黑洞社区

On 12 May 2010, David Cameron and Nick Clegg both signed what they knew to be a historic document: a brisk but wide-ranging 36-page joint programme for what was to be the first coalition government in the UK for nearly 40 years. In many areas the coalition agreement was short on detail but long on promises, pledging nothing short of an end to 鈥渂ig government鈥�, and a distribution of power and opportunity to people 鈥渞ather than hoarding authority within government鈥�.

For construction, the (nearly) five years since Cameron and Clegg鈥檚 rose-garden love-in have been among the most brutal in living memory, and only in the last 18 months have many firms begun to see chinks of light amid the darkness. But with the 2008 financial crisis leaving the UK massively indebted, and low global growth continuing, there are few who would lay the blame for austerity wholly (or even mostly) at the coalition鈥檚 feet.

So, given the cards it was dealt, how has the coalition performed? Next year, 黑洞社区 is planning to launch its own manifesto for the construction industry, based on our consultation with the sector undertaken over the past 12 months. In advance of that, and following last week鈥檚 set-piece Autumn Statement, 黑洞社区 looks in detail at the record of the Conservative-Lib Dem administration, against both the promises it made, and the hopes and aspirations of the industry itself.

Of course, behind all of these individual policy decisions has been the overarching spectre of the financial crash, and the ballooning national debt incurred to bail out the banks. And nowhere will the record of the government be more debated than in this area, despite rapidly rising GDP in the last year.

After entering government, chancellor George Osborne quickly pledged to get the UK economy back on its feet through measures which would see balance brought to the current budget by 2015-16, and national debt falling by the same year. Since then the target date for one has been extended, and the other is on course to be missed, with public debt now expected to peak at over 80% of GDP in 2015/16, when it was predicted, in 2010, to hit a maximum of 70%. This has been caused by the lack of growth in the economy, with figures showing (despite recent upwards revisions) that annual growth has until recently been well below 2%, compared with predictions in 2010 of about 3% from 2011 onwards.

Consequently construction output has been very sluggish. Despite recovery over the last year, in the most recent 12-month period it was 拢118bn, still below the 拢119bn recorded in 2010 on the back of Gordon Brown鈥檚 fiscal stimulus, and 9% below the peak recorded in 2007 at the height of the last boom. Critics of the government鈥檚 approach, not least business secretary Vince Cable, have suggested that recovery was delayed by the coalition鈥檚 unwillingness to borrow more to invest directly in construction. In defence, Osborne maintains his credible deficit reduction plan has kept the economy moving by keeping interest rates low.

Either way, a recovery of sorts is under way: quarterly construction output this summer was 6% up on that a year ago, albeit that the most recent monthly figures have suggested growth is moderating. But it is not just in its stewardship of the economy that the government will be judged by the industry: it is also in what it spends its money on, how it buys construction, how it regulates businesses in the sector and how it reforms policy to improve the way the industry works. Over the following four pages, we assess its record.

Housing

Coalition promises:

• Abolish Regional Spatial Strategies (RSS) and return planning decision-making powers to local councils. MET: Government legislated abolition of regional strategies.
• Introduce neighbourhood plans to give communities more grassroots control over development. MET: Around 400 neighbourhood plans have been developed.

Promises met* 2/2

How did it do overall?

The coalition entered government enthusing about the joys of giving planning powers back to communities, a tune which wasn鈥檛 music to the ears of housebuilders. Eric Pickles, secretary of state for communities, moved swiftly to implement neighbourhood planning and abolish the RSSs, two Conservative manifesto pledges which had made it into the coalition agreement.

But while the government may have hoped that a newly empowered local government would deliver a tide of development, the opposite proved to be the case. Against a backdrop of the deepest recession since the Second World War and huge cuts to the social housing development budget, the number of homes started in 2011-12 was a historically low 104,970.

This reality check prompted a raft of initiatives, such as promoting shared home ownership and promising councils a bigger share of any revenues generated as a result of new housing development. After several years of stuttering delivery, what appears to have finally done the trick now is an old-fashioned combination of deregulation and a stimulus package.

The introduction in 2012 of the National Planning Policy Framework (NPPF), which has stopped councils being able to block developments if they lack an up-to-date forward plan, has been a boon for housebuilders. The 12 months following the publication of the NPPF saw a dramatic increase in the number of planning permissions awarded for new homes. Home Builders Federation director of economic affairs John Stewart believes the industry is in the 鈥渂est position the housebuilding industry has been in for over 25 years鈥�.

But the real game changer in terms of delivery was the introduction of the Help to Buy initiative, which is effectively a guarantee for mortgage lenders. At first just targeted at new build properties, the initiative was extended to all purchases below 拢600,000 last year.

