REUTERS | Brandon Malone

CBI joins debate on government spending

The government spending review is only a month away and everyone is fighting to avoid cuts in their sector. This week, the CBI published its submissions to the government, but will they help the construction and engineering industries?

Ever since the June 2010 Budget, speculation has raged about what George Osborne will cut when he reveals the results of his spending review on 20 October. Things are not looking good for construction and engineering. Since the budget, we have seen the axe fall on Building Schools for the Future and construction insolvencies still seem all too common, with Connaught the most recent high-profile victim.

Against this background, the CBI’s submissions may be a significant development. The CBI has always been influential, especially during Conservative governments, so it is reasonable to assume that George Osborne will take note of its views, even if he ultimately rejects them.

Focus on transport

The CBI identifies infrastructure as the area that “does most to foster economic growth” and suggests that the government should return public sector capital investment in that area to 2.5% of GDP as soon as possible. It singles out transport as a key area of investment, suggesting:

  • Spending on maintaining existing assets.
  • Continuing work on Crossrail and the London Underground network.

The CBI also proposes that all public sector transport projects undergo a more rigorous value-for-money review.

So far, you would have difficulty distinguishing the CBI’s proposals from those of the unions, but the CBI goes on to make some more controversial proposals, such as:

  • Paying for the increased spending partly by reducing concessionary transport fares.
  • Attracting private sector funding for transport by, for example, increasing the contribution of direct user payments and tax increment funding.
  • Increasing public sector “efficiency”.
  • Reforming public sector pensions.

These suggestions are intended to avoid tax increases, so a Conservative-led government may find them attractive, although the political implications for their Liberal Democrats partners are uneviable. In contrast to the CBI, the unions would be relatively content with increased taxation, at least on high earners and financial sector businesses.

There is no doubt that increased spending on infrastructure would please the construction and engineering industries and all those connected with them. How that money is raised and whether it is better spent on other parts of the economy are the difficult questions. Not least, there is widespread debate about the impact of private sector involvement in infrastructure, with the OFT considering the matter right now.

Education and training are the long term keys

Naturally, the political debate between left and right will overshadow the CBI’s submissions. In one sense this is a shame, because it will draw attention away from the second limb of the CBI’s plan, which focuses on investment in “knowledge” and “human capital”.

Spending on education and training is unlikely to make the headlines, but it is a key issue for the construction and engineering industries. Arguably, the UK already suffers from a skills shortage (for example, a lack of apprenticeships and nuclear expertise). Increased investment in skills could remedy this problem, while also giving the UK an advantage over its competitors in other emerging fields, such as the environmental arena. Of course, there is no point having skilled workers with nothing to work on, so the CBI is asking the government to perform a difficult balancing act.

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