With a new chancellor who knows a thing or two about our industry, yields on government bonds at record lows and Lord Adonis keen to press ahead with HS2, there has never been a better time to build
For the majority shareholder of contractor-developer Castlemead Group, Brexit was not good news. The firm itself had issues before the EU vote, slumping to a loss of £655,000 last year with revenue dropping by just over £5m to £10.7m, according to a report in the Times. Now, in addition to these balance sheet woes, life for one of the main shareholders has suddenly got a lot more stressful. For one of the owners of Wrexham-based property development and construction business is none other than our new chancellor of the exchequer, Philip Hammond. A man many are calling “the accidental chancellor”, whose elevation to the role seemed to be as much of a surprise to him as it was to everyone else in the Treasury.
Although I am sure Hammond has not been at the sharp end of a misquoted fixed price tender, he should at least know a thing or two about the day-to-day challenges faced by our industry. Indeed, following the EU vote the chief of Her Majesty’s Treasury holds the fate of many of the 2.3 million men and women who work in this worried industry in his hands.
I am pleased that we are not seeing the kind of panicked response that occurred following the collapse of Lehman Brothers in 2008. Instead, what we are witnessing is a more considered and drawn out verdict by those operating in and around our sector. We are being told that clients are not saying “never” but instead are saying: “Not now, not until we get clarity on what Brexit means.”
For contractors, this could see a return to single-stage tendering where the client is not prepared to take on risk and feel they have more options. Arguably, City property is most exposed to the “Brexit-effect” because it may make investors think twice about putting their money there.
On the one hand, they have just been proffered a huge price reduction based on the weakness of sterling but weighed against that is the possibility of anchor tenants from financial services moving their operations away to mainland Europe. However, the market had reached its peak before the referendum and perhaps a correction was occurring anyway.
What is key is that the government should capitalise on this window of opportunity and ignore the strangled moans from the National Audit Office, civil servants for whom every cloud has a black lining. They are reported as wanting the government to pause infrastructure spending in favour of sorting out the Brexit negotiations. It is argued that our beleaguered civil service cannot manage large-scale construction projects and sort out Europe at the same time. Yet surely the government will never find a better time to build. Yields on government bonds, which fall as demand for them rises, hit record lows last month. Money has never been so cheap for the government.
Lord Adonis and his infrastructure advisory team are keen to press ahead with HS2 and London wants another Crossrail – the South-west to North-east Crossrail 2 route. Not to mention the need to provide 300,000 houses a year for the next seven years, which was further underlined by an independent report from the House of Lords last month. It was based on a report by its economic affairs committee, the recommendation was that the government lift its current target by 50% and build 300,000 homes each year “for the foreseeable future”.
The recent fall in sterling will hit material costs in the short term and we have severe pressures on skilled labour, which will not be helped should we see the implementation of immigration limits, but a drop in the value of the pound may well stop the possible inflationary pressures that we were facing pre-Brexit.
The last chancellor, George Osborne, was known as “Mr Hi-Vis” because of his predilection for wearing fluorescent site jackets as a way of illustrating his commitment to building.
The new incumbent of Number 11 will already have his well-worn site-wear and through experience of running his own construction firm he will be all too aware of the vital role our industry could have in cushioning the effect of Brexit if it receives support and investment.
Let’s hope Hammond is better at balancing the books on behalf of the country than Castlemead Group has been. After all, many would say that it is he and his colleagues in the Cabinet that have got us into this Brexit mess in the first place.