Construction Industry
Debate between Lord O'Neill of Clackmannan and Baroness Jolly
Lord O’Neill of Clackmannan (Lab)
My Lords, in opening the debate, I declare my interests as recorded in the register. I am currently the president of the Specialist Engineering Contractors Group, which is an umbrella organisation for trade associations in the mechanical and engineering sector of the construction industry. As its nominee, I served for two years, from 2010 to 2012, as chairman of the Strategic Forum Construction, which the Government established. That organisation represents second-tier contractors and, in the main, they are micro-businesses employing fewer than 10 people. That business model accounts for more than 95% of the construction industry as a whole. The size of those businesses is critical when we consider that most significant contributor to our national economy. The Chartered Institute of Building estimates that total employment in construction exceeds 2.3 million workers—1.3 million employees and just under 1 million self-employed; 2 million men and almost 300,000 women. Its output exceeds £120 billion a year, and there are about 257,000 firms engaged in the industry, which purchase £170 million-worth of goods, services and materials. Together, they add £85.4 billion GVA to the economy, which is 6.3% of national economic output. When you take account of the multiplier effect, the University of Westminster has suggested that construction as a whole contributes more than 15% of our gross domestic product.
When I was first allocated this debate in July—it had to be set aside for other pressing business—there was a mood of some fragile optimism about an economic recovery. Alongside that was the impact of the coalition’s announcement of help to first-time buyers. The link between an economic upturn and improvements in the state of construction is almost always assumed to be a given. The assumption implies that there is a vast army of businesses, workers and suppliers all ready and willing to start building houses as soon as the public are economically self-confident enough and have access to borrowing through cheap enough mortgages either to buy for the first time or to move up the housing scale to find properties better suited to their needs.
While that emphasis on housebuilding is vital to the sustenance of the construction industry, it is not the only element of it. We need the industry to maintain and expand both our rail and road links. We need the transportation not only of goods but of electricity and gas through the pipes and wires from our generating facilities. No longer do we have to think purely about small power stations or very large ones; we now have a vast array of options, including renewable technologies and the like, all of which have to be accommodated into our power systems.
As well as building new homes, we need to refurbish our existing housing stock to make it more energy efficient and more decently habitable for many of the poorest and most vulnerable people in our country. Moreover, we need to build homes to rent and improve the quality in the private rented sector.
These, then, are the challenges facing the industry in an economy that is slowly and uncertainly coming out of recession. One can see from the latest set of figures that there have been hiccups and there have been drops. When we are coming out of a recession, progress will not necessarily be steady. It is not my job today to derive ill considered glee from the embarrassment of a hiccup in the statistics. We know that the general trends are improving. It is how we can take advantage of that and how we can correct some of the errors of the past that I want to dwell on today.
Certainly, it is the fact that in our industry there are a number of challenges. Housing is a significant one. I should like to look at that later in the context of the Lyons report, which my party published last week. In the days running up to this debate, I received a plethora of helpful briefing documents, too numerous to mention, but all stressing the significance of construction for the economy. It is certainly true that when the economy is doing well, construction is also doing well. We tend to forget that in the last economic boom, in the final years of the Conservative Government and under the Labour Government, precious little attention was given to housing. It was assumed that everything was for the best in all possible worlds. This Panglossian approach has resulted in statistics which, from a Labour man’s point of view, I find extremely embarrassing. That last Labour Government achieved low levels of public housing and low levels of construction across the board. What was clear was that prices for houses that were built were far in advance of wages and other indices in the economy. In the last year before the slump in 2007-08, we had the highest construction figures—figures that are yet to be matched in any year by the present Administration.
It could be said that the present Administration has tried. Indeed, there was no financial announcement that did not have a nod in the direction of construction. There was a bit of help here and a bit of help there; somebody was being assisted. More often than not the money was being recycled and more often than not it was old money, but there was always a token gesture made towards the construction industry. Frankly, however, the dribbling of support, which was the hallmark of successive Governments, has to be done in a more concerted, better thought-out way than we have seen recently.
Certainly, as a consequence of our failure to build sufficient houses, we have seen owner-occupation falling. It is now back to the 1993 figure of 68.3%—so much for the property-owning democracy. We also have an increasing number of people living in the private rented sector. There are many good landlords in the private rented sector who are a credit to the work that they undertake. There are others who are a disgrace. We know this from the big cities, where we do not quite have the Rachmanism of the 1960s but we have unacceptable treatment of tenants, disgraceful housing and an indifference towards the condition of these homes in respect of the refurbishment that they dramatically require.
