10 things you need to know about the chancellor’s Autumn Statement 2015

1. Commitment to build 400,000 homes for £6.9bn

The headline figure of 400,00 homes by 2020 breaks down as:

• £2.3bn to subsidise 200,000 homes in the previously-announced starter homes scheme (£11,500 subsidy per home);
• £4bn will go towards funding 135,000 new homes in the Help to Buy shared ownership scheme (a subsidy of £29,629 per home);
• £200m on the construction of 10,00 Rent to Buy homes, rented at 80% of market value, which will be sold after five years with the tenant having first refusal;
• and £400m on 8,000 specialist homes for older people and those with disabilities.

Steve Perkins, director of urban development at Turner & Townsend said: “At times, the chancellor’s flurry of announcements came close to sounding like a developer’s charter. The relief from Britain’s house builders is palpable – and these measures will make it easier for developers to get both the money and the land they need to build.”

But he added a warning: “There is still the awkward question of what will happen when the surge of new building unlocked by these measures collides with the lack of capacity – both in the construction industry itself and in the planning process. As demand from developers increases, the shortage of skilled workers is likely to drive up construction costs, and stretch planning authorities – already pared back by local government austerity – to the limit.”

Brian Berry, chief executive of the Federation of Master Builders added: “We’re already seeing housing developments starting to stall because the cost of hiring skilled tradespeople is threatening to make some sites simply unviable. Unless we see a massive uplift in apprenticeship training in our industry, there won’t be enough pairs of hands to deliver more housing on this scale. That’s why we’re keen for the government to tread carefully when applying the new proposed apprenticeship levy to the construction industry.”

David Hawkes, policy officer at the CIOB, said: “Greater consideration must be given to expand housing association, local authority and affordable built-to-rent sectors, alongside the provision of accessible, high quality homes for the disabled and elderly. The announcement of some support for these tenures is a start, but it must be recognised that increasing supply across the full range of tenures smoothes out demand instabilities and provides house builders and their supply chains with the confidence to invest.”

2. Commitment to investing in infrastructure

The government talked of £61bn capital investment in infrastructure over the course of this parliament, which it said was a 50% increase, including £13bn earmarked for transport projects in the north, £11bn in London, and a reiterated £15bn Road Investment Strategy.

A new £300m Transport Development Fund will support development work on “transformative” projects such as Crossrail 2 and proposals emerging from the northern transport strategy, a new £475m fund will let local areas bid for key local transport projects, and there will also be £2bn for new flood defences.

Richard Threlfall, KPMG’s head of infrastructure building and construction, said: “Today’s spending review is good news for infrastructure. The government has again prioritised capital spending, and put serious money behind its commitments to HS2, the northern powerhouse and transport in London.”

Nick Baveystock, director general of the Institution of Civil Engineers (ICE) added: “The chancellor’s commitment to capital investment for new infrastructure projects – combined with the drive to increase devolution, innovation and apprenticeships – provides a strong platform for the next five years. The recently established National Infrastructure Commission will also ensure that plans for new infrastructure are based on unbiased analysis of our needs.”

3. 37% reduction in funding for DfT operating budget

There was a 37% reduction in the Department for Transport’s operating budget, which raised concerns over the department’s capacity to drive forward its substantial pipeline of projects.

Patricia Moore, UK managing director of infrastructure at Turner & Townsend, commented: “The chancellor has thrown down the gauntlet to the infrastructure industry – with the big increase in the Department of Transport’s capital budget being matched by a 37% cut in its day-to-day spending.

“While the cash pledged to headline-grabbing new projects like Crossrail 2 and HS3 is welcome, it will be a different story for those charged with maintaining and upgrading Britain’s existing rail and road network. This gulf between rising capital spending and reduced operational spend raises the stakes for the infrastructure industry. Day-to-day it will have to do more with less.” 

4. Innovate UK grants to be replaced with loans 

It looks like Innovate UK, which runs a number of grant funding programmes relevant to the construction sector, is about to be repositioned as a form of bank. The spending review said that the “government will introduce new finance products to support companies to innovate following best practice in countries such as France, Finland and the Netherlands. These will replace some existing Innovate UK grants, and reach £165m per year by 2019- 2020, so that total Innovate UK support is maintained in cash terms.”

Rob Oliver, chief executive of Construction Equipment Association, questioned the move: “The cuts to the BIS budget and the move away from grant support to loans for Innovate UK beneficiaries had been flagged up. Whether companies will want loans from government for R&D projects, when they can go to their own bank remains to be seen – and may inhibit risk taking on projects.” 

He added: “The chancellor avoided mention of UKTI, but their web site statement seems to suggest another rehash of schemes which may diminish the benefit of UKTI initiatives”.

5. Planning fears 

Further cuts to local authority budgets led to many in the industry raising concerns over the ability of planning departments to carry out their functions, with an impact on housing output. 

Jane Duncan, president of RIBA, said: “Budget cuts have already undermined the ability of planning departments to make strategic long-term judgements about the needs of the communities they serve. This latest round of cuts will make it increasing hard to adequately appraise the quality and impact of proposed development and enable public participation in the design process.”

