Construction Industry

Lord Popat Excerpts

Thursday 23rd October 2014 Lords Chamber

[Lord Popat (Con)]

My Lords, I am grateful to the noble Lord, Lord O’Neill, for initiating this very important and timely debate. I say “timely” because the construction industry is very much at a crossroads. It is recovering from the double-dip recession in 2008 and the infrastructure projects we have in the pipeline will result in growth in this industry over the next five to 10 years. The noble Lord, Lord Morris, put it very well: this debate is about the construction industry, the economy and politics.

The construction industry serves very diverse markets. From minor maintenance work on our homes—replacing the washer on a dripping tap, which typically would be covered by a call-out charge of £60 or—to constructing the largest infrastructure project currently under way in Europe. Crossrail is estimated to cost £15 billion. It is not surprising, therefore, that an industry serving such diverse markets should itself be diverse. It is also large. There are 280,000 businesses in the industry, big and small. Construction contracting, services and products contribute more than 6% of GDP and contributed £90 billion in gross value added in 2013. As the noble Lord, Lord O’Neill, said, there are 3.2 million jobs in construction—about 10% of our total workforce. However, the industry’s importance is greater than these figures. It builds and maintains our places of work, our schools, our hospitals, our economic infrastructure and, of course, our homes. That is why construction is one of the sectors covered by industrial strategy. Whatever the particular market, four factors are essential to the longer-term vitality of the industry.

First, the industry needs a favourable regulatory, fiscal and economic environment where government supports sustainable development through creating the right conditions for business to flourish. Secondly, the industry needs a clear and healthy workload. Thirdly, it needs a strong and resilient supply chain. Fourthly, it must adopt emerging technologies and new processes. I will deal with each of these in turn and finish by saying a little more about housing in particular and construction more generally.

First, on having a favourable fiscal and economic environment, the UK now has the lowest headline corporate tax rate in the G7 and the fourth lowest in the G20. The World Bank rates the UK tax system as the fourth least burdensome in the OECD. Excluding EU regulation, the estimated net cost of regulation to UK business has fallen by £1.5 billion since 2011, so we are making real progress.

Secondly, on having a clear and healthy workload, the construction industry was hard hit by the recession but is now benefiting from the economic recovery. More investment will come forward as confidence in the wider economic recovery grows further. The strength of that recovery is key to the construction industry. While the industry is currently 9% below its pre-recession peak in the first quarter of 2008, which was a historic high point, key construction markets are recovering. Construction output was up by 5.6% in the second quarter of 2014, compared with the second quarter of 2013. This was driven by an 18.6% rise in new private housing and an 8.3% rise in non-housing repair and maintenance.

The forecasts are also positive. The Construction Products Association forecasts a rise in construction output of 4.7% in 2014, and a further 4.8% rise in 2015. The Institution of Civil Engineers report The State of the Nation acknowledges that annual investment in our economic infrastructure is higher on average in this Parliament than in the previous one. However, as that report made clear, the job is not yet done. This is why the Government have committed to long-term funding settlements in key sectors such as roads and flood defences. We have committed to spend more than £70 billion up to 2021 on all forms of transport. Councils are receiving £10 billion for local highway maintenance over this Parliament and the next. We have also introduced the biggest reforms to energy markets since privatisation.

Thirdly, on the need for a strong and resilient supply chain, the Government are working in partnership with the construction industry to tackle key supply-side issues. It is now a little over a year since Construction 2025, our industrial strategy for construction, was launched. That strategy is being taken forward by the Construction Leadership Council co-chaired by Sir David Higgins, the chairman of HS2. The right people with the right skills are essential for a healthy supply chain. It is a fact that during the recession the construction industry lost 360,000 skilled workers, with the training and recruitment of graduates and apprentices also significantly reduced. We are now forecasting more than 14,000 construction apprentice starts this year, the highest for four years. Ideally, as the noble Lords, Lord Macdonald and Lord Young said, we should have a lot more—maybe as many as the 100,000 mentioned by the noble Lord, Lord Macdonald. We saw that report on the lost generation; I think that the Government are looking at that report in addressing the issue of having more apprentices.

My noble friend Lord Deighton, the Commercial Secretary to the Treasury, has also recently announced a joint Government, clients and contractors group to work together to produce a skills map for the construction and infrastructure programme.

The noble Lord, Lord Young, also mentioned the huge number of jobs lost during the recession in the construction industry. Our employer ownership pilots are supporting innovative construction skills programmes such as those for high-integrity welding, site supervision and steel erection at Hinkley Point. The noble Baroness, Lady Prosser, spoke about having more women in the construction industry. We recently announced a successor programme, the Employer Ownership Fund. The initial focus here is on engineers, getting more women into the sector and engineering shortages among SMEs. We are supporting employer-led trailblazers to develop and implement new apprenticeship standards. Higher skills are also important so we are setting up national colleges—the high-speed rail college, for instance, which will be established over two sites in Birmingham and Doncaster. The public sector is a significant customer for construction and is giving the industry greater confidence to invest in skills, and new technologies and processes, by setting out a clear view of the forward pipeline of government work.

The fourth item concerns emerging technologies and new processes. The big technology drive for the construction sector is building information modelling, which is about the effective use of modern communication and information technology in construction projects to reduce waste and increase efficiency across the design, construction, commissioning and operation phases of a building or infrastructure asset’s lifetime. As we have seen from Cookham Wood prison, where this BIM drove cost savings of 20%, it is a genuinely transformational approach.

