Balfour Beatty and the great construction depression

Builders at construction site The UK's construction sector is still in recession

Is there a connection between Balfour Beatty's profit warning (shares have fallen more than 13% this morning) and the Public Accounts Committee's (PAC) critique of the Treasury's self-styled Infrastructure Plan?

Well the PAC is really talking about the future when it says that the Infrastructure Plan "is a list of projects, not a real plan with a strategic vision and clear priorities".

But there is a link, in the sense that the Infrastructure Plan is a response, in part, to the dramatic fall in public sector net investment from 3.6% of GDP in 2009-10 to less than half that today.

The Treasury has been trying to encourage the private sector to take on more of the costs of infrastructure projects, following its decision to cut direct investment spending as part of efforts to reduce the deficit.

Quite a large chunk of the deficit reduction in the early years of the coalition government came from cuts in investment spending.

And one reason why that deficit reduction is stalling for three years is a recognition by the Treasury that it might make sense - for the UK's current and future prosperity - to revive its investment.

Still in recession

As for Treasury efforts to unlock hundreds of millions of pounds from the private sector for infrastructure projects, through the provision of state protection against risks and guarantees of income, this is work in progress - work which the MPs on the PAC feel could be a bit more focussed and systematic.

That it has not yet resulted in any kind or serious renewed building splurge has been evident in the official statistics.

In the first quarter of 2013, construction output fell 2.5%.

This sector is still massively in recession, with output down 5.9% over the course of the year to the end of March and it is a painful 18.1% below the peak of five years ago.

The biggest contributor to that slump was the boom that turned to bust in debt-financed property development (so it is a big hello to HBOS, the bank which almost went bust in part because it liked to say yes too often to the more intrepid - ahem - of developers).

But the government's squeeze on its own investment spending and a review-induced hiatus in privately financed public sector projects have also contributed to the big market squeeze.

The Treasury is trying to move the pendulum back towards investment and away from current spending, by - to simplify slightly - squeezing benefits payments and allocating the savings to infrastructure.

But that is a longish, slowish process.

Super-tight margins

In the meantime, margins for project managers and contractors such as Balfour Beatty have been shot to pieces.

Balfour Beatty concedes that part of the reason its profits for this year will be some £50m lower than it thought only last month is that it hasn't managed all projects as efficiently as possible.

But another reason is that margins on new contracts are super tight and many of its sub-contractors are in dire straits - and it dare not squeeze those businesses that work for it any more, for fear of driving them under.

By way of an aside, Balfour Beatty's owners may well be a bit concerned that the company should have been wrong-footed in this way, given that the dire state of the construction market has been conspicuous for longer than a few weeks.

That said, the industrial background is a long way from being benign.

However, some in the industry tell me that things can't get any worse, that the animal spirits of the private sector are no longer draining away, and that this may be the instant of the turn.

Maybe the light at the end of the tunnel isn't the oncoming train but the diggers and construction equipment being switched on again.

Robert Peston, economics editor Article written by Robert Peston Robert Peston Economics editor

Half a cheer for depression's end

On Friday we will have either the most symbolically important or the most pointless economic event of recent times, when the depression in Britain caused by the banking crisis is finally declared officially over.

Read full article

More on This Story


This entry is now closed for comments

Jump to comments pagination
  • rate this

    Comment number 95.

    Britain has gone from a can do to can't be bothered society.
    We no longer make stuff because its farmed out abroad. Even construction is shunned by govt in favour of PFI which lock the taxpayer into massive long term debt.
    It's time to get some of the shiney arses in govt to actually do something other than pick up the phone & delegate it to someone else. That's if there are any who remember how!

  • rate this

    Comment number 94.

    what utter rubbish preston the simple reason why the deficit is stalling is because dave and his chums are stealing money from the poor the sick and elderly to give to his rich chums. the poor sick and elderly were far more likely to spend that money while the rich will just offshore it avoiding any and all taxes net result a decrease in spending by the public with its reduction in taxes etc

  • rate this

    Comment number 93.

    82 bobeastoe
    " it's not their money they are spending its ours"
    deficits mean govts spend more money into the accounts
    of firms and households than they raise in taxes from "us"
    money we in turn spend
    we are spending governments money!
    indeed without sovereign power money is worthless
    try spending Monopoly money
    it is the heads of emporers kings queens and presidents
    that make paper money

  • rate this

    Comment number 92.

    the ratio between wages and house prices and rents has become too great
    and the knock on effect on other spending is obvious
    spending = income
    govt can build much needed houses
    and cut taxes to increase spending
    but the giant strawman of govt fiscal restraint looms over economics
    meanwhile savers queue up for bonds at record low yields
    in UK USA Japan despite loss of AAA

  • rate this

    Comment number 91.

    The Coalition parties talked down the economy to get theselves elected - for sure the economy far fron great shape, but it was not that bad at the last election...

    Having it talked it down to justify their ideological cuts the public, both individuals & companies, have lost all confidence...

    No national economy is worth anything without confidence.......

  • rate this

    Comment number 90.

    I struggle to understand why the private sector would pick up the cost of infrastructure spending.

    If the government sees no benefit in such spending then why would the private sector have any confidence in doing so?

    That's the missing piece of the jigsaw.

  • rate this

    Comment number 89.

    You would think that Gideon would have foreseen the effect of turning the funding tap down.

    Clever Gideon.

  • rate this

    Comment number 88.

    To save a depos 25% for a 3 bed semi. 2 ppl with kids. Work nights, wkends and typical working week all to save. 5 years gone in a blur. Sacrificed health, leisure and time.violins plz
    Give this to the ppl before us for their % as they need a rise of 50k in what they bought it for. As instead of clearing debt they spent 'value' on a new motor. Strive? why bother enjoy yours and let the state pay.

  • Comment number 87.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this

    Comment number 86.

    @83. Idd and I suppose no one wants to be left with the empty bag when the time comes, or...
    If there is no correction it might leave a whole lot of ppl with never a chance of owning a home who previously thought they would, 'low middle class' (whatever they are). They pay others to shelter.
    Either way IR will have to rise to 5% at some point surely? & that might hint at the former scenario.

  • rate this

    Comment number 85.

    75.David Lilley

    "...It is family breakdown that is putting a strain on the housing market..."


    In so far as a family cannot exist without a basis, and that would reasonably be said to be a considered understanding between a man and woman, to found an entity of some substance and permanence, there was often never any family in the first place to break down, so not really...

  • Comment number 84.

    All this user's posts have been removed.Why?

  • rate this

    Comment number 83.


    House prices go up because the banks will make more money from someone else taking out a loan - backed by thin air - to buy them.

    Our economy in one easy lesson.

    No need to thank me.

  • rate this

    Comment number 82.

    When will they ever learn. It's not their money they are spending, it's ours! Cut the quangos, cut the mandarins, put decisions at local level and let the markets decide.
    The crazy idea of HS2 typifies political thinking in the UK. If it is such a good idea, why aren't the bleeding heart construction companies raising the money to build it and not use taxpayer money?

  • Comment number 81.

    All this user's posts have been removed.Why?

  • rate this

    Comment number 80.

    @75. Maybe our culture needs to hold friendship, loyalty & commitment above so called 'love'. The 'I don't love you no more, see ya'. Is disgusting.
    @77. Aye. "At all costs" will come true soon enough.
    @78. Maybe they want a whole lvl of BTL as these r buying atm. Many ppl will be trapped into paying these ppl & the BTLters could absorb a crash better than a person who has a home to live in.

  • rate this

    Comment number 79.

    VAT reductions - good! Remind the Tories of all their stuff about Laffer curves!
    Huge public investment needed! Back to above 3%!
    National Debt to be halved!
    A huge Miliband black hole?
    By no means. The public ownership by sequestration of the whole finance industry funds all of the above & puts Labour in the best position to redistribute paper wealth in the best way. (That's equality, stupid!)

  • Comment number 78.

    All this user's posts have been removed.Why?

  • rate this

    Comment number 77.

    All Major partys have 1 plan and 1 plan only save the banks at all costs.
    Its a simple rule devised by the CoL
    Any constructions projects will be have to be initiated and sanctioned by the Banks so they can maximise their public money take.
    Just like they have done with PFI

    Far too difficult for our Public representatives

    Just keep feeding the monster in the city.....

  • rate this

    Comment number 76.

    This company is currently shedding staff left right and centre, not just new staff, people who've been with them decades. I wouldn't be surprised if there's more bad news to come from certain parts of the business ... the current money in construction is in utilities. Nothing is happening in building because banks aren't lending and the Government cancelled all earlier projects during the CSR.


Page 2 of 6



  • ScissorsWithout Scotland?

    How might things change for the rest of the UK?

  • Diagrams showing bowler and batsmanAnyone for Vigoro?

    The bizarre Edwardian attempt to merge tennis and cricket

  • Payton McKinnonKilling heat

    Why so many American children die in hot cars

  • Dr Mahinder Watsa Dr Sex

    The wisecracking 90-year-old whose agony column is a cult hit

  • Prince George and the Duke and Duchess of Cambridge outside St Mary'sIn pictures

    Prince George has had an eventful first year

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.