x Abu Dhabi, UAEThursday 27 July 2017

Quick fix hard to construct for UK

Despite building work across London, the state of infrastructure renewal in the country as a whole is not so promising.

Construction work at the Crossrail site at Canary Wharf in London. Work on the link will continue until 2018. Rupert Hartley / Bloomberg News
Construction work at the Crossrail site at Canary Wharf in London. Work on the link will continue until 2018. Rupert Hartley / Bloomberg News

Look out of many London suburban windows and it is not uncommon to see builders at work on loft conversions, extensions and new roofs.

On a somewhat bigger scale, the striking Shard of Glass, a towering spike of a building that thrusts 310 metres upwards into the sky beside London Bridge station, had its topping-out ceremony just eight months ago.

And work will go on until 2018, on current estimates, on building the Crossrail link that will run through the city to and from neighbouring counties.

At first glance, especially to an outsider who has been living away from the United Kingdom, it adds up to a picture of construction in rude health. Moreover, the man with the purse strings, George Osborne, the chancellor of the exchequer, or finance minister, has just announced a £5 billion (Dh29.45bn) boost for capital expenditure in his autumn budget statement.

But if the picture does not lie, it presents a distorted impression of the state of infrastructure renewal in the country as a whole.

"I don't like to talk about a north/south divide because the south-west is having a hard time, too," says Noble Francis, the economics director of Construction Products Association (CPA), representing UK manufacturers and suppliers to the industry.

"But it is a case of London and the south-east, with some isolated areas of eastern England, versus the rest.

"What we see is this very regionalised picture with quite a lot going on in and around London and very little in those others areas. Economic activity in London is very similar to what it was in 2008, whereas it has fallen by 4 per cent in the north-east."

So while much of the UK is affected by a lack of confidence, or the funding, to push ahead with new projects, official statistics suggest it is premature to pin hopes on infrastructure development offering Britain a quick route out of decline.

The UK office for national statistics, the executive arm of the UK statistics authority, which reports to parliament, revealed last month that construction output had dropped for the fifth successive quarter to its lowest level since the second quarter of 1999.

Decline had been experienced in almost every sector of the industry, leaving output in the third quarter of this year 2.6 per cent lower than in the preceding quarter and 11.3 per cent lower on a year-on-year comparison.

The CPA, which speaks for a sector with an annual turnover of £50bn and that accounts for two fifths of total construction output, places the lion's share of blame on the sharp impact of public-sector cuts.

Public housing output was 18.7 per cent lower than a year ago and public non-housing output, mainly construction work in education and health services, was 19.7 per cent down.

"Worryingly the private sector, which it was hoped would offset these falls and lead the construction recovery, is now also falling sharply, with the private commercial sector, the largest construction sector, 17.4 per cent lower than it was one year ago," says Mr Francis.

"Despite an array of recent government announcements focusing on infrastructure and private housing, very little of this has yet translated into actual work on the ground."

The association is not alone in believing it should be and, with a more positive government approach, could be otherwise.

Financial experts argue investment in infrastructure - from large-scale construction to utilities and transport projects - could play a crucial role in boosting the economy generally.

It has been estimated that for every £1 spent on building work, the economy benefits to the tune of £2.84, with a self-evident fillip for employment.

But nearly two years have passed since the coalition Conservative/Liberal Democrat government abandoned private finance initiatives, under which the private sector was encouraged to provide hospitals and other public service buildings and operate them for profit, as not offering value for money.

The industry is still waiting for a replacement that would give private industry, which already supplies two thirds of infrastructure investment, encouragement to pump in more money.

Sources such as pension funds, private wealth management and sovereign wealth funds could offer a potential development fund worth billions of pounds.

But, as the Financial Times recently observed, there are barriers to overcome. Not least, it added, was the need for "clear strategic priorities and certainty about policies on energy and airports" and some way of overcoming the fears of investors who "like the long-term income streams from infrastructure but are nervous of construction risks such as cost overruns".

For the CPA, concerned that troubled times for the industry are set to continue for many months to come, the answer must come in large measure from the government.

"Look at government spending," says Mr Francis. "For all the talks of cuts, spending is actually rising because of increases in pensions, welfare, wages and salaries. It would make a big change if, instead of devoting more to current expenditure, we stopped cutting capital investment, which has dropped 21 per cent in three years."

He believes the chancellor's extra £5bn for capital spending helps only a little because it is to be spread over three years and is dwarfed by the industry's accumulating revenue losses.

"It is better news for road investment, on course to be 40 per cent down this year, because the £725 million extra he has set aside for next year will be repair and renewal, which is quick to get off the ground and also labour-intensive."