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Eighteen months ago we reported on the likely winners and losers from the 2007 Comprehensive Spending Review (CSR). At the time Housing, Education, Justice & Security and Health looked like the hot tickets in town.
Now that the economic landscape has been redrawn, we thought it was time to take another look.
Who’s best placed to benefit from Darling’s spending spree?
Transport
£200m to increase motorway and other highway capacity
- Balfour Beatty, Costain and VINCI top the HA’s contractor Capability Assessment Toolkit (CAT) league table
Social housing
£775m for repairs and upgrades to housing stock
- A possible lifeline for the big housebuilders (Taylor Wimpey, Barratt and Persimmon)
- Winners more likely to be Connaught, Mears and Morrison
Education
£1.2bn including £800m for non-BSF capital programmes
- Balfour Beatty (again)
- Laing O’Rourke
- RM Education
Capex splurge
November’s Pre-Budget Report (PBR) brings forward £3bn of public sector investment into 2008–09 and 2009–10.
Whether it will work in kickstarting an economic recovery remains to be seen but it does mean significant opportunities for many of the companies in the support services sector.
Looking at the figures our 2007 hot tickets seem only to have got hotter. Planned 2009–10 spend in Housing is up 15%, Education 13%, and Health 2%. Add in a 9% increase in transport and there are plenty of reasons to be optimistic… for now.
Opex purge
Beyond the capital investment, the Government is also increasing its focus on efficiency.
The CSR set out a programme to deliver cross departmental savings of £30bn by 2010–11. The PBR reinforces this, targeting a further £5bn by the same date. With back office and IT savings specifically in the frame this should be good news for outsourcers.
A note of caution
Unfortunately the spending boom isn’t set to last. The PBR announced very little additional spend, instead redistributing funds previously allocated. From 2010–11 investment will begin to drop off quickly (see graph below).
More worrying is the long-term outlook for public sector spending. The forecast impact of the recession will cost the Government £300bn in tax receipts over the next five years. And future governments may drastically tighten public spending growth to compensate for today’s borrowing binge.
The Chancellor forecasts that public sector net investment as a percentage of GDP is set to decline at 0.1% p.a. until 2013–14. Contractors should hope that the private sector market has recovered by then.
Zoom chartAndrew Pointon is an Associate Consultant at Credo.
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