Contractors across all core disciplines look set to benefit from the 2013 Spending Round delivered to parliament by Chancellor George Osborne on 26 June 2013.
The reallocation of capital budgets into infrastructure improvements in affordable housing, transport, energy and flood defences is likely to generate a stream of new contracts for engineering, IT and construction contractors.
And the Office for Budget Responsibility’s forecast of a further 144,000 public sector job losses is likely to directly result in new public sector contracts for contractors of all disciplines, as local and central government seek to maintain service levels at the same time as reducing permanent headcount.
Less welcome was the news that HMRC is to receive an additional £1bn in resources to tackle tax avoidance and evasion, which may result in further attacks by HMRC on legitimate tax planning. However, overall HMRC’s resource budget will reduce by 5%.
The key capital spending announcements affecting contractors include:
- £3bn investment in affordable housing
- Ministry of Defence (MoD) resource budget frozen, and a 1% increase in the military equipment budget, including investment in cyber warfare capabilities
- The Foreign Office is to further focus its resources on commercial development
- A total of £100bn of infrastructure investment to 2020
- An additional £9.5bn of capital investment into roads, plus High Speed 2, a Crossrail 2 initiative linking north and south London, and investment in flood defences
- Restarting the civil nuclear programme, with support for £100bn investment in energy
- Increases to the science budget
- Capital budgets in health and education frozen or marginally decreasing: these departments have the largest capital budgets after transport, defence and communities.
In addition, tax and planning changes to ease the development of shale gas are planned, and these may well lead to more contracts as shale gas developments come on stream.
With the exception of public sector job losses, most of the above measures will take time to filter through and directly benefit contractors in the form of new contracts. However, the long-term prospects for contractors look encouraging.