I turn now to the specific question of housing, about which the noble Lord, Lord O’Neill, spoke passionately. We swept aside the old regional housing targets imposed by Whitehall, instead bringing radical reform to the planning system, not least through our National Planning Policy Framework. The noble Lords, Lord Haskel and Lord Rooker, emphasised planning in the green belt. Our planning reforms are making a real difference. Permissions for 230,000 new homes were approved by this June, which is 14% higher than in the same period last year. Relaxing planning is the key to unlocking real growth in the housing market.

Starts on new homes in the past year totalled nearly 140,000, which is up by 22% on the previous year and the highest since 2007. This Government are emphasising the use of brownfield land for development. In our National Planning Policy Framework, we ask local authorities to encourage the re-use of brownfield land unless it is of high environmental value. Our new brownfield package, announced in June, could lead to the provision of around 200,000 new homes. Our aim is that by 2020, more than 90% of brownfield land suitable for housing will have planning permissions in place, either in response to planning applications or when granted by local development orders. We are providing £400 million of recoverable investment funding, which will go towards the creation of around 20 new housing zones. Around £200 million of this investment will go to London to create 10 housing zones, with the GLA investing an additional £200 million to create a further 20 zones.

The noble Baroness, Lady Dean, mentioned garden cities. Alongside our work to support the delivery of large-scale housing developments, we announced the establishment of an Urban Development Corporation to create a garden city of up to 15,000 homes at Ebbsfleet and have made available up to £200 million for infrastructure to support it. In April, we published our prospectus Locally-led Garden Cities, offering a broad support package for which expressions of interest were invited. We recognise that these schemes are complex infrastructure projects which take time to work up. However, positive discussions with a number of localities are ongoing and we expect expressions of interest to be submitted once proposals are fully worked up.

The noble Lord, Lord Jones, and the noble Earl, Lord Listowel, mentioned the importance of more housing in our construction industry. New housing construction orders have more than doubled since 2009. Registrations of new homes across the country are also at their highest since 2007. The noble Lord, Lord O’Neill, asked for more support for small builders. We are supporting builders through a number of programmes, including Get Britain Building, our Large Sites Infrastructure Fund and the Builders Finance Fund. These schemes ensure that sites are developed by large, medium-sized and small developers. Trailblazers will help small developers to get their act together.

Our housing guarantee schemes are now open for business, supporting up to £10 billion of investment in large-scale private rented projects and additional affordable housing. These debt guarantees use the Government’s fiscal credibility to reduce the cost of lending. We know that the private rented sector is currently dominated by small-scale landlords, with larger landlords owning 10 or more properties accounting for only 1% of the market. We know that if we are to realise our ambitions for the sector we need institutional investment and we are taking bold steps to make this happen.

Following Sir Adrian Montague’s review that looked at how we should encourage institutional investment back into the private rented sector, we have set up an innovative Build to Rent Fund, originally worth £200 million but extended to £1 billion due to the strength of demand. This will finance the construction of large-scale, purpose-built, private sector developments and demonstrate that PRS works as a long-term investment proposition.

The noble Lord, Lord Prescott, spoke about affordable housing. We have introduced a new business model for the funding of affordable housing. The affordable rent maximises private investment, so with the current affordable homes programme, £4.5 billion of government grant levered in £15 billion of private investment. This will have delivered 170,000 affordable homes by March 2015. In this spending round we announced a further £3.3 billion of Government money, which, together with receipts from right-to-buy sales, will help lever in up to £20 billion of private finance on top, providing a further 165,000 homes in the three years to 2018. This will be the fastest rate of affordable housebuilding for at least 20 years.

We are starting to see the benefit of these measures through increased economic activity. This is being driven by local communities as well as businesses, including small and medium-sized enterprises. The figures speak for themselves in terms of the increased pace of economic activity in the housing industry. We have seen nearly 480,000 homes built since 2010, including over 200,000 affordable homes. Of course, housing, public and private, accounts for roughly 20% of all construction output and this debate is about the whole construction industry.

The quality of a nation’s economic infrastructure is one of the foundations of its rate of growth and the living standards of its people. That is why we have put long-term investment in roads, railways, energy, telecommunications and flood defences at the heart of our growth plan. We recognise that meeting the UK’s infrastructure ambitions requires a long-term, sustainable plan. That is why we published the first ever national infrastructure plan and have continued to update it. The £380 billion investment in the latest plan includes priority projects and programmes such as the Thames tideway tunnel, the Environment Agency’s flooding and coastal erosion programme, Hinkley Point C and offshore wind, HS2 and Crossrail and—who knows?—HS3.

On roads, we have taken funding decisions that will enable us to build at least 52 major road projects by 2020-21 and add over 750 lane miles of capacity to our busiest motorways and trunk roads. We have extended this approach to social infrastructure. In July 2014 we published a Government construction pipeline of forward work which included £116 billion of opportunities to 2020 and beyond.

We are not complacent. The noble Lord, Lord O’Neill, spoke very patiently on a subject he knows very well. So did the noble Lord, Lord Prescott, who was very much at the forefront of affordable housing in his time as a Minister. Through our comprehensive programme of reforms and investment we are laying the foundations for a sustained improvement in our housing supply and the wider construction market. Of course, we cannot do this alone—we need the support of communities, investors and industry—but together we can build more homes and a better built environment for generations to come. I thank the noble Lord, Lord O’Neill, for initiating this very important debate and I thank all Peers for their contributions. I have not been able to respond to all the issues raised, but I will be happy to write in response to the questions raised.

[Lord Prescott]

So everything is okay, then?