Government to pay up to 70% of builders’ inflation-related construction costs

The Government will pay up to 70 per cent of builders’ inflation-related construction costs in an open-ended scheme set to cost millions of euros per month.

Cabinet on Tuesday approved plans for the scheme, brought to Government by Minister for Public Expenditure Michael McGrath.

The minister said the scheme was needed to mitigate the risk of “significant losses” and to protect projects already in construction.

Speaking to reporters after Cabinet, Mr McGrath said the scheme would not be a “free for all”, adding that it was introduced amid concerns that vital public works schemes could flounder due to builders’ profit margins being eroded, making them unsustainable.

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He said contractors have already expressed concerns about the current model for major public projects and the contract underpinning it.

While he said it was difficult to put a cost on the scheme, it was estimated the bill for the first three months of the year would be €30-€40 million.

It was not being time-bound as there was too much uncertainty around currently, he said.

He said the immediate impetus for the scheme was the cost pressures in the construction supply chain caused by the war in Ukraine, which is leading to “real difficulties” especially for those longer lead-in time projects which tendered and agreed prices before the current pressures emerged.

Costs will be contained within expenditure ceilings in the National Development Plan (NDP).

The “cooperation framework” will allow parties to engage on an ex gratia basis to address the cost impact of inflation, he said.

Costs will be made with reference to CSO figures, and must be related to inflation — although retrospective claims for payments made from January 1st can be made. He said there was a need to ensure the State’s ability to deliver the NDP.

Elsewhere, the Cabinet gave approval to run the nine per cent VAT rate for the hospitality sector to the end of February — a six-month extension — at a cost of €250 million per year.

Minister for Finance Paschal Donohoe said there was a need to safeguard the future of the tourism and hospitality sector during the summer and through the “shoulder seasons” and the Christmas period.

He said the winding down of the wage subsidy scheme in the coming weeks would be a particular risk for the sector, which has been the biggest beneficiary. Asked about the difficulty of getting rid of the tax break — in its last incarnation, it took eight years to return it to its original rate — he said he would act on it when the time was appropriate and pointed out he was the Minister for Finance who had done so on a previous occasion.

Minister for Tourism Catherine Martin who last week voiced concerns about the transparency associated with the National Maternity Hospital (NMH) project, said she wanted to allow Minister for Health Stephen Donnelly appear before the health committee on the matter and would not “pre-empt” the outcome. She said the decision to delay Cabinet approval was the “right decision” and “the vigilant step to take”

Ms Martin said “there should be transparency at (the) very heart” of the NMH project. It “needed parliamentary scrutiny and is worthy of parliamentary scrutiny”.

“I would hope that Minister Donnelly would give those reassurances tomorrow,” she said.