Figures published in September showed that housing starts were just over 137,000 in the year ending June, up 34% on the previous year.
However there is still a long way to go - this latest figure is nearly a quarter below the pre-recession peak recorded in early 2007 and is just over half the 250,000 new homes that experts say are needed to keep pace with demand. The average annual building rate across this parliament has been lower than for any other for which records exist.

Nevertheless, Stewart, who praises the government for putting an 鈥渆normous effort into initiatives to boost housebuilding鈥�, says: 鈥淲e are starting from a very low base; however, we are on an upward trajectory.鈥�

Overall rating 3/5

* Half scores awarded where pledges partially met

Sustainability

Coalition promises

• Measures to make the import or possession of illegal timber a criminal offence. PARTIALLY MET
• To take forward the findings of the Pitt Review to improve flood defences and prevent unnecessary building in areas of high flood risk. PARTIALLY MET
• To encourage home energy efficiency improvements paid for by savings from energy bills via the Green Deal. Also to take measures to improve energy efficiency in businesses and public sector buildings. PARTIALLY MET
• To reduce central government carbon emissions by 10% within 12 months. PARTIALLY MET
• To establish a full system of feed-in tariffs in electricity - as well as maintain banded Renewables Obligation Certification. PARTIALLY MET
• To require continuous improvements to the energy efficiency of new housing. PARTIALLY MET
• To create a green investment bank. MET

Promises met* 4/7

How did it do overall?

While the view of many in the industry has been that the government has had a mixed record on its green agenda, it has nevertheless delivered much of its programme. The biggest success, the Green Investment Bank, has leveraged 拢4.8bn of investment, from 拢1.8bn of public money, into green projects.

The problem is that achievements have been undermined by unexpected policy changes, and few regard prime minister David Cameron鈥檚 promise - made days after the coalition was formed - to become the 鈥済reenest government ever鈥�, to have been honoured.

The flagship Green Deal policy was introduced later than expected, in January 2013, but has failed to live up to expectations. Former minister Greg Barker was forced to admit after a year that his prediction of 10,000 Green Deals in its first year was 鈥渟pectacularly wrong鈥� - even nearly two years in, just under 5,000 have been signed. Its sister scheme, the Energy Company Obligation has also been radically cut.

The coalition did outlaw the import of illegal timber as it had promised in 2013. However, Lend Lease and Carillion were among a group of businesses that wrote to the government in September to pressure it to close loopholes in the law that still allow some products made from illegal timber to come into the country.

The handling of the solar feed-in-tariff was a big disappointment, with the government rushing through a near 50% cut in the tariff (later overturned in the courts) after the money began to run out. Legal challenges to the decision merely meant the cut was imposed later. It pitched the industry into months of uncertainty, cost jobs and scared off customers. 鈥淚t was catastrophically handled,鈥� says sustainability expert David Strong. 鈥淭he consequences were devastating for the industry.鈥�

It has also rowed back on expectations of green regulations on domestic properties, with former housing minister Grant Shapps鈥� pledge to sort out a final definition of the 鈥渮ero carbon鈥� within weeks of assuming government still unfulfilled to this day. When delayed improvements to 黑洞社区 Regulations on the energy efficiency of new homes were finally unveiled last year, they were at a lower level than expected.

The coalition鈥檚 actions do live up to some of the wording of its original plans but perhaps not the rhetoric of 鈥渟upporting green growth and building a new and more responsible economy鈥�.

Overall rating 1/5

* Half scores awarded where pledges partially met

Transport

Coalition promises

• To establish a national high-speed rail network. MET: The government has legislated for the first leg of the network from London to Leeds and Manchester.
• To block third runway at Heathrow. MET: Decision on future of south-east air capacity to be made after next election following report of the Davies commission.
• To build Crossrail. MET

Rating against promises* 3/3

How did it do overall?

The original coalition agreement had a green tinge on transport policy. It contained a pledge to introduce a national recharging network for electric cars, for example, but nothing about road building. Not all of that early enthusiasm has survived the reality of government. The coalition has delivered on pledges on high-speed rail and Crossrail, which Alexander Jan of Arup describes as a 鈥渞eal achievement鈥�. Progress was also made on other long-needed projects such as the redevelopment of King鈥檚 Cross.

The government has found a renewed enthusiasm for road building, with this year鈥檚 Autumn Statement putting the detail behind last summer鈥檚 pledge to embark on the biggest road-building programme since the late eighties. But this is a promise for the next term, and must be set against the early cancellation of more than 拢1bn of road-building schemes, and a failure to grasp the nettle of charging road users. Still, greater operational freedom for the Highways Agency should deliver more certainty for road projects. The major blackspot is the continued dithering over south-east airport expansion. The government鈥檚 move to push back any decision on this until after the election looks to many like an abdication of responsibility.

