Construction Industry

Ian C. Lucas Excerpts

Tuesday 28th June 2011 Westminster Hall

[Chris Williamson (Derby North) (Lab)]

I congratulate my hon. Friend the Member for Liverpool, Walton (Steve Rotheram) on securing this important and timely debate. Like him, I have a building industry background. I trained as a bricklayer and come from a long line of building workers: my father was a plasterer, one brother was a carpenter and my other brother trained as an electrician and can turn his hand to plumbing and many other things. Following in my footsteps is my own son who has gone into the construction industry and is training as a surveyor with Bowmer and Kirkland, so we are keeping the family tradition going.

I want to make a brief contribution about the central importance of the construction industry in rebalancing the economy. The Government say that they want to rebalance the economy and to see the private sector taking a leading role. I cannot see how that ambition can be realised without the construction industry playing a central role. The Government have made it much harder for the construction industry to contribute to the rebalancing of our economy by scrapping the Building Schools for the Future programme. Let me talk for a moment about the impact that such a decision has had on my own constituency of Derby North. Although Derby is made up of two and a bit constituencies, schools in the city are all affected in a similar way.

The five secondary schools in my constituency—Bemrose, Lees Brook, Murray Park, Littleover and St Benedict’s—were all looking forward to the impact that a new school would have on the children, the staff and the parents. Some of them have real problems. Lees Brook in particular is a health and safety hazard, suffering as it does with problems related to asbestos. The scrapping of the BSF programme was a great disappointment to everybody in the city and it had a huge impact on the construction industry in the local area.

The aim of rebalancing the economy and of enabling construction to play a key role was made even harder to achieve when the Government decided to halve the social housing grant. As a consequence, the number of affordable homes coming on stream has been severely diminished.

A further obstacle to the Government’s ambition was the decision to abolish the regional spatial strategy and the consequential abolition of the housing targets. Although the Government were critical of those targets, the number of planning permissions that have now been jettisoned as a direct consequence of that decision is running in excess of 100,000 homes.

[Ian Lucas (Wrexham) (Lab)]

On the issue of planning, does my hon. Friend agree that the confused regulatory framework that now exists because of the advent of the Localism Bill has created a massive amount of uncertainty for the construction sector and has been an additional bar to making progress?

[Chris Williamson]

My hon. Friend makes a central and pertinent point. The confusion that has been brought about as a consequence of the Localism Bill has created a real problem. I do not particularly want to make a partisan point here, but I was disappointed in the debate on the Bill that Government Members were queuing up to say how the measures would enable them to stop housing developments from taking place in their local areas.

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[Ian Lucas (Wrexham) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Walker. My time is about half of the 20 minutes that the hon. Member for Peterborough (Mr Jackson) has just taken, and 20 minutes is exactly how late he was for this debate, so he has done well out of the past hour and a half. I know that he apologised.

I congratulate my hon. Friend the Member for Liverpool, Walton (Steve Rotheram) on securing the debate. I will not enter into the argument between him and my hon. Friend the Member for Derby North (Chris Williamson) about who is the best brickie in the House, but it was a delight to hear from both of them and to hear about the Labour party’s commitment to the construction industry. This debate is taking place because it was sought by Labour MPs, and I contrast the attendance of Labour representatives with that of Government representatives. We have had one contribution from the Conservative party and no contributions whatever from the Liberal Democrats. We will be on tenterhooks when we listen to the Minister, whom I am very fond of and have listened to on many occasions. Although we disagree on practically everything, I think that his comments are starting to resemble some of the things that I said when I was in government. That certainly did not happen when he was in opposition.

This is an important debate, because the construction industry in the UK is in crisis. The situation is extremely serious. My hon. Friend the Member for Liverpool, Walton has already provided some quotes from the industry. A survey by Wilkins Kennedy suggests that the number of businesses going bankrupt rose sharply in the first quarter of 2011, from 706 to 948. Analysts at the firm also warned that the private sector was not providing the necessary growth to substitute for the withdrawal of the investment that the public sector provided in response to the worldwide banking crisis. My hon. Friend has outlined what Mr Cork from Wilkins Kennedy has said.

The reduction in capital investment that was announced by the Chancellor of the Exchequer in his first Budget last summer is only now beginning to kick in. We have heard a lot about deficit reduction, but we are now beginning to see the impact of this Government’s deliberate decision to take matters forward. The construction industry does not like it. The Federation of Master Builders says:

“The workload net balance has now been negative for thirteen consecutive quarters, which means more construction businesses are reporting a decline in workloads than are reporting any increase.

The latest results from the FMB’s State of Trade survey showed that construction workloads continued to fall at the start of 2011, and around 35% of respondents anticipated lower workloads in the second quarter of the year.

Employment conditions also deteriorated in the first quarter of 2011. When members responded to our last survey in March 43% had reduced employment levels in the first three months of the year, compared with 32% in the last quarter of 2010. Figures recently released by the Office for National Statistics showed a total of 24,000 construction job losses in the first quarter of 2011.”

The situation is very serious indeed. The FMB also points out that the pressure on small construction businesses in particular is intense. Their output decreased by more than twice as much as that of bigger companies, which is very worrying, considering that 93.5% of Britain’s private contractors employ fewer than 14 people.

When the UK economy contracted by 0.5% in the last quarter of 2010, the fall in construction output was 3.3%. Responding to that drop, the Construction Products Association’s economics director, Noble Francis, said:

“