Public Sector Spending Cuts Could Hit Construction Industry

Public sector spending cuts could jeopardise future of UK construction industry warns Bibby Financial Services.

The Government’s decision to halve public spending, with more than £90bn of capital spending cut between now and 2014*, is causing much concern within the construction industry, particularly as public sector spending on construction projects represents around 40% of the industry’s turnover.

The total volume of construction output has already declined by 11% throughout 2009**, with radical cuts being made in the investment of new construction work in the private industrial and commercial sectors. With the construction industry relying so heavily on the investment and support of the Government, the threat of further cuts in spending could have a detrimental effect on the industry, which has already suffered the recession, says Bibby Financial Services.

Jason Heath, construction specialist at Bibby Financial Services commented:

“With every £1 spent in the construction sector currently generating an increase in GDP of £2.84, the industry has huge potential to stimulate economic growth and employment and, for recovery to occur, the Government needs to invest, not reduce its spending within the sector.”

“So as the general election edges ever closer, with the threat of significant cuts in public sector spending hanging over the construction industry, it’s no surprise that our clients within the sector are feeling nervous about the future of the industry which relies so heavily on Government funding.”

“There is no denying that there is a need to reduce the UK’s deficit – however, reducing public sector spending in construction would have a crippling effect on the industry and risk jeopardising the already fragile economic recovery, as well as putting more jobs at risk. Indeed, few realise that the construction industry contributes 8.5% of the UK’s GDP and employs around 3 million people across 300,000 firms.”

“Furthermore, investment in construction is one of the best ways to stimulate the whole economy and employment and, for recovery to occur, it requires investment from the Government. We therefore urge the next Government not to take the easy option of cutting spending in construction, but rather seek savings needed to balance the public finances through efficiency-led reductions in current spending.”

“Whatever the future holds, the successful in the market will be those who plan ahead and tighten up their processes to ensure they are in a strong position to weather the storm. As always cash is king and a healthy flow of funds should be the number one priority for firms as they look ahead to uncertain times. With this in mind, alternative cash flow solutions, such as invoice finance, can ensure a regular and smooth flow of funds into the business to avoid cash flow difficulties which can threaten businesses.”

Bibby Financial Services provides a unique construction finance package which is specifically designed to meet the business needs of the industry. It supplies funding often on a confidential basis against a firms invoices and/or uncertified applications for payment completed under most forms of industry contract. This service is provided with the benefits of bad debt protection so the construction firm gets paid, even if one of their customers becomes insolvent.

** Office for National Statistics, Output in the Construction Industry, Q4 2009

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