CONSTRUCTION INDUSTRY CALLING FOR QE TO INCREASE HOUSING SUPPLY

George Osborne is coming under pressure from the construction industry to use his Budget statement next month to introduce a range of practical policies to drive growth.

The Construction Products Association has written to the Chancellor calling for measures that will speed the country’s economic recovery without impinging on his stated medium term deficit target.

The punitive cuts programme will see a 26 per cent reduction in public sector capital investment between 2010/11 and 2013/14. This is despite last year’s Government announcement that additional capital spending in housing, education and infrastructure would be made available. To give the UK economy any chance of recovery within a reasonable timescale, it is essential that this Government focuses on sustainable investment for growth.

Next month’s Budget provides the Chancellor with the opportunity to stimulate the economy and deliver growth. Capital investment would not only generate economic activity and employment, it would also increase long term productivity by improving the nation’s infrastructure.

The Construction Products Association’s Chief Executive, Michael Ankers, said: “Key to delivering the infrastructure that the country needs is the attraction of additional private finance to compensate for the shortfall in public capital investment.” Mr Ankers also suggested that additional quantitative easing could be used to “raise levels of housing supply.”

The Bank of England could use QE to purchase bonds in housing construction companies and housing associations through its asset purchase scheme to provide desperately needed homes. This would increase housing provision and reduce the gap between housing supply and housing need, which is currently spiralling out of control.

The budget should also do more to ensure the Green Deal succeeds. The Construction Products Association is calling for a reduction in VAT to 5 per cent for Green Deal work (and also equivalent energy efficiency work done outside the Green Deal) is necessary to incentivise consumers to take out these measures and to make the Golden Rule more achievable. As things currently stand, energy usage is charged at 5 per cent VAT whilst the products and solutions that will help reduce energy usage are charged at 20 per cent VAT.

There is plenty of evidence of the importance of construction to the growth agenda, the big question is, will George Osborne make the right call. Failure to do so will consign millions of Britons to even greater hardship, which is unnecessary and preventable.