CIC Economics and Policy Forum The 2012 Budget and Construction

1. CIC Economics and Policy ForumThe 2012 Budget and Construction Simon Rawlinson | March 2012

2. Budget 2012 – Unit of Comparison = £100 million = £50 million Source: HM Treasury

3. Plan for Growth Agenda • Supply-side constraint • 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 • Market failure • Increasing the competitiveness of the tax system • Competitiveness and certainty of business taxation • Simplicity of operation • Support for investment and operation

4. Source: HM Treasury

5. FY Year 2011/12 2011 2012/13 2012 2013/14 2013/14 2014/15 2014/15 2015/16 2015/16 GDP GDP 1.7 0.8 2.5 0.8 2.9 2.0 2.9 2.7 2.8 3.0 growth growth Macro-economic background – GDP Growth • 2011 forecast 2011 to 2015 = 13.5% • 2012 forecast 2011 to 2015 = 9.6%

6. FY FY 2010/11 2010/11 2011/12 2011/12 2012/13 2012/13 2013/14 2013/14 2014/15 2014/15 2015/16 2015/16 Total Total 10 10 41 41 61 61 88 88 110 110 126 126 Spending Spending 6 6 22 22 38 38 59 59 80 80 95 95 Taxes Taxes 4 4 21 21 23 23 29 29 30 30 30 30 FY FY 2010/11 2010/11 2011/12 2011/12 2012/13 2012/13 2013/14 2013/14 2014/15 2014/15 2015/16 2015/16 Total Total 10 10 41 41 61 59 82 88 110 106 126 134 Spending Spending 6 6 23 22 38 37 57 59 80 79 106 95 Taxes Taxes 4 4 21 18 22 23 29 25 27 30 28 30 Macro-economic background – fiscal consolidation

7. Macro-economic background - rebalancing • Higher Investment • Less net trade • Deeper cuts in Gov’t consumption • More private consumption

8. Macro-economic background – output gap Source: NIESR Source: BoE

9. National Infrastructure Plan £250bn of new projects £26bn investment announced in November 2011 • Infrastructure funding • 60% to be privately funded – no constraint, but new models of finance needed • 20% funded via a PPP model • 2/3rds cost picked up by service users through charges • Enabling measures – attracting investment • Planning Policy Framework • Electricity Market Reform • Major Infrastructure Planning Unit • Green Investment Bank • Business tax reform

10. Key Budget Measures – supply side efficiency • Key measures – encouraging investment • National Loan Guarantee Scheme • R&D tax credits • Enterprise zones – some with 100% capital allowances • Employee ownership • Simplified regulation • Red Tape Challenge results - £3.3bn compliance cost reduction • Contaminated land guidance - £140m per year • Simplified taxation • Key measures – increasing capacity • Planning Policy Framework • Pension fund infrastructure model – including project funding • Roads funding model – based on successful utilities models • Super connected broadband – 10 second tier hubs • Additional rail investment - £130m to expand Northern Hub • Aviation review

11. Key Budget Measures – small business investment • Cashflow-based taxation for small business below the VAT threshold • Affects 3million enterprises • Revenues up to £77,000 • Small business employment incentive • Simplified business regulation • Environmental regulation - £1bn pa • Simplified HSE arrangements for SMEs • Reduced producer responsibility for SMEs

12. Key Budget Measures – capital investment announcements • £150m - Get Britain Building • £130m – Manchester Rail Hub • £270m – Growing Places Fund • £115m – Armed Forces Accommodation • £60m – Aerospace Innovation Centre • £100m – University Research Facilities • £50m – Second Wave Super-fast Broadband • £150m – Tax Incremental Funded projects • £20bn – National Loans Guarantee Scheme • Assured low cost borrowing • £700m – Business Finance Partnership • £1.2bn in total • £100m via unconventional channels • £1.2bn – Local Authority earn-back model • £2bn – pension investment vehicle X 20 X 480

13. Impact on Sectors • Housing and Regeneration. • New Buy – 100,000 homes • Stamp Duty Land Tax • Get Britain Building - £150m • Social Housing REITs • Accelerated release of Gov’t Land • Education and R&D • £100m for R&D facilities • £60m Aerodynamics Centre • Normalisation of VAT for public and private universities • Transport • Pension Infrastructure Platform • Ownership and financing for National Road Network • A14 proposals - Summer 2012 • £130m Northern Hub, £56m Bexhill to Hastings • Local Government • TIF arrangements for all LA’s - £150m funding • LA earn-back model - £1.2bn – six cities to follow • 5 new EZs with 100% capital allowances • Energy and Carbon Change • “Unlocking” of 4GW of energy projects – radar interference • CFT exemption for gas-fired CHP • Gas generation strategy Autumn 2012 • CRC reform

14. Key Budget Measures – devil in the detail? • Impact of the replacement CRC tax • Cost of the Carbon Price Floor - £1.6bn pa from 2016 • Growing Places funding – sourced from Departmental Savings • VAT equalisation for repairs to listed buildings • Capping of the total value of tax reliefs • VAT equalisation for providers of university education

15. Overall impact on construction markets? ?  ?   ? Source: CPA

16. Joining it all up • Headline measures will have a limited impact on the industry • Capital investment driven by the private sector – some progress here • Progress on many key supply side initiatives • Impact of regulatory reform will be felt from now on • The 2011 budget is fiscally neutral but supportive of business • Limited positives for construction – as part of a wider solution

17. CIC Economics and Policy ForumThe 2012 Budget and Construction Simon Rawlinson | March 2012