Presentation by Colin Palmer LEK Partnership : thanks to CBI , UKCG - report downloadable at www.ukcg.org.uk www.cbi.org.uk

1. Construction in the UK economy The benefits of investment CBI, 28 October, 2009 Auckland Bangkok Beijing Boston Chicago London Los Angeles Melbourne Milan Mumbai Munich New Delhi New York Paris San Francisco Shanghai Singapore Sydney Tokyo Wroclaw Colin Farmer, Partner, London John Goddard, Partner, London

5. Government investment in construction is the most beneficial use of stimulative public expenditure in both the short- and longer-term and any reduction in construction expenditure would have significant immediate and enduring negative consequences for the UK Construction in the UK economy

12. £1 spent on construction output generates a total of £2.84 in total economic activity (i.e. GDP increase) Investment in construction Direct impact Indirect impact Induced impact £1 £1 £1.09 £0.75 Indirect impact Supply chain impacts of construction and their knock on effects, i.e., increase in output and income up and down the supply chain Induced impact Increase in household income as a result of increased employment / income in construction and other sectors leads to increase in spending and demand / output in the overall economy Direct impact Wage income and corporate profit generated in the construction sector, plus spend on non-labour inputs £2.84 Construction is one of the best ways of stimulating economic activity 1

15. Construction output is expected to fall significantly over the next 2-3 years. Any reduction in public expenditure would exacerbate this problem Total construction output and gross public expenditure (1985-12F) Billions of pounds Public output - CPA current expectation Private output 6.4 CAGR% (2002-08) 6.9 6.7 CAGR% (2008-12F) (4.4) (1.5) (6.1) Total Forecast Gross public expenditure (plus private output) (3.4) Construction is one of the best ways of stimulating economic activity 1

16. Contribution to employment 2 Construction in the UK economy Construction is the best sector for stimulating employment The employment that construction provides benefits lower skilled and young workers who have relatively few alternative opportunities Many regions are heavily dependent on construction jobs

19. 60% of the GB workforce is in areas where unemployment is higher than average or would be in the absence of construction The economy is relatively strong and unemployment is lower than average (40%) Construction is responsible for above average employment (15%) Employment is below average, but construction is over-delivering jobs compared to average (18%) Construction is weak but the general economy is weaker (17%) Lack of construction demand is to blame for above average unemployment (11%) C B A D E Percent of economically active population in GB (30m) Key: (%) = Construction is the best sector for stimulating employment 2

20. Benefits of investment 3 Construction in the UK economy Construction is not only immediate economic production It is also investment rather than consumption, which provides significant long-term economic and social benefits

23. £1 investment in construction of a new school costs only £0.44 net to the Government for a total benefit of £3.87–5.04 Treasury impact Total impact Impact Example: Investment in school construction (new build) ILLUSTRATIVE £1 expenditure Increased income tax, NI and corporation tax receipts Savings in benefits allowance Increase in UK construction output (direct impact) Short-term economic impact Indirect impact Increased income tax, NI and corporation tax receipt Savings in benefits allowance Induced impact Net cost £0.44 £2.84 Long- term benefits Increase in education sector output Increase in educational attainment Other health and regeneration benefits Increase in lifetime earnings £1.03–2.20 £3.87 – 5.04 £ Key: Estimated present value of impact Present value of impact excluded from the current analysis £ £ £ £1 £0.13 £0.23 £1.09 £0.75 £0.20 £? Quality of life and wider social and economic benefits £1.03–2.20 £? Government investment in school construction Construction is investment which provides long-term benefits 3