Equally, it has to be said, in the social housing field we now find that there are probably more lower-carbon and more energy-efficient households being built by social housing organisations than by any other part of the construction industry. Certainly, around Westminster, there are many hundreds of houses that, by and large, start at £1.5 million. That seems to be the lowest price at which you can enter the housing market if you want to buy a new flat within spitting distance of this building. We seem to have a distorted sense of priority. If we have a large service industry in which people are paid low wages and a large part of their outgoings are accounted for by transport costs, they need to be near the people whom they are serving in these industries. We have singularly failed across the country to do much about that.
As I said earlier, the Lyons Housing Review appeared last week and it has had a pretty good press. Your Lordships may say, “Not another report in the year of a general election. Is it just a wish list made up by a party fan club?”, but it is rather more than that. For a start, it is rather longer than the usual slick document from a party publications system. It is 180 pages long and has been written by a group of the most distinguished specialists from the construction and related industries in the UK. This took a long time; it is no back-of-the-envelope job, in any sense of the term. The report makes a series of recommendations, which I will not deal with in detail because there are 180 pages in total. That would be stretching the good will of the House a lot further than I have time for.
The report stresses that local communities should be given the power to build homes that are needed in places where people want to live; that councils should provide a plan for housebuilding in their area and allocate land for development to meet this; that first-time buyers from an area should be given priority access to purchase in the area in which they stay; and that, along with this, there should be powers for local authorities to collaborate in forming the kinds of consortia that were formed for the Olympics, whereby a group of local authorities see a problem jointly and can deal with it in that area. On the one hand, this is obviously an urban problem but it is also an issue for the smaller, rural authorities, which do not always have the resources to marshal their efforts in a coherent and effective way.
The report says that there should also be measures to increase the capacity of the small firms, which I mentioned earlier, to build—to give them the guarantee that they will have the resources to do that and, as a consequence, we should see an increase in competition. It says that there should be a help-to-build scheme to underwrite loans for small builders; fast-track planning for small sites, which they can handle and manage quickly; and financial incentives for local authorities to deliver what may be rather more grandiose garden city and suburb concepts. This is increasingly becoming a consensus view: we need to get out of the big housing estates or large blocks and try to get more attractive forms of housing. These are ambitious proposals, which have been drafted by people who know the industry. They seem confident that if an incoming Government next year were to adapt the programme and the priorities that they suggest, 200,000 houses could be built per annum by 2020.
One of the first challenges would obviously be to get a labour force capable of undertaking that work. In the recession of the 1990s, for every two men who left the industry—by and large, they were men—only one returned when things picked up. The gap was filled by immigrant workers. Now when an economy is booming, people do not mind immigrants or see them as a threat. When wage rates are high, they do not see that as a problem. Unfortunately, the Polish plumbers are unlikely to return because many are now in a country whose economy is equally healthy. They have learnt new tricks for their trade and are able to continue them there, so we will not have them.
We will therefore have to be far more dependent on an apprenticeship scheme, but apprenticeships take four years and, for the first two years, the businesses make very little money from them. In year three they make a bit, and in year four the youngsters are probably getting paid less than they should be. It is a four-year investment for small businesses and they need more assistance with the problems of bureaucracy. I know that there is a trailblazing initiative on the part of the Government, which they might announce today. However, the essence of that trailblazing initiative must be assistance for small businesses to get their act together. The problem, as I understand it, is that this scheme, although ambitious, is woefully underfunded. Perhaps the Minister could comment on this because I have already heard people say that their scheme was rejected on the grounds that it would use too much of the department’s resource.
The industry is not all gloom and doom. There are problems with payment systems. We know that the Government would like to see a 30-day rule implemented. Many departments are doing that. Other agencies of government or the recipients of public funds are not in a position to do it. By the same token, we need better quality training and to get away from the very short term.
I realise that time is at a premium here and one always takes up too much time on other matters, but I want to say that there are opportunities for building information modelling. Computing, which is used in engineering across the country is not being used in construction in anything like the way it could be. There are better systems available: this is not a wholly doom-and-gloom industry. There are a lot of opportunities but if we do not learn the lessons of the past, we will repeat mistakes in the future. We cannot afford to do that. Housing, the roads and the construction of the factories we require are dependent on this industry and I urge the Government and the House to give it the attention it deserves and which it has been denied for too long.
Baroness Jolly (LD)
I remind noble Lords that timing for this debate is really tight and when the clock says seven minutes, that means that your time is over.