Having reached a peak of £5.9bn in 2008, health sector construction output has subsequently declined by 48%. Cuts to the capital budget initiated by the Government since April 2011 have had a significant impact on health sector output and the outlook remains one of moderate improvement at best to 2019.
However, despite this decline, it’s worth emphasising that healthcare still represents a major area for construction work. In recent years, the mix between public and private sector output has changed, with the public sector share having experienced significant fluctuations due to budget cuts and changing attitudes towards the use of PFI and other private funding sources.
With more healthcare services being driven out of the acute setting and into the primary sector, GPs are very firmly at the core of the NHS and the emphasis is now upon the upgrading and refurbishment of the GP estate. Investment in the primary care estate has generally lagged behind the secondary or acute sector, but in the 2014 Autumn Statement, the Chancellor announced a £1bn funding package for investment into GP facilities which will help upgrade current premises to deliver additional services and care outside hospitals.
Established methods of delivery of new capital developments, such as PFI, LIFT, Procure 21+ and Express LIFT are now undergoing change under NHS organisational reforms. The broader policies of developing GP-led commissioning have undoubtedly led to greater co-operation between the private and public sectors, and more work with private providers and their construction teams, as financial constraints continue and public sector capital becomes more difficult to obtain.
Health sector construction output is forecast to pick up slightly in 2015 with value growth of around 4%, though forecasts indicate moderate annual rates of growth to 2019 when output is forecast to reach £3.6bn. Although the latest trend for new orders has been upwards this is unlikely to result in a rapid upturn in output in the medium-term, particularly while budgets remain under pressure.
A slight increase in the NHS capital expenditure budget in 2015-16 to £4.7bn may help to sustain output growth in 2016 and beyond as financial pressures on trusts to commission new facilities and upgrade existing ones begin to ease. However, the medium-term prospects for health sector output are still severely constrained by continuing low levels of investment, though medium term prospects are subject to the outcome of the Election.
“Whilst health spending for 2016-17 and 2017-18 has not yet been announced, the health budget continues to be under pressure. A change of government could also alter the focus of health sector capital expenditure” said Andrew Hartley, Director of AMA Research. “Key to the future performance of the health sector is the changing focus from larger-scale regional provision to smaller, locally based services based on LIFT/P21+ procurement programmes. This is set to continue as health and social care services are increasingly integrated at a community level.“
The ‘Healthcare Construction Market Report – UK 2015-2019 Analysis’ report is published by AMA Research, a leading provider of market research and consultancy services within the construction and home improvement markets. The report is available now and can be ordered online at www.amaresearch.co.uk or by calling 01242 235724.