of land and property and a further £1.5 billion will be identified through ongoing operational reviews. By the Autumn Statement 2014, the government will look to quantify its housing and growth ambitions for this new surplus land programme. (Budget Report, paragraphs 1.73, 2.22 and 2.243.)

Landfill tax and aggregates levy

The 2014 Budget announced:
  • The standard and lower rates of landfill tax will increase in line with the Retail Price Index (RPI), rounded to the nearest five pence, from 1 April 2015 (Budget Report, paragraph 2.170). (For more information, see Practice note, Landfill tax.)
  • The rate of aggregates levy will remain at £2 per tonne in 2014-15 (Budget Report, paragraph 2.168). In addition, legislation will be introduced to suspend elements of the aggregates levy that are subject to a formal state aid investigation by the European Commission, from 1 April 2014 (Budget Report, paragraph 2.169). (For more information, see Practice note, Aggregates levy.)

Planning

The 2014 Budget confirms that the government will review the General Permitted Development Order (GPDO) and will consult on specific change of use measures, including:
  • Greater flexibility for change to residential use, for example from warehouses and light industry structures.
  • Allowing businesses greater flexibility to expand facilities such as car parks and loading bays within existing boundaries, where there is little impact on local communities.
(Budget Report, paragraphs 1.147, 2.249 and 2.250.)
In addition, the 2014 Budget confirms that the government is committed to making the planning system work for major infrastructure projects and will shortly publish the outcomes of its consultation on the Nationally Significant Infrastructure Planning regime, including a series of measures to streamline and improve the process (Budget Report, paragraph 2.252).

Red Tape Challenge

In April 2011, the government launched its Red Tape Challenge, a wide-ranging project aimed at identifying unnecessary regulations. Since then, thousands of regulations have been under the spotlight, including many that affect the construction industry. For more information, see Practice note, Reforming the UK's health and safety laws: Government's "Red Tape Challenge".
The 2014 Budget reports that the Red Tape Challenge has identified over 3,000 regulations that will be abolished or simplified (Budget Report, figure 1.1).

Tax: Construction Industry Scheme (CIS)

The 2014 Budget announced the government's plan to consult in summer 2014 on options to improve the operation of the Construction Industry Scheme (CIS) for smaller businesses and to introduce mandatory online filing for contractors. The government will also discuss with industry revisions to reporting obligations and improvements in registration for joint ventures. However, no further details are known at present (Budget Report, paragraph 2.215). For more information, see Practice note, Construction Industry Scheme (CIS).

Zero carbon homes

In the 2013 Budget, the government committed to implementing zero carbon homes from 2016. The 2014 Budget confirms that the government will shortly publish its response to last year's consultation (Budget Report, paragraph 2.23). For more information, see Practice note, Zero carbon buildings.
In part, the government aims to achieve its zero carbon targets through the Building Regulations 2010 (SI 2010/2214) (BR 2010) and, in particular, Part L (which deals with energy efficiency requirements). The new Approved Documents and compliance guides to Part L come into effect on 6 April 2014 (see Legal update, Government publishes amendments to Part L of the Building Regulations and Practice note, Building Regulations: an overview).

Industry comment

John Alker, director of policy and communications, UK Green Building Council

"Any real hope that the Chancellor is committed to the green agenda faded long ago but what remains deeply disappointing is that he doesn't recognise a growth opportunity when he sees one. There continues to be a complete blind spot on the role that energy efficiency has to play in reducing consumer bills over the long-term, and generating home-grown jobs."

Comment

In announcing the 2014 Budget, the Chancellor said it was a budget:
"for building a resilient economy... It is all part of a long term economic plan – a plan that is delivering security for the people of this country."
Despite some of the headline-grabbing infrastructure numbers, it seems that, just like in 2013, there is little detail for the construction industry to cheer about, as the spending plans announced will not kick in until after the next general election.

Further information

For more information on the 2014 Budget, see Legal updates:

Further reading

For all our Budget coverage, including practice area summaries, see Practical Law 2014 Budget. For more information on the: