CIC Economics and Policy Forum

The 2011 Budget and ConstructionSimon Rawlinson | March 2011

30 March 2011 |

= £100 million

Source: HM Treasury

30 March 2011 |

Contents

■ Key themes

■ Macro-economic background

■ Key measures

■ Impact on sectors

■ Plan for growth and the place for construction

■ Joining up the dots

30 March 2011 |

So this is our plan for growth.

We want the words:

‘Made in Britain’ ‘Created in Britain’

‘Designed in Britain’ ‘Invented in Britain’

To drive our nation forward.

A Britain carried aloft by the March of the Makers

30 March 2011 |

What should a Plan for Growth Address?

• Supply-side constraint

• Market failure

• Increasing the competitiveness of the tax system

• Transport and Energy Infrastructure• Low carbon infrastructure• Industrial capacity• Commercial space• Research and development Infrastructure• Housing

• Cost of delivery of infrastructure• Funding• Training and career development• Ease of engagement• Planning and regulation

• Competitiveness and certainty of business taxation

• Simplicity of operation• Support for investment and operation

30 March 2011 |

Key themes

■ Catch-up Britain

– Relative competitiveness– Attraction as a location to innovate and grow– Improving the UK’s export orientation– Developing a flexible, well-educated workforce

■ The Government’s room for manoeuvre

■ Pace of Policy Change

■ The Elephants in the room

30 March 2011 |

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

-20.0

-10.0

0.0

10.0

20.0

30.0Gross DomesticProduct

Output (2000 prices)

Macro-economic background

Forecast June ‘10 June ‘10 Nov ‘10 Mar‘11

2011 GDP

growth

2.6 2.3 2.1 1.7

2.9

2013/14

2.82.92.51.7GDP

growth

2015/162014/152012/132011/12FY

2.9

2013/14

2.82.92.51.7GDP

growth

2015/162014/152012/132011/12FY

■ GDP Growth down-graded in the short term

■ Fiscal tightening accelerates

30

80

110

2014/15

12688614110Total

955938226Spending

23

2012/13

3029214Taxes

2015/162013/142011/122010/11FY

30

80

110

2014/15

12688614110Total

955938226Spending

23

2012/13

3029214Taxes

2015/162013/142011/122010/11FY

■ Structural deficit is planned to eliminated by 2014/15

■ The economy is planned to rebalance around investment and net trade

30 March 2011 |

Macro-economic risks

■ Size of the output gap

Source: NIESR

■ Impact of inflation

Source: BoE

30 March 2011 |

Key Budget Measures

■ Key measures - taxation

– Corporation Tax

– Improvements to tax administration

– Increases in Entrepreneur’s Tax Relief

– Fuel duty escalator replaced by Fair Fuel Stabiliser

■ Key measures – increasing capacity

– Simplified Regulation of the SME sector

– Support to the advanced manufacturing sector

– 50,000 apprenticeships

– 24 University Technical Colleges - £150 million

– R&D tax credits for SMEs

Competitiveness and incentive

Certainty for investment

30 March 2011 |

Key Budget Measures

■ Key measures – energy and climate change

– Green Investment Bank

– Carbon floor

– Extension of carbon change arrangements

– Zero-carbon home definition

■ Key measures – stimulating private sector demand

– Simplified taxation of REITs

– Reform to Stamp Duty land tax

– Simplified planning

Competitiveness and incentive

Certainty for investment

30 March 2011 |

Impact on Sectors

Housing and Regeneration. • Homebuy - £200m• Stamp Duty Land Tax• Planning reform• Renegotiated s106

Education • £150m for University Technical Colleges• £100 for R&D infrastructure

Local Government

• Enterprise zones and TIF arrangements for business rates

• Impact of s106 negotiation on ability to deliver existing programme

Transport

• Fair Fuel Stabiliser• £200m rail investment• £100m road repairs

Energy and Carbon Change

• Carbon Floor• Green Investment Bank

30 March 2011 |

Plan for Growth – Key Strands

Competitive taxation

• Lowest corporation taxes in the G7

• Best location for Corporate HQ in the EU

• Simpler and more certain taxes

Best place to start and grow business

• Move back up international competiveness rankings

• Reduce domestic regulatory burdens

• Increase finance available for start-ups and expansion

• More responsive and certain planning

Export orientation

• Top destination for Foreign Direct Investment

• Increased exports in key markets

• Increased employment in the private sector

• Increased investment in the low carbon economy

Educated and flexible workforce

• More apprenticeships

• Support to top Universities to have the highest number of top institutions outside of the US

• Increased participation of 16-24 year olds

• Narrow education attainment gap

• Lowest regulatory burden on employment in the EU

30 March 2011 |

Plan for Growth – Planning

■ Planning decisions should prioritise growth and jobs

■ A powerful presumption in favour of sustainable development

■ A pro-growth National Planning Policy Framework

■ Businesses able to engage in the neighbourhood planning process

■ Localised targets for the re-use of previously used land

■ Consultation on conversion from commercial to residential

■ Streamlined planning system including a 12 month guarantee (including appeals)

■ Fast track planning for major infrastructure

30 March 2011 |

Plan for Growth – Regulation

■ 3 year moratorium on new regulation for micro-business

■ Scrapping of regulations costing £350m per year

■ Consultation on reducing the Regulation Stock

■ Simplification of employment legislation

■ Changes to Health and Safety regulation and practice

■ Revisions to EU regulation and Regulatory Culture in EU

30 March 2011 |

Plan for Growth – Construction

■ Publication of a long-term forward view of projects and programmes

■ Reforms to construction procurement to drive a cost reduction of up to 20%

■ First Buy programme aimed at helping 10,000 housebuyers

■ Accelerated release of public sector land for development

■ Reforms to SDLT to increase institutional demand for residential

■ Removal of entry barriers to REITs

■ Review of regulations and codes

■ Confirmation of the Zero Carbon Homes standard to apply from 2016

30 March 2011 |

Joining the Dots

1.6

6.9

9.3

2.9

-16.5

4.0

-9.0

2013

9.0

-5.8

4.8

20.6

24.3

12.0

30.0

2010

3.1-1.0-1.7Total new work

2.53.20.1Commercial

7.86.54.1Industrial

2.84.33.0Infrastructure

-7.8-16.7-11.1Public non-housing

7.02.02.0Housing - Private

-7.0-15.0-13.0Housing - Public

201420122011

1.6

6.9

9.3

2.9

-16.5

4.0

-9.0

2013

9.0

-5.8

4.8

20.6

24.3

12.0

30.0

2010

3.1-1.0-1.7Total new work

2.53.20.1Commercial

7.86.54.1Industrial

2.84.33.0Infrastructure

-7.8-16.7-11.1Public non-housing

7.02.02.0Housing - Private

-7.0-15.0-13.0Housing - Public

201420122011

x

x

?

Source: CPA

30 March 2011 |

Joining the Dots

■ The hard decisions were made in the November CSR – but implementation has barely started yet

■ The Chancellor is likely to have little wiggle room throughout the CSR period – there can be few budget surprises in the future

■ The 2011 budget is fiscally neutral but supportive of business

■ Long term changes introduced as part of the plan for growth have a surprising upside for construction

■ Construction is part of the solution in the Plan for Growth – not a target for support.