Tim Willis: 2009 Budget is a bitter pill to swallow.

No relief from the Chancellor

Published:  21 May, 2009

BUDGET: April's Budget included a  raft of headline-grabbing measures, from investment in new carbon-efficient social housing to business-friendly trade credit protection. It gave the impression that the Government…

is keen to treat the malaise affecting the industry.number of measures which should have bought some comfort to the hard-pressed construction sector.

Up to £5bn of trade credit insurance was announced to assist companies who have had their existing insurance withdrawn. This insurance would have protected them from non-payment by their customers.

The Government-backed scheme, which is being operated through several private companies, looks like a lifeline for companies who would otherwise not be able to guarantee their income. However, examining the small print reveals that few companies will be able to access the cover.

The eligibility criteria for businesses wishing to participate is very stringent. Terms include the company holding a full-turnover credit insurance policy. This provides cold comfort for those companies who have already had their cover downgraded. Furthermore, companies that have had their credit insurance removed entirely, will not be able to participate in the scheme.

Other headline-grabbing announcements – including £500m to restart stalled housing projects and efforts to improve carbon efficiency of buildings – have similar catches buried in the small print.

Industry forecasters expect that 100 000 fewer new homes will be built this year.

Developers need a sure signal from the Government that it is committed to reinvigorating the market. The £500m is a drop in the ocean compared to the fall in revenue that the construction industry is currently experiencing.

Developers will need to apply for funding from the Homes and Communities Agency (HCA) and put forward formal proposals, including details of how to fill the funding deficit with gap funding, grant funding and equity funding. 

The HCA expects to shortlist potential companies this summer, with contracts signed by the end of the year. The uncertainty will do little to help those developers who urgently need an interim lifeline.  

The Government predicts that 10 000 new homes will be built as a result of the extra funding.

The Local Government Association (LGA) has stated that it expects only around 1000 to 2000 additional homes to be constructed in the next two years as a direct result of the funding.

This will barely make a dent in the number of new homes needed to meet either the Government's own targets to increase the housing supply or to stem the demand for social housing. With mortgage approval rates at rock-bottom levels, demand for new housing from the private sector remains low.

Measures to fund improvements to the carbon efficiency of households, public sector buildings and businesses include spending of £365m, with £100m made available as low cost loans to small-to-medium businesses looking to make energy-efficiency improvements.

These loans will be delivered by the Carbon Trust,. They will require eligible businesses to undertake the necessary planning to access the finance.

A further £65m of loans will also be available for public sector buildings. Despite being touted as the first ‘carbon budget', these measures do little to help achieve the Government's own target to reduce UK carbon emissions by 34% by 2020.

The symptoms currently affecting the industry require much stronger remedies. For many in construction, the Chancellor's 2009 Budget will be a bitter pill to swallow.

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