Emergency Budget
Just in case you missed it, the Chancellor of the Exchequer presented the new Government’s emergency budget on Tuesday 22 June. The increase in VAT from 17.5% to 20% has certainly caught the British press’s attention. Those involved with projects and the construction industry will be as interested in this major change as high street retailers and consumers. It could be a struggle to pass on such a mark-up to already financially straitened clients, so this could affect the bottom line of contractors.
Besides VAT, there are many other things in the budget worth highlighting to players in the PPP/PFI market. The Government’s support of the Tyne and Wear Metro, the Manchester Metro Link and the redevelopment of Birmingham New Street seems heartening news for an English audience, especially when contrasted with the Chief Secretary’s announcement to suspend the Search and Rescue Helicopter PFI and the proposed review of the entire Building Schools for Futures (BSF) programme. The Government has also made clear that other than the capital element of the £6.2 billion savings in 2010-11, no further cuts in public sector gross investment will be made as compared to the plans it inherited from its predecessor. Instead it will undertake a review of all capital spending plans to ensure affordability and to identify the areas of spending that will achieve the greatest economic returns.
Also of interest is the Government’s decision to sell the 30 year concession for the operation of High Speed One, the rail link from St Pancras to the Channel Tunnel, and the Dartford Toll Crossing. This will help to reduce the UK’s deficit, but will also present opportunities for prospective investors, a number of which are already rumoured to be interested. The Government has also explicitly recognised the important role investment in infrastructure plays in supporting economic growth and UK competitiveness and, while continuing to strive to reduce the deficit, it will continue to encourage increased funding for infrastructure projects from the private sector. Any public sector investment in infrastructure is to be targeted on projects with the greatest economic benefit for which private sector capital is not available.
As a whole, it seems the emergency budget has been kinder to the PFI/PPP sector than was predicted by some. More general measures, such as a decreasing rate of corporation tax and the Regional Growth Fund (which gives businesses in selected areas reductions in their National Insurance contributions) will aim to aid enterprise and stabilise the UK economy in the drive to private sector led growth. As with so much in life though, the proof of the pudding will be in the eating. The Chancellor, and many others, will be hoping his latest recipe does not leave a bitter aftertaste.