Spring Statement 2022 – What it meant for construction and the built environment
On Wednesday (23 March) the Chancellor of the Exchequer, Rishi Sunak MP, delivered his Spring 2022 Statement to update policy makers and the public on the health of the UK economy. Over the past two years the Spring Statement has been a vehicle for the Government to address the economic impact of the Covid-19 pandemic and set out means to protect businesses and individuals. However, the Chancellor went into this statement against an entirely different context as Government sought to tackle the worsening energy and cost-of-living crisis that have arisen against the backdrop of the ongoing conflict in Ukraine.
Many commentators were proven right, as what was thought to be an initially policy light statement was torn up in favour of a policy heavy, relatively strong Spring Statement which introduced some new economic stimulus packages to relieve pressures on households across the UK.
The 2022 Spring Statement began with some admittedly grim predictions from the Office for Budget Responsibility (OBR) who revised economic growth down to 3.8 per cent in contrast to the 4 per cent predicted in the Autumn 2021 Budget. Alongside this, the OBR predicted that inflation will now average around 7.4 per cent this year which is the highest level in 40 years. With this in mind, the Chancellor’s statement revolved around creating a sense of positivity centred around the key words “people, capital, ideas” aiming to improve people’s financial and working situation, business capital and greater investment into R&D. However, while the Spring Statement saw several measures put in place to address the rising cost-of-living and ongoing energy crisis, it was noticeably light on policy directly relating to the construction industry which we feel is a missed opportunity.
Energy Crisis
The UK is currently in the midst of one of the worst energy crises in modern times as fuel prices increased at the fastest rate on record over the past few weeks, with petrol rising 13p since the start of March 2022. Alongside this, the cost-of-living has rapidly increased with over two million households across the UK entering into fuel poverty amongst the sharp rise in energy prices. Therefore, it was logical to expect that much of the statement would revolve around tacking these issues.
To ease this cost on UK households, the Chancellor introduced a suite of measures including raising the threshold of National Insurance (NI) contributions to £12,570, reducing the basic rate of income tax to 19 per cent from 20 per cent as well as providing an additional £500m to the budget for the Household Support Fund. Amongst the many initiatives introduced in the Statement sat a major announcement that will see the rate of VAT on the installation of home sustainable energy solutions cut to 0 per cent. We welcomed this initiative as it is clear that Government has listened to the construction industry who have been calling for a greater priority on the installation of sustainable heating and energy solutions for years. This change could help ensure that the UK meets its carbon neutrality targets while simultaneously providing jobs and lowering the overall cost of energy in the home.
In 2021, the UK Green Building Council (UKGBC) estimated that the built environment contributes to around 40 per cent of the UK’s total carbon footprint. Alongside this, ClimateXChange, a Scottish based climate change think tank, predict that at least 70 per cent of the buildings currently standing in the UK will be here in 2050. This highlights the need to implement a strategy to retrofit all existing buildings in the UK to make them more energy efficient and less carbon intensive. The Government’s plan to incentivise energy efficient heating systems, as proposed in the 2021 Heat and Buildings Strategy, alongside this new call to install energy efficient systems such as solar panels at a 0 per cent VAT rate is a good step in the right direction. However, we feel that this does not go far enough to meet the UK’s 2050 target of reducing overall emissions by 80 per cent.
Addressing the sustainability of the built environment and reducing the overall cost of energy bills will require a coordinated, long-term approach to implement a whole-house retrofit. We recommend that the Government acknowledges guidance by organisations such as TrustMark who indicate that in order to reduce energy bills overall and create less carbon reliant homes, Government will need to encourage the installation of smart meters, high grade insulation, better ventilation, more renewable technologies, new heating and cooling systems, water heating systems, more energy efficient lighting and encourage the use of more locally generated power if it is to have a meaningful impact on carbon output and energy costs.
To address this, CIOB believe that a National Retrofit Strategy, as proposed by the Construction Leadership Council (CLC), will be an essential step in improving the energy efficiency of existing buildings. The Strategy has been backed by CIOB and many other bodies within the built environment. This monumental task will require significant Government intervention, private sector investment and, most importantly, long-term political will and cross-party commitment.
The National Retrofit Strategy presents a twenty-year blueprint which sets out how the construction industry can work with the Government to retrofit the UK’s existing homes. The strategy has been modelled over a programme period from 2021 to 2024, and cycles through four phases – firstly underpinning capability, then educating households and training industry, before an intensive period of work, and then a ramp down of pace to focus on hard-to-treat properties and the phased redeployment of resources to other sectors. To fund this, we would like to see Government allocate the remaining £5.3 billion that was committed in its election manifesto for domestic energy efficiency improvements.
Also to tackle the energy crisis, Government has introduced a cut to fuel duty by 5p which will remain in place until March 2023 which represents the largest cut to fuel duty in its history. This can help cut down some of the rising costs businesses are seeing in the industry as the cost of transporting products and materials to site has increased. This is welcome news for many who have had to witness the sharp rise in costs over the past months.
Skills
As stated, we support the initiatives introduced to encourage residents to install low carbon energy systems. However, one the current issues facing the built environment is the lack of trained, skilled individuals entering the construction industry.
New roles introduced in the rapidly progressing Building Safety Bill will only exacerbate this issue as construction professionals move into new roles to help implement and maintain the new safety regime. Therefore, more thought must be given by Government as to the number of professionals there are who are trained and accredited to install low carbon heating systems. We understand that it was announced that there would be a review of the apprenticeship levy and other skills and training measures to help private companies invest in new entrants. However, this alone will not encourage the necessary number of new construction professionals into the industry. Furthermore, more thought must be given to fixing the leaky pipe between those graduating in built environment related courses but deciding against embarking on a career in the sector.
The Spring Statement did, however, include provisions for SMEs to help them gain the skills they need to succeed by providing high-quality training. The Help to Grow: Management scheme offers businesses 12 weeks of leadership training through the UK’s top business schools, with Government covering 90 per cent of the cost.
Business
In terms of new policies affecting businesses one of the most impactful announcements in the Spring Statement was the increase to the Employment Allowance from April 2022, meaning that employers who are eligible for the scheme will be able to reduce their overall National Insurance (NI) Contributions by £1,000 per year.
Alongside this, the Spring Statement saw a further call to encourage research and development as cloud computing costs associated with R&D will now qualify for a tax relief. Since the Covid-19 pandemic, we have seen an uptake in digital approaches in the industry as well as new products that can help address productivity issues. Having a tax relief in this area should hopefully encourage more businesses to innovate and undertake research and development that can improve the construction industry.
Finally, the Chancellor announced the second round of funding for the Levelling Up Fund, inviting bids from eligible organisations for the £4.8bn local infrastructure funding to encourage job creation and retention outside of London and the major cities. We are supportive of the levelling-up agenda and the 12 missions Government set out in the Levelling Up White Paper and it cannot be underestimated the importance of listening to the construction industry on how best to deliver these outcomes at a practical level. The construction industry continues to be a large contributor to GDP, and it will be at the forefront of delivering the vision of Levelling Up and making them a reality through improved infrastructure, town centres and affordable housing that must be underpinned by sustainable development methods and strict adherence to quality.
For any further queries about the Spring Statement, please contact CIOB’s policy and public affairs team on [email protected].