Overall rating 3/5

* Half scores awarded where pledges partially met

PFI

Coalition promises

None. The Lib Dems鈥� manifesto included a pledge to set up a UK Infrastructure Bank to 鈥渞educe the cost of long-term funding as compared with the Private Finance Initiative鈥�. However, this has not been achieved.

How did it do overall?

While there were no explicit coalition promises made on PFI, senior politicians in both government parties had spoken out against the financing scheme in opposition, with George Osborne describing it as 鈥渇lawed鈥� and 鈥渢otally discredited.鈥� So it wasn鈥檛 much of a surprise when, in November 2011, Osborne put the PFI system under review, in the process suspending 61 schemes then being worked up.

After more than a year the government launched a revised version, called PF2, designed to put more risk on contractors, create more flexibility and limit super-profits. However, its use has been very limited, with an initial 拢1.75bn school building programme cut back by over 拢1bn.

After the number of PFI deals collapsed in 2011, it has picked up slightly, though as a proportion of all project finance deals done in the UK, PFI is now at its lowest level since at least 2007, according to research firm Dealogic. Richard Threlfall, head of construction at KPMG, says: 鈥淭here really is no PFI left, it seems the government never had any intention of resurrecting a PFI pipeline.鈥�

Overall rating 1/5

Health, justice and local government

Coalition promises

• To maintain spending on health in line with inflation. MET
• No top-down reorganisation of the NHS. NOT MET
• To focus justice policy on rehabilitating offenders rather than building more prisons. NOT MET

Promises met* 1/3

How did it do overall?

Health is one of the few areas of government spending not to have suffered cuts. However, even with inflation-linked funding rises, the NHS is failing to keep its estate up to scratch, says Conor Ellis, health sector partner at EC Harris.

He calculates that the backlog of maintenance and improvements across the NHS is about 拢1.5bn, back to the kind of level last seen a decade ago before the last Labour government鈥檚 increases in health expenditure really kicked in. Another headache, according to Ellis, has been the hiatus resulting from the government鈥檚 reorganisation of the NHS, which replaced primary care trusts with GP-led clinical commissioning groups. However, the picture in the health service is nowhere near as bleak as that for local government, which has seen a 30% reduction in expenditure during this parliament, with the prospect of more after next May.

Meanwhile, the early years of this parliament saw the Ministry of Justice turn somewhat counter-intuitively into one of the most liberal parts of government. Out went Labour鈥檚 plans to build a network of 鈥淭itan鈥� super prisons, as then justice secretary Kenneth Clarke focused on rehabilitating prisoners rather than locking them up. However, following Clarke鈥檚 departure from the MoJ in 2012, it has been back to business as usual on law and order: his successor Chris Grayling has revived plans for super prisons, with the first two commissioned earlier this year.

Overall rating 3/5

* Half scores awarded where pledges partially met

Energy and utilities

Coalition promises

• To make new nuclear construction possible via an agreement that Lib Dems MPs (who opposed new nuclear in 2010) abstain on relevant votes in parliament. PARTIALLY MET
• To continue public sector investment in carbon capture and storage (CCS) technology for four coal-fired power station. PARTIALLY MET

Promises met* 1/2

How did it do overall?

The government鈥檚 electricity market reform was not mentioned in the coalition deal but it is this, as much as the agreement that the Lib Dems didn鈥檛 rock the boat, that has facilitated progress on the 拢16bn Hinkley Point C nuclear power plant - which will be the biggest energy project of the last 20 years.

However, the start date for construction has been pushed back repeatedly and there is still no certainty that the 拢16bn scheme will go ahead. A decision from developer EDF is now scheduled for the first quarter of 2015, but the UK is a long way from having a programme for a new fleet of reactors. In the meantime, the energy regulator has warned that excess energy generation capacity has fallen so low that localised blackouts are a possibility. Other projects have progressed, including a number of major offshore wind farms and other nuclear power plants in Wales and Cumbria. The government鈥檚 first CCS investment programme collapsed in 2011 but since then a revived version has backed a development at the White Rose coal plant in North Yorkshire.

Luke Warren, chief executive of the CCS Association, says: 鈥淲hat is now urgently needed is a steady roll-out of projects to ensure that CCS becomes cost-competitive with other low-carbon technologies in the 2020s.鈥�

In 2012 Osborne sought to stimulate construction of gas power plants with his 鈥渄ash for gas鈥�, saying 40 power stations could be built over the next 20 years. But the main mechanism for encouraging this, auctions for government funding through its Capacity Market, will not start until next year. Although the government made few specific commitments to reform the energy market, it has become a major programme over the last five years. But it is all progressing at a snail鈥檚 pace.

Overall rating 2/5

* Half scores awarded where pledges partially met

Education

Coalition promises

• To allow 鈥渘ew providers鈥� into the state school system in response to parental demand - in other words, to allow creation of academies and free schools. MET: The Academies Bill was pushed through parliament within weeks of the coalition entering government. This paved the way for a new generation of free schools: 252 were open as of November 2014.
• To create new technical academies. MET: The government introduced University Technical Colleges, which combine practical and academic skills. More than 30 opened; a further 20 are due by 2016.

