This week, the response from both the education and construction sectors was that the 2024 Budget had done little to help them. Amongst the disappointed was David Hughes, CEO of the Association of FE colleges. Hughes writes, "It looks like another year in which the incredible work colleges do will be in spite of the low pay, low investment and inadequate funding...".
Meanwhile, Richard Steer, chairman of Gleeds Worldwide (construction consultants), was similarly unimpressed. Under the heading "This was not the Budget to fix broken Britain", he writes,
"In the end, it [the Budget] proved to be less than the sum of its parts as far as impact on those operating in the built environment. I don't pretend to have all the solutions, but it is clear that [more] radical thinking is what is needed...".
In truth, the Budget did not mention much for public services or investment (the spending side of the equation). A generation ago, the Budget might have explained how the Treasury would support a Government's ambitious programme. On Wednesday, the Chancellor's statement focused on new tax measures.
Why are so many modern budget speeches like this? There are three main reasons:
Today, annual budgets are preceded by "Spending Reviews," which occur roughly every four years. In the Spending Review, each government department's spending limits are set for several years. This practice is a well-intentioned 21st-century innovation. It aims to provide stable finances for government departments, allowing them to plan with confidence. This leaves less to debate annually.
UK Laws have never given the House of Commons full budget scrutiny. There is an obligation to identify overall Departmental Expenditures for approval. However, the system disallows an individual or group of MPs from proposing amendments. The executive then has significant power to spend (or under-spend) and to cross-subsidise programmes within the same Department.
Modern political battles are won or lost almost instantly. With the advent of the twenty-four-hour broadcast news cycle and contemporary social media, many voters consume political events in headlines, sound bites and hashtags.
Under these circumstances, the Chancellor has limited political interest in providing comprehensive information in his speech to the Commons. On Wednesday, he was talking to voters over the heads of his fellow MPs; his mission was to get across his "headliners".
So what were his "headliners"? There is a scene in the long-running American TV show The Simpsons where dad Homer is having trouble with daughter Lisa (usually the good child). He immediately responds by punishing his oft-errant son Bart. Bart says, "Hey man, I didn't do anything wrong". Homer responds, "In times of trouble, go with what you know."
When a Government is in trouble close to an election, it's time to go with what you know. Tried and tested political practice is to steal one of the opposition's most popular policies and also throw in a tax cut for the voting middle class of middle Britian. On this score, the Chancellor did not disappoint.
The speech majored on taxing wealthy "non-doms" (an opposition idea) and reducing the standard rate of employees' national insurance. The latter measure will put around £750/year into the pocket of everyone earning £50K or more (but just £49/year for a £15K earner).
What a shock that, so close to an election, there was so little focus on what would make things better in the long term... ahem...
How could the Government help the Construction and Education Sectors?
Of course, from MabelSpace's viewpoint, the Government should invest in the built environment, and where better than the Education estate (yes, we know, some homes are needed)!
On January 24th this year, Building Magazine published the report of its self-organised year-long "Building the Future Commission". The report highlights the Government's imperfect relationship with the construction industry. One significant recommendation was for the Government to provide more Realistic Funding for Projects and, vitally, improve "Pipeline Visibility".
What does Pipeline Visibility mean? The UK government is the largest construction industry customer, accounting for over a quarter of all construction work. A comprehensive, say, eight-year plan, reviewed and debated on a rolling four-year basis for Public Capital Expenditure across all Departments, would significantly assist an industry that still tends to live hand to mouth. This published plan would identify the opportunity to win multiple contracts of a quantifiable scale over an extended period (Pipeline Visibility). Visible, reliable public investment would encourage construction companies to invest with greater confidence. Investment in a skilled workforce and the latest equipment would then deliver efficiency and quality environments for the public sector.
Nine days after the Commission's report, with serendipitous timing, the Government's Infrastructure and Projects Authority (IPA) published a Construction Pipeline. The pipeline, including 660 projects, outlines £775 billion worth of Public infrastructure and construction projects to be completed in the next decade.
Alas, this Construction Pipeline is just a list of 'known' projects (projects the Treasury has at least provisionally agreed on). There are no indications of likely further spending. The Infrastructure and Projects Authority appears as a spreadsheet keeper rather than having a meaningful planning role. The analysis accompanying the document notes that the chart below outlines the spread of investment by sector and year. Planned expenditure tapers down after the current spending review period ends (after 2024/2025), where budgets "still need to be fully confirmed".