The FMB’s Brian Berry said: “Without adequately resourced local planning departments, it will be impossible to tackle the housing crisis. House builders are already reporting that shortages of skilled planning officers are impacting on the speed and efficiency of the planning process at every stage. The effect of this can be particularly pronounced for SME developers – the smaller sites they specialise in, though cumulatively vital, are individually less important and often more resource intensive.”

Paul Bogle, head of policy and research at the National Federation of Builders agreed: “Planning departments are very stretched. If you have a large development and a number of smaller plots [in a local authority area], planners are tempted to go for the larger plot. Smaller sites take disproportionately longer [to bring through the planning process] and are more likely to come up against local opposition. That’s one of the ways smaller housebuilders are being squeezed.”

6. Devolution revolution

The chancellor reiterated the “devolution revolution” giving local councils the power to cut business rates to boost growth, and “empowering elected city-wide mayors”. He also announced the creation of a £400m Northern Powerhouse investment fund to help small businesses grow

But KPMG’s Richard Threlfall said: “There remains a huge inconsistency between the slick soundbite of devolution revolution and the reality that it is central government still signing the big cheques and deciding which schemes it wants to support. Only when the government transfers material control over tax revenue from the Treasury to the regions will we see real devolution of power and the ability of the UK’s major cities to plan and deliver long-term programmes of infrastructure investment.”

7. School budget protected

Julia Evans: FE sector vital

The government announced it would invest £23bn in school buildings, including 500 new free schools and rebuilding and refurbishing more than 500 schools. In addition, there was a commitment to maintain current budgets in the FE sector.

Julia Evans, BSRIA chief executive, said: “BSRIA is reassured that the chancellor will safeguard adult skills funding for FE colleges. Now he needs to invest in further education as a whole.

“A strong further education sector, which meets the industry’s needs, is vital to boost productivity and ensure firms get access to the skilled staff they need for the future, especially in the STEM subjects. Let this government not be the one to let down another generation of ambitious youngsters.”

8. Reduction of Energy Company Obligation and the Renewable Heat Incentive

According to the spending review, the ECO “will be replaced from April 2017 with a new cheaper domestic energy efficiency supplier obligation which will run for five years. The new scheme will upgrade the energy efficiency of over 200,000 homes per year.” However, current ECO policy has delivered measures to 1.3 million homes in less than three years.

Alongside this cut the renewable heat incentive (RHI) has been allocated a budget of £1.15bn up to 2021, which represents a £700m reduction on current budgets.

Julie Hirigoyen, chief executive at the UK Green Building Council, said: “The chancellor was keen to emphasise the government’s green credentials ahead of Paris, but they are going backwards on one of the most cost-effective opportunities – improving the energy efficiency of our existing housing stock. The cuts to ECO and RHI will see more jobs lost in the industry and vulnerable households will continue to be trapped by unaffordable energy bills.”

She continued: “Upgrading the UK’s draughty homes is a key infrastructure challenge which can reduce pressures on our energy system, bring down consumer bills and ease the burden of cold homes on NHS budgets. The chancellor repeatedly talks about productivity, but here he is just discouraging investment and destroying a market.”

9. Industrial strategies 

There was a commitment to “industrial strategies” but the construction strategy was not specifically mentioned.

Dr Diana Montgomery, chief executive of the CPA, said: “Finally, we’re encouraged to hear the government indicate its support for the industrial strategies. While the details are yet to be revealed, we believe that this commitment to long-term policy measures will underpin business confidence. Today’s statement reflects a range of issues relevant to both the chancellor and the UK construction industry where a long-term strategy for manufacturing will help boost economic growth and productivity.”

10. Apprenticeship levy 

The apprenticeship levy will come into effect in April 2017, at a rate of 0.5% of an employer’s pay bill. A £15,000 allowance for employers will mean that the levy will only be paid on employers’ pay bills over £3m.

Read a full analysis of the impact of the levy here.

The CIOB’s policy officer David Hawkes said: “Although we welcome the news of a further 3 million apprenticeship starts by 2020, shifting the emphasis on firms to train their own staff, the government must work closely alongside professional bodies and employers to design and implement high-quality, robust standards that meet the needs of the construction industry. Furthermore, clarity on the role of the CITB moving forward must be made to give confidence to employers.”

Mark Beatson, chief economist for the CIPD, said: “The apprenticeship levy could prove to be a double-edged sword in that the new charge of 0.5% of payroll may improve the quality of apprenticeships but it could also squeeze out training opportunities for other sections of the workforce.

“If we are to raise the productivity of the UK, we need to see a fundamental review of the skills policy from government and for organisations to invest more in training and skills development for the many, not just the few.”

And Carolyn Fairbairn, director general of the CBI, said: “With the levy set at 0.5%, even those businesses most committed to training and development won’t be able to recoup their outlay, and it looks like an additional payroll tax.”

And at Aecom, Richard Robinson, chief executive for civil infrastructure, said: “Given the recent CBI/Aecom infrastructure survey found that 81% of organisations want to see improved apprenticeship funding, the levy come as a blow to their hopes.”