Tough times ahead

it’s the mark of a great player to be confident in tough situations.

Well, the Construction Products Association warned us last month that we couldn’t take the growth in construction output for granted. Looks like they were right.

Yesterday’s Markit/CIPS construction purchasing managers index showed that October was the least busy month for the industry for eight months. And while it still managed to make it over the key 50 mark which shows that things are growing, it was only barely over it at 51.6.

Oh dear. The trouble is, much of the infrastructure, public works and housing that had been bolstering the figures over the summer were the result of the previous government’s catch-up efforts to keep the economy going. Alastair Darling had been writing cheques left right and centre to schemes such as Kickstart. And that activity continued in the early days of the new ConDem coalition.

So now that the Boy George has effectively put the kybosh on, well, just about everything, we can expect things to get tighter and tighter. There’s little chance of the economy being able to rely upon a significant contribution towards growth from the construction industry for a while.

Belt tightening it is then. And while it might be fair to say that public sector works are likely to now suffer what the private sector went through from 2008 onwards, that’s small comfort.

There’s the issue of what it will do the general confidence you see. And general confidence tends to take a bashing when a) the papers are full of news about cuts and hard-times but also b) when people start to feel less wealthy than they once did.

As they may well do in January when the 20% VAT level comes into play. VAT is a tax beloved by the Tories, they’ve used it several times in the past to raise revenue that would otherwise have had to come from (to them) unacceptable tax rises. I’m thinking in particular of Norman Lamont’s increase from 15% to 17.5% in order to give us all a one-off, one-time-only £140 reduction on our poll tax.

But then, a 20% VAT rate does bring us in line with the rest of Europe moreorless and, it being the sort of tax that is levied on everything (bar the exceptions), it will hurt less and less as time goes on and we get used to it.

I know several merchants who are quietly whispering that they are still doing allright, largely on the RMI front, and who are expecting no more than a slight slowing down as the VAT rise hits.

On the otherhand, there’s the FMB, who are worried that the rise will bring out the cowboy builders in droves and might also put the Green Deal in jeopardy.

Who knows? The only thing that’s certain is that the ride is getting bumpier.

About Fiona Russell-Horne

Group Managing Editor across the BMJ portfolio.

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