This chart highlights a problem with Spending Reviews over the typical four-year cycle. The cycle may suit regular expenditure, but capital expenditure (investment in transport, energy generation, public buildings, etc.) does not suit this timescale.
Capital projects often take longer than four years. Unless forewarned, Government Departments struggle to deliver even relatively small social infrastructure projects (like schools and colleges) within this timescale. Devising an allocation system (how and where to invest across a vast estate), plus design and planning consents, can comfortably take up the first two years. This leaves little time for construction.
Fortunately, the Treasury has agreed to the Department for Education (DfE) announcing some school investment post-2025. It appears inadequate by any reasonable assessment, but at least it's in the IPA's spreadsheet (and makes up the majority of the light blue on the above chart).
Further Education Colleges have not been treated so well. After years of minimal investment, there was a scramble to spend a surprise allocation in the last Spending Review. Much of this money has now been spent. Some of the investment looks useful, but urgency is often the enemy of good planning. Colleges must now wait until the next Spending Review to determine if the Treasury will release further funds. In the meantime, there is no information. In this vacuum, and given the general commentary around future government finances, there is little motivation for Colleges to plan estates improvements. If more funds become available, the scramble to complete within four years will start again.
What about larger infrastructure projects? It is impossible to envision, design, tender, construct and commission a nuclear power station in four years. Therefore, there is an understanding with the Treasury that large known projects may proceed at a slower pace, and a full financial commitment will only be made once contracts are signed. Although such projects may proceed, they are effectively provisional and still subject to Treasury or other political interventions (for example, HS2). The IPA spreadsheet documents these projects; otherwise, little would be included after 2024/2025.
The frailty of this system is underscored by the House of Commons' limited oversight of capital investment. In the United States, capital spending approved by the House of Representatives is reserved solely for its identified purpose. When Representatives are done voting, the relevant arm of Government must deliver.
The lack of a rigorous process in the UK, without a vote for specific capital programmes, means that investment can be announced in the House and reannounced as often as is politically convenient. This frequently results in Journalists asking ministers if an announcement is more money, or not. Projects may also be quietly delayed or cancelled.
Additionally, investment announcements usually come with the caveat "subject to market conditions". Whitehall routinely blames the market for underspending or cancellation. Following 2021/22, the Department for Education reported an underspend of £469 million. This underspend was "primarily due to slippage of school building programmes driven by challenging issues in the construction market", including a lack of "both manpower and materials". It is not clear that the DfE's demands got close to overexerting the construction industry. It does seem that the DfE made minimal progress in commissioning new school projects in 2020/21, leading to an inevitable lull in the following year. Some blamed the Department's inability to progress under COVID restrictions; meanwhile, unsubstantiated rumours were that, given public finances, the Treasury encouraged a go-slow. The same DfE report noted that "there is a risk of collapse of one or more blocks in some schools which are at or approaching the end of their designed life-expectancy and structural integrity is impaired."
Senior Treasury officials have one overriding objective: to manage the overall fiscal position.
Senior Treasury officials have one overriding objective: to manage the overall fiscal position. They are insulated from the performance of the spending Departments. While ever the Treasury keeps control of the capital spending purse, delaying or cancelling investment becomes the easy remedy to any short-term fiscal problem.
So, if there is a short-term issue (essentially cash flow), we delay the investment that might improve our long-term position.
In March last year, the Resolution Foundation published its research into UK investment spending under the headline: Cutting the cuts: How the public sector can play its part in ending the UK's low-investment rut.
The report concluded that Britain's weak and highly volatile public investment cycle has left the country poorer. Public investment levels in the UK are low and unpredictable due to frequent and significant changes in spending plans. The UK spends only £5 of every £6 it plans to invest and does not intend to invest that much. As a result, the UK has the most volatile annual growth rate compared to all other advanced economies in the OECD except one.
The Foundation proposed removing decisions about public investment levels from the Treasury instead of placing responsibility on MPs. Public investment levels could be set by an Act at the start of each Parliament.
MabelSpace suggests a Public Investment Act should be enacted within 12 months of any new parliament. The Act should set out capital spending and anticipated outputs for eight years (a business case on the grand scale). Inevitably, the plan would be subject to review (and further extension) in the first year of any future Parliament. However, this approach would make levels of investment one of the first matters for public political deliberation rather than the last. It could also galvanise our efforts to make our built environment net zero carbon.
In the meantime, don't expect to find too much about public investment in a Chancellor's Budget - at least nothing you can totally rely upon.