Impact of the Government’s Spending Review on the Construction Industry

Impact of the Government’s Spending Review on the Construction Industry The impact of the Governments Review on the construction industry has had different reactions. Edwards (2010)[7] points out that â€Å" £20 bn of capital spending will be cut between now and 2014/15†. The impact will be severe on government departments and local authority budgets. But further details published by the HM Treasury (2010)[3] indicate that the government intends to increase net capital spending by  £2.3 bn up to 2014/15, relative to the June 2010 Budget predictions. Currently the Government spends approximately  £50 bn on capital projects. It appears that the Government is focussing on those projects with the ‘highest economic value’. Education along with health and infrastructure are areas that the government has chosen to focus on (Anon, 2010)[8]. This article also quotes Graham Watts, Chief Executive of Construction Industry Council who states that â€Å"social housing is the worry, but investment in schools, carbon reduction and transport infrastructure plus the Green Investment Bank are positive†. The Spending Review of 2010, has reduced the funding for Social Housing from  £8.4 bn to  £4.4 bn (HM Treasury, 2010)[3] This will be a severe blow to those construction companies who specialised in having contracts with social housing customers, such as, local councils and housing associations, according to Light (2010)[9]. Keynesian Theory and the UK Economy The UK economy has endured six consecutive quarters of negative growth, resulting in one of the most prolonged recessions in modern times (2008/09). Since the beginning of 2010 the economy has shown some positive signs of recovery. Two schools of thought have emerged from this rece... ...ble to the Miller Group will therefore be further restricted. The Group does recognise this constraint and as a result the company â€Å"continues to focus on cash generation and cost controls† (Miller Group Interim Report)[13]. The cost control factors according to Keynesian Theory will mean the company is responding to its own difficulties and will start hoarding money to, like the consumer and this will further impact the circular flow of money in the economy. Summary This paper has provided an overview of the UK’s Spending Review of 2010 and its potential impact on the macroeconomic picture of the UK. Particular emphasis has been given to the relevance of the Spending Review on the construction industry and its impact on a construction company. Furthermore the paper attempts to relate some aspects of the Keynesian Theory to the current UK economic situation.