As an exercise in managing expectations, the coalition government got it spot on. The almost universal reaction of the construction industry to the emergency Budget was a sigh of relief, especially after the surprise announcement the previous week that several billion pounds worth of projects were to be axed. But the common cry was that George Osborne was not taking the axe to capital spending. Well, no more than Alistair Darling was already 鈥�

Granted, the VAT increase is not great for small builders in the domestic sector, and will probably drive more to operate in the black economy, and it will do nothing for green refurbishment 鈥� but the fact that Osborne used the words 鈥済rowth鈥� and 鈥渃apital spending鈥� together more than once provides some comfort that construction is on the coalition鈥檚 radar. And while we鈥檙e on the subject, those gathered at 好色先生TV鈥檚 reception at the House of Commons on Monday night were pleased to hear Mark Prisk, the construction minister, displaying the kind of passion and knowledge that we haven鈥檛 witnessed since the days of Nick Raynsford. Although it鈥檚 been said many times, many ways, his assertion that Whitehall should be a better client was still reassuring. And his pledge to scrap the more ludicrous hoops that contractors have to leap in prequalification questionnaires is a great promise. Let鈥檚 see it delivered.

But returning to the Budget, the fear has always been that capital spending is much easier to cut than operational spending 鈥� so it really is good news that the chancellor has elected to tackle welfare spending and public sector pay, even though he鈥檚 going to have to fight some heroic battles along the way. Osborne made a virtue out of being fair 鈥� and construction certainly won鈥檛 lose too much sleep over public sector pay freezes. Our salary survey this week shows that in the past 18 months salaries for swaths of employees in our industry have fallen 12-20% with no rise in the offing any time soon.

We can see the big picture, but the details are still blurred. What will the government鈥檚 priorities be for the projects that do go forward? The state invested 拢69bn in 2009/10, of which 拢39bn went on construction. By 2014/15, that will drop by 拢24bn, but we鈥檒l have to wait until October to find out how that will affect projects. We鈥檙e hearing that there will be an announcement on the fate of 好色先生TV Schools for the Future within the next few weeks. This is vital: at the moment schemes are carrying on regardless. And there鈥檚 some hope, too, that there will be cash to plug the Homes and Communities Agency鈥檚 拢600m black hole.

So much for the direct effects of the Budget. There are also indirect consequences for construction of taking 拢113bn (including tax rises) out of national aggregate demand. The PFI will continue to be a hard scrabble until the banks recalibrate their expectations about risk assessments. And retail development could continue to stall in anticipation of VAT rises. We simply don鈥檛 know. And what about routine repair and maintenance? Schools will find it easier to delay that for a few years than lay off teachers. What is also on the cards is an overhaul of the way departments assess projects in terms of value for money before they get the green light 鈥� and as we said last week, there is the not insignificant prospect of public sector contracts being renegotiated. Lobby for your life to stop that one.

So it鈥檚 hard not to draw the conclusion that the pain will be worse than we can imagine now: the UK Contractors Group is predicting that another 500,000 jobs could go. Although the private sector is unlikely to ride to the rescue as quickly as we鈥檇 like, The Office for Budget Responsibility is still predicting GDP growth of almost 3% come 2012. That鈥檚 a modicum of comfort in these difficult times.

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