Triple Dip? The perils of forecasting & how Construction can stimulate growth.

By Chris Witte: Marketing Director – Knauf Insulation Northern Europe

Today the UK economy narrowly escaped the infamous Triple Dip recession, with slight growth recorded. The reality is that unless there is a Plan B from the government we can look forward to a low single digit decline in 2013 and most likely a similar performance in 2014 and beyond.

Whether government or private sector, national economic and sector forecasts historically tend towards an underestimate of the short term trend and are optimistic in the medium to longer term. Often without any supporting rationale. Remember when the Chancellor reduced his forecast for UK economic growth for 2013 down from 1.8% to just 1% not so long ago? 1% now looks extremely optimistic.

The Construction Products Association (CPA) is as close as you can get to a barometer for the industry. Their prediction of a 2% contraction this year is based on members feedback and good analysis by their economics analysts. (http://www.constructionproducts.org.uk/news/press-releases/display/view/construction-decline-in-2013-but-growth-in-2014/ )

But even this performance is predicated on certain government committments coming to pass such as the Help to Buy scheme and the list of infrastructure projects. The Help to Buy scheme could play an important role in stimulating the housing market, as it is much more inclusive than previous schemes ( and house builders such as Linden Homes are reporting high levels of interest). But if we consider recent government initiatives to support industry, for example Feed in Tariffs, and the premature ending of CERT and it’s replacement with the ineffectual Green Deal; you’ll forgive my suspicion. ( The Government have already accepted the need to review the Green Deal, even though it was only launched at the end of January!). If Help to Buy really takes off, who would bet against it being quickly watered down? ( Feed in Tariff deja vue!)

The CPA then predicts 1.9% growth in 2014 rising to 3.8% in 2015. But where is the evidence for this? The economic landscape will not change whilst George Osborne sticks strictly to his plan. Even his strongest supporters, the IMF and the ratings agencies have deserted him; and believe a stimulus package is needed to boost UK economic activity. But the Chancellor prefers to spend his time massaging numbers. I read yesterday that our additional Debt in 2012 is £120.6bn which is down from £120.9bn the previous year. Achieved by pushing some departmental spending back into 2013 and by failing to pay the IMF on time (!); all this demonstrates is that sound-bites are more important than jobs from his perspective!

It’s easy to criticise but what is the solution? Well from a Construction Sector perspective we know that we employ over 300,000 people directly and several times this number indirectly. So a stimulus package would have a sizeable positive impact on jobs. We also know that for every £1 invested in the UK economy Construction generates £1.70 for the UK economy.

We also know that there is a housing crisis in the UK with a deficit of at least 80,000 homes per annum versus population requirements. Why can’t government create a plan to remove the deficit? Help to Buy is potentially a useful lever, but we need both an incentive and barrier removal (such as planning timescales) for housebuilders to build more homes quicker.

The other opportunity apart from extending the list of infrastructure projects and fast tracking them; is to fix Green Deal. We have the prospect of massive energy bill increases to face over the next few years. Ofgem are reporting blackouts by 2015 ( Green Age blog: http://www.thegreenage.co.uk/greenblog/2012/11/21/who-turned-all-the-lights-off-blackouts/ ). The Government claim that Refurb and consumers purchasing more efficient household appliances means that although Green Deal measures add £160 to household energy bills; savings equate to £450 per annum. Therefore we are all going to be paying less. The problem is that all these numbers are based on DECC’s energy price forecasts, that in recent years have proved to be ridiculously conservative. Also, not everyone can afford a new set of household appliances, so what do their energy bills look like?

Green Deal needs 5 things to fix it:

1. Realistic loan rates. Why would anyone borrow at 8 or 9% when much cheaper finance is available. We are told it’s linked to early years risk. Government should underpin this.
2. Additional stimulus. If sufficient numbers of consumers are to go any further than have a free or cheap assessment, an incentive linking Energy Performance Certification to Rates or Stamp Duty is needed and quickly before Green Deal becomes discredited.
3. Simplification. For industry to understand obligations and how to access ECO cash. For consumers to understand the real costs, real benefits and real risks.
4. Awareness. The government are investing one seventy seventh ( 1/77) of the money they put into driving awareness for the digital switchover into explaining the Green Deal, which is a harder concept to grasp.
5. Make assessments Free. The more people understand specifically what Cash they are losing, the more likely they are to do something about it. Use some of the early adopters incentive monies to fund this.

In summary there is much more that government can do, should it choose to listen to industry. The private sector needs government reassurance and support so that it can be encouraged to invest. The Construction Industry needs certainty of policy, such as the Part L roadmap so it too can invest. (Part L Where has it gone: https://builtonperformance.wordpress.com/2013/05/30/part-l-where-has-it-gone/)

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s