AT THE HEART OF HIRE
TESTING TIMES
There was little to surprise in Chancellor George Osborne’s Comprehensive Spending Review (CSR) as most of it had been well trailed in advance. All too predictably, it seems that the construction market will bear more than its fair share of the cuts in expenditure. This is disappointing after the revival in its fortunes in recent months with strong growth in the spring and early summer, which has been reflected in a strong uplift in activity levels amongst hirers.
As we go to press, we have received the HSS results for the first nine months of the year, indicating a 13% growth in revenues compared with 2009, and a 14% improvement in the third quarter. The key question is whether this can be sustained; HSS Chief Executive Chris Davies admits that the company is cautious about the outlook for the rest of this year and into next, but its progress this year has given it sufficient confidence to bring forward £2m of capital expenditure from next year.
Is this confidence warranted? There is little doubt that the economy remains fragile, but the Coalition Government’s approach has engendered international confidence which will assist in maintaining low levels of interest rates and encourage businesses, of all shapes and sizes, to expand. The Spending Review makes clear the Government’s commitment to tackling the unsustainably high level of debt and to re-balancing the UK economy. In the short term, there is obviously going to be pain for many within the public sector and for markets like construction that have become increasingly dependent on Government expenditure.
NOTEWORTHY PROJECTS PROTECTED
Government capital expenditure is set to fall by 29% in real terms over four years. This will hit the construction industry, but some noteworthy projects, particularly in transport, such as Cross Rail, the Merseyside Bridge and the upgrade to Birmingham New Street Station, have been protected. The Government has clearly identified
road and rail improvements as a key growth factor and the 15% cut in the transport budget in the CSR is well below the departmental average. Construction companies will be hoping that this strategic use of investment will encourage private commercial, industrial and residential development in the areas where transport is being improved. The prospects of a long overdue National Infrastructure Plan are also to be welcomed.
In addition there is good news from the Department of Energy and Climate Change which is increasing its capital expenditure by 41% over the next four years to £2.7 billion with investment in carbon capture projects, wind farms and flood defences. The introduction of Tax Increment Financing should help to promote infrastructure investment but we need to see how this works in practice.
So what of our hire industry in all this? Can we draw comfort from the implications of the Spending Review? The shrinkage of the State and its activities will lead to the further growth of outsourcing and will benefit large contracting/service groups such as Carillion and Interserve. These are the type of company which, generally speaking, already have strong relationships with hirers, so their further expansion should be reflected in their need to hire more. Of course, their relationships tend to be largely with national hirers, so this will not necessarily be beneficial to hirers as a whole. Nevertheless, any moves which promote outsourcing may encourage its further expansion in the wider economy, which should benefit our entire hire market.
The other positive factor is that refurbishment looks likely to be an expanding area both in the private and public sectors. In the latter, schools refurbishment, as opposed to new build, is set to become increasingly important. The hire market should benefit from this, as well as from the repair and maintenance segment which should also continue to strengthen while the house building market remains weak.
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