Archive for the ‘Construction Output Fall’ Category

Fall in Output from Construction Sector

Mardi, mars 12th, 2013

An opposition Labour party press release on Twitter says “Shocking Construction output figures from the ONS, shows that Cameron and Osborne’s economic plan isn’t working“.
To describe this as “shocking” is to use rather over-blown language on the electorate for effect before examining the detail, but output from the British construction sector fell 6.3% in January, 2013 and is still 7.9% lower than a year ago. The major contributor to this overall decline was the private (and largest) sector with 22% of construction output and over which investment government has less control, but this contributed an even larger 14% decline compared with a year ago.
The challenge for this government with its severe budget constraints is then how to balance limited funding of major public projects (over which it has more control), with also encouraging the important private sector (over which it has less control) to take more risk, in order to develop overall growth in the construction sector.
Vince Cable, the Business Secretary, is already calling for more borrowing to invest in schools, transport and homes, while the British Chambers of Commerce (BCC) wants the government/Bank of England to underwrite private investment in infrastructure projects to lower the costs of funding.
Taken together with the tightening regulation and deleveraging of the financial sector which is driving up costs, adding to the uncertainty and restricting the flow of credit , there is a current risk-averse culture in the private sector of the economy which is difficult for the government to offset, without accepting too much of the risk (cost).
One of the most challenging future construction projects is for new nuclear power stations which both the present government and the previous Labour one have pledged to build without public subsidy. In the final negotiations with EDF (which is 84% owned by the French state) for support in building the first new reactor in Britain in two decades at Hinkley Point in Somerset, EDF is asking the government to underwrite part of the project to reduce finance costs, as well as for “change of law” protections against policy changes by future governments. EDF and its possible future investing partner in the project China Guangdong Nuclear Power, are also expecting a minimum electricity supply price to be legislated by the government, to be able to recover the £14 billion construction cost over the project operating cycle. This minimum supply price is likely to come out at around twice the current market rate for power meaning that the British consumer will also have to contend with significantly higher electricity bills.
If the British government to meet its low carbon targets finally underwrites the financing and subsidises the output price, it needs to negotiate in exchange a maximum transfer of technology know-how and project content to British companies such as Rolls Royce, to re-build local capability in the nuclear industry and reduce the outflow of billions of pounds to such foreign suppliers in the future.
Reference: Business Section of Sunday Times 10th March, 2013.