Builders brace for loss of government work

Building companies are poised for a painful reduction in government-funded work this year, with the general election expected to trigger a run of sharp spending cuts on infrastructure projects, such as schools and hospitals.

In a report published on Monday, the construction industry's leading trade bodies suggest that the sector, which last year endured historic falls in output, faces the grim prospect of further declines in work levels in 2010.

Construction output slumped 12 per cent last year, the biggest fall since records began in 1955, and the sector has accounted for the highest number of insolvencies and redundancies since the start of the recession.

During the past 18 months state-funded infrastructure projects have offered a lifeline to contractors, as work on new residential and commercial developments dried up amid low consumer confidence and constricted lending levels.

Now though there is growing concern that a new government, wanting to make visible reductions in public spending, would scrap lucrative infrastructure contracts which usually require a large capital outlay to at the beginning of the project.

Stephen Ratcliffe, director of the UK Contractors Group, said: "The amount of public spending on construction following the election is going to be crucial in saving jobs in the industry."

Recent research into the economic value of investment in construction suggested that every £1 spent on construction creates a net economic gain of £2.84.

However, Mr Ratcliffe said the industry still had a lot of work to do if it was to succeed in convincing "politicians that spending on infrastructure investment is the best way to stimulate the economy,"

Lower levels of investment in infrastructure projects, which also include road and railway developments, would be felt across the industry. However, bigger contractors - which are geared towards large-scale developments - would feel the effects most severely.

"We know that which ever government gets it, there is going to be a reassessment of spending priorities and at some point this is going to cause some of our markets to go backwards," said Ian Tyler, chief executive of Balfour Beatty, the UK's largest contractor.

"It's very difficult to see when the commercial and residential building markets will pick up, and therefore whether or not they will offset the public spending cuts," Mr Tyler added.

The report also shows that overall construction work continued to decline during the final 3 months of 2009 in spite of the wider economy returning to growth.

As well as worries about public spending cuts, the report said rising material costs and increasing fuel and energy prices, coupled with decreasing orders and enquiries would delay any recovery in the sector for at least another 12 months.

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