Promises met* 2/2

How did it do overall?

The coalition鈥檚 major aims for schools construction - to dramatically cut the cost of building and reprioritise spending around school condition rather than an area鈥檚 deprivation - were not in the coalition agreement but were made clear within weeks of forming government. In July 2010 it cancelled the previous government鈥檚 拢55bn 黑洞社区 Schools for the Future programme, scrapping 735 projects and placing 151 on hold. A review of school building, chaired by Dixons director Sebastian James, led to delivery body Partnerships for Schools being replaced with the Education Funding Agency, which was tasked with driving through a new era of standardised school design and cutting a third off the cost of building. The programme eventually introduced to do this, the Priority Schools 黑洞社区 Programme (PSBP), came to market in autumn 2012, more than a year later than expected. It was a largely capital funded programme rather than the PFI one originally envisaged, amid delays to the government鈥檚 wider PFI reform.

The PSBP has, on its own terms, been relatively successful despite its slow arrival - 261 schools are due to have been built by 2017, and costs are substantially less than under BSF thanks to increased standardisation and cut-back procurement. But hundreds of schools without investment remain in disrepair. Meanwhile the free schools programme has made little dent in a looming school places crisis: in 2012 it was estimated an extra 800,000 primary places would be needed by 2020.

When it comes to higher education (HE), however, the coalition鈥檚 decision to press ahead with increased tuition fees, despite the Liberal Democrats鈥� pre-election pledge to oppose this, inadvertently led to a boost for construction. The competition to attract students (and their funds) has driven universities to invest in their buildings: the higher and further education sectors accounted for 拢2.9bn of spend in 2013 compared with 拢2bn in 2011, according to Barbour ABI, with the bulk of this coming from HE.

Overall rating 2/5

* Half scores awarded where pledges partially met

Infrastructure financing

Coalition promises:

None. The closest the coalition came to a commitment on infrastructure finance in 2010 was to say it 鈥渂elieves that a modern transport infrastructure is essential for a dynamic and entrepreneurial economy鈥� - but there were no details on how this would be paid for.

How did it do overall?

Despite the lack of concrete pledges, over the last five years a number of initiatives to boost infrastructure financing have emerged.

The UK Guarantees scheme underwrites investment in infrastructure projects. At the launch in 2012 the government boasted it would underwrite 鈥渦p to 拢40bn鈥� of guarantees. To date the government has signed off just 拢1.7bn of guarantees, although deals for some large projects such as the 拢16bn Hinkley Point nuclear power plant are close to completion.

The National Infrastructure Plan, essentially a list of all the country鈥檚 infrastructure projects, seen as key to building investor confidence, has disappointed some. Richard Laudy, head of infrastructure at Lawyer Pinsent Masons, says many of jobs on the plan that had been completed were 鈥渟tarted long ago and were already long overdue鈥�.

And what happened to the 拢20bn of infrastructure investment from pension funds that the chancellor trumpeted in 2011? So far all of it has gone to refinance existing projects, not construction work - though two construction projects were due to get 拢40m of investment in total before the end of this year.

Overall rating: 2/5

Industry reform and training

Coalition promises

• To support the creation of apprenticeships, internships, work pairings, and college and workplace training places as part of a wider programme to get Britain working. MET: The number of apprenticeships has soared but, unfortunately, not in the construction industry, where only now numbers are starting to recover.

Promises met* 1/1

How did it do overall?

The coalition made no promises around the industry reform agenda. Nevertheless, it has been given sustained momentum despite, and partially because, of the government鈥檚 ferocious desire to cut spending. Chief construction adviser Paul Morrell鈥檚 success in persuading paymaster general Francis Maude to cut central government construction spend by buying more intelligently, rather than simply squeezing contractors and the supply chain, has seen a number of central government departments reform their practices - though local authorities have continued in many cases to procure poorly. Morrell鈥檚 constructio strategy saw the creation of a target to use BIM across government projects by 2016 that has genuinely galvanised the sector, with the Construction Industry Council estimating that about 拢10bn of government projects are now using the collaboration technology. Likewise, innovations such as project bank accounts to protect smaller suppliers have been taken up, and since 2012 Morrell鈥檚 replacement, Peter Hansford, has largely kept momentum going with a new Construction Leadership Council and the 2025 industrial strategy. Performance on training has been much more mixed, with the number of construction apprentices virtually halving between 2008 and 2012. The CITB has suffered major changes during the period, but despite the appointment of a new chief executive and an ambitious reform programme this year, the government is yet to formally approve its continuation or make a decision on how training will be paid for.

Overall rating 3/5

* Half scores awarded where pledges partially met