CEA Blog

What the Budget Statement means for Construction Equipment

Within the first 24 hours after the Chancellor’s Budget Statement, the reaction from the media at least was fairly positive – seen as necessary strong medicine for the ailing patient. However, conventional wisdom is that a Budget that gets good reviews at the time doesn’t look so good in hindsight. The objective was to share the misery around, but for our sector there are many that feel that we have had enough misery for the last couple of years without any further penalties. Three tests of whether this Budget meets its longer term aim to reinvigorate the economy, and in turn our businesses, will come in the areas of; 1) capital investment; 2) export performance; and 3) the effects on departmental programmes from the autumn spending review.

The last Labour Budget confirmed £100 billion of cuts in capital spending over the next five years. The Osborne Budget speech reconfirmed these in just one line – and there was no real mention of the distinction between public spending as investment (as in roads and infrastructure) and general current spending (as in welfare benefits, etc). The BIS post Budget statement confirmed the establishment of Infrastructure UK to work with the Treasury to enable greater private sector investment in infrastructure – in other words the government isn’t going to pay for any more. At a company level, we have seen some further tinkering with the capital allowance regime, providing a further (albeit marginal) disincentive to invest in construction equipment.

Economic recovery is predicated on the idea that the Budget sets the scene for a rebound in investment and exports. A persistence of low interest rates will help the investment part of the aspiration but it will take more than a competitive exchange rate to boost international trade. UK construction equipment manufacturers have a proud record of exporting over seven out of ten of the machines they produce – but to get the volumes up we need a sustained recovery in mainland Europe and North America. With many of the continental governments going through the same pains of economic retrenchment it is difficult to see anything but a widespread scarcity of publicly funded construction projects in the coming years.