The councils’ expenditure on construction will be higher this financial year than in 2022/23.
But experts have warned that “rising prices” for materials and labor are stretching budgets and, in many cases, reducing the amount of actual construction activity taking place.
Local authority spending on new build, conversion and renovation is forecast to be £17.7 billion in real terms by 2023/24, according to new figures released by the Department for Housing, Housing and Communities (DLUHC).
The level of capital expenditure in this category, at 2022/23 prices, was £17.2 billion in 2020/21 and 2022/23, and £15 billion in 2018/19.
Overall, capital spending by councils is forecast to be £27.3bn this financial year, up 2% on 2022/23. New build, conversion and refurbishment will remain the largest category of council capital expenditure, accounting for 65% of planned expenditure.
Spending on the acquisition of existing land and buildings is forecast to be £1.6bn, 15% below its level in 2022/23 (£1.8bn) and more than two-thirds (68%) less than the capital expenditure. this category in 2018/19 (£5.1 billion).
Total capital spending is also expected to include £7.7bn on housing (down 7% from 2022/23) and £7.5bn on motorways and transport (up 2% on 2022 levels /23).
Councils are using an increasing proportion of grants to fund their capital expenditure. By 2023/24, grants are expected to fund 45% of councils’ capital expenditure (£12.2bn), up 6% on last year.
Meanwhile, 32% of capital spending in the current financial year (£8.5bn) is expected to be funded by borrowing under the “prudential” system that applies to councils. This would represent a fall of 8% from 2022/23.
Given high inflation, relatively small increases in spending may nevertheless equate to a reduction in construction activity.
Steve Perkins, director of consultancy Turner & Townsend, said Construction news that, despite the overall spending figures, “we are seeing councils across England delivering fewer projects overall, or reducing the scope of projects to fit capital budgets in the face of persistent construction cost inflation and high rates of interest”.
He added that “while year-on-year spending is increasing, councils are reducing actual capital spending relative to planned spending by more than 50% in many cases.”
Perkins said the year-over-year increase could be “simply a statistical anomaly after the pandemic and global uncertainty and disruption last year. But other factors may also be at play. Given the volume of projects postponed or delayed during the In recent years, some spending may have caught up from previous years.There may also be an impetus to spend now rather than later to stop inflation further eroding budgets and to take advantage of current support from central government seed funding in programs such as modernization.
“We are working with our customers to help them review their original business cases, reduce project delivery risk and generally ensure that the value delivered for every pound is maximized as much as possible” .
Joanne Pitt, head of local government policy at the Chartered Institute of Public Finance and Accountancy (Cipfa), said councils were not exempt from the “huge challenges” caused by high inflation.
“It will cost them a lot more to provide their essential services than it did this time last year and they will have to make difficult decisions,” Pitt said. “While construction spending is expected to increase, rising prices for services, materials and labor will mean taxpayer dollars don’t stretch as far as before, so inevitably this will affect the amount of construction that can be carried out.”
James Halse, head of the local government sector at Arcadis, said the current financial strains on councils “have affected the delivery of capital”.
He said: “The pace has slowed in some areas as councils adapt, but the need to regenerate sites, meet ambitious customer switching targets and provide infrastructure for growth, has not gone away.”
Halse added: “DLUHC’s capital spending projections suggest that councils will find a way, as they have since austerity.
“Ambitious councils are working on alternative delivery models, working with external partners (such as the private sector) and the likes of Homes England to find the resources, capacity and capability to deliver what local people need.”
A spokesman for Willmott Dixon said: “There is still considerable challenge in the construction industry to match budgets with the cost of construction.” However, they said they believe “more local authorities are coming to terms with the once-in-a-generation situation we face” when it comes to building costs.
Cipfa chief executive Rob Whiteman said in November Construction news that many councils “had to make difficult decisions about the capital program, where the same amount of capital maybe buys a little less than when it was planned”.
Among the councils looking again at their capital programs is Enfield council in London, which overhauled its £6bn Meridian Water redevelopment this year. The Local Government Association also recently warned that there was a risk that social housing building programs would have to be “significantly scaled back”.
The figures of the DLUHC are drawn up from data provided by the councils.
