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Darling's 2009 budget leaves industry with mixed emotions

The construction industry has welcomed the government's introduction of a top up scheme for trade credit insurance in the budget, but many fear it will not reach recession-hit firms in time.
Chancellor Alistair Darling delivering his budget on April 23, said the government will cover shortfalls in trade credit insurance by offering firms a top-up scheme from May 2009.

From next month until the end of this year, suppliers will be allowed to purchase six months of top-up insurance from the government if credit limits on their UK customers are reduced. Firms buy trade credit insurance against supplies to UK businesses as a guarantee bills are paid.

If a firm’s credit limit is reduced, the amount a supplier gets can mean (depending on which amount is lower):

Either 1)Cover is given at the original figure.

Or 2)It amounts to £1 million.

Or 3)The amount of cover a firm can get from the private sector is doubled.

The new top up scheme is capped at £5 billion.

'Product manufacturers and suppliers do welcome the announcement of a top up scheme to support credit insurance', said Michael Ankers, the chief executive of the Construction Products Association.

'However, we have been pressing for this since before Christmas and it will only help companies who have found credit withdrawn since April 1. The real damage was done before then and for those many companies that have had credit insurance reduced in the early part of the year, it is of no value at all”.

The chancellor predicted that growth will fall by 3.5% during the year but also said the economy would start growing again by the end of 2009. He said government borrowing will hit £175 billion this year (12.4% of GDP).

Capital allowances

For this tax year only, Darling announced a 40% first year capital allowances rate for plant and machinery expenditure that would normally be written down at 20%. The doubling of this rate is a major boost which brought much needed cheer for the building services industry.

Green Targets

Darling said the government has committed to cutting carbon emissions by 34% by 2020. The world's first carbon budgets have now been set, as required by the new Climate Change Act, and the government is producing an Energy and Climate Change Strategy in the summer which sets out the policies to deliver this.

The chancellor said some £405m will be allocated to support the development of world-leading, low-carbon energy and green manufacturing on the UK.

There will be an extra £375m to support energy and resource efficiency in businesses, public building and households.

Small scale renewables and community energy are set to receive some £70m. Most of this will be targeted at local authorities, social housing, loans to SMEs, efficiency measures in public buildings, including schools, and waste infrastructure .

The government intends to foster the development of combined heat and power (CHP) by extending the climate change levy exemption for indirect sales of CHP electricity to 2023.

£45 million is available for small-scale renewable electricity and heat technologies via the Low-Carbon Buildings Programme. There will also be £25 million in funding for low-carbon community heating schemes.

Housing

£100m will be available for local authorities to build energy efficient homes.

£500m will be given for stalled housing projects.

The chancellor’s support package to the housing industry, included a three month extension to the end of the year on the stamp duty holiday on homes costing up to £175,000.

In 2009-10, the housing fiscal stimulus will include a further £120m to bring an estimated 12,000 properties up to the Decent Homes standard, and £180m to be spent on critical regeneration through the HCA and the Regional Development Agencies (RDAs).

Michael Ankers said: ‘Whilst welcoming the additional measures to stimulate the private housing market and improve the condition of the public sector housing stock, there is little else in the budget to comfort a construction industry that is facing a decline in output this year in excess of 12% - the largest fall the industry has experienced in a single year since the Second World War”.

PriceWaterhouseCoopers reports that eight construction firms are going bust in the UK every day.

Jobs and training

In Wednesday's budget Darling also said the government has committed to a £1.7 billion job creation package. All long-term unemployed under 25s will be offered job or training.

An additional £300m has been announced for the Building Colleges programme but this is reported to support only about 10% of the projects that the Learning and Skills Council have indicated are ready to go.

Many industry leaders are disappointed with the 2009 budget because of its failure to include any measures that encourages improvement to the existing private sector housing stock. They say that yet again the government has ignored the united voice of the construction industry to reduce VAT to 5% on domestic repair and maintenance.

On March 10, 2009, an EU decision was made to allows member states to reduce VAT on services and cut the current rate of VAT from 15% to 5% for all private housing repair and maintenance work.

The government's failure to seize this opportunity to cut VAT in light of this decision is even more significant in view of the fact that the govenment is committed to reducing carbon emissions by 34% by 2020 – a target that depends on making the UK's existing housing stock more energy efficient.

Empty Property Rates

Despite widespread calls from across the manufacturing sector, the chancellor failed to further reduce the burden of empty property rates on manufacturing companies, of which many have been forced to halt operations because of the recession.

Other measures in the budget include the government’s move to help businesses with cashflow problems by extended a scheme to allow loss-making companies to reclaim tax.

The government said landfill tax will increase by £8 per tonne on April 1 each year from 2011 to 2013. The aggregates levy will be frozen at £2 per tonne in 2010 to 2011 to ease pressure on the construction sector.

To view the 2009 budget click 2009Budget
23 April 2009

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