Construction Industry

Lord Jones of Cheltenham Excerpts

Thursday 23rd October 2014 Lords Chamber

[Lord Jones of Cheltenham (LD)]

My Lords, I congratulate the noble Lord, Lord O’Neill, on securing this timely debate and on his wonderful introduction to the topic. The Chartered Institute of Building believes that by 2022 there will be a shortfall of 1 million homes in the UK. The Liberal Democrats believe that the United Kingdom needs to aim for an ambitious 300,000 new homes per year, a figure supported by the Royal Institute of British Architects, the Westminster policy think tank and trade bodies working in and around housing. As we have heard, we also need the infrastructure to support all these new homes. Roads, drainage, telecoms, power and other requirements such as transport links, schools, shops and doctors’ surgeries for a city the size of Nottingham need to be provided every year for the next seven to 10 years if we are to solve this problem.

The recession had a huge effect on UK construction. The industry is one of the truly labour driven sectors, but it lost some 400,000 skilled personnel after the 2008 crash and will lose another 400,000 through retirement over the next four or five years. This is leading to a critical shortage which some are calling a “skills time bomb”. Construction wages were up by an annual rate of 4% in July. We are returning to the age of the “loadsamoney” plumbers, plasterers and painters that plagued the Thatcher era and are symptomatic of a cost-push inflationary spiral affecting housebuilding costs. While a number of government-funded apprenticeship schemes are in place, they are not enough to meet the labour demand required to build 300,000 new homes per year. I had a conversation recently with Cheltenham’s leading building materials supplier. He told me that he doubted whether we could build the number of homes needed because we are not producing enough bricks. As a result, I tabled a Parliamentary Question—HL 254—and received what I thought was a rather complacent reply from the Minister.

Around 600,000 houses were built in 1952-53 under Harold Macmillan’s tenure as Housing Minister. We need to get back to that level to overcome the housing crisis, particularly the acute shortage of affordable or social housing. To achieve that, we should be repeating the garden city model which has proved so successful in the past. According to the Office for National Statistics, construction output figures in August came in at 3.9% lower than in July this year and 0.3% lower than last year. Private housing dropped by 5.5%, with repair and maintenance also down, although all areas seem to have dipped. There were some screaming headlines about this. We are now in late October and frankly the August figures are ancient history. Construction is a volatile industry which has been on a meteoric trajectory over the past 18 months or so, but those of us who can still remember life before the iPhone and have some experience of recessionary cycles know that there needs to be at least another month or two of figures of decline before we start to worry that a downward trend is emerging.

What is more pertinent is the view from the ground. Construction output is most likely to be negatively affected by the lack of contractors available to build or the number of sub-contractors who are still disappearing due to cash flow issues caused by late payment problems. A survey published by StreetwiseSubbie.com, a lobby group that works on behalf of sub-contractors, is alarming. The report claims that over 90% of specialist contractors are being paid after more than 30 days on publicly funded projects and that 4.7% have had to wait longer than 90 days. Of those surveyed, 84% said that government initiatives such as the Prompt Payment Code, the Construction Act and the Construction Supply Chain Charter had made no difference. Again according to ONS, the highest number of company liquidations is still in the construction sector. In the 12 months ending quarter 3, 2013, the number going out of business was 2,819, adding to the 5,000 firms which had already disappeared between 2010 and 2012, according to PricewaterhouseCoopers.

It is not good business practice to starve your suppliers of cash. The contractors cannot operate without the sub-contractors working beneath them. This is no longer the 1970s world, where hoarding cash and starving suppliers was regarded as common business practice. We are now supposed to live in a more enlightened working environment, where you partner with suppliers and build a team working towards a common goal. If you do not pay them, they cannot work; if they cannot work, they walk; and if they walk, their suppliers put them on stop. Everyone suffers. This Government and the next must tackle this serious housing shortage through enough skills, enough materials and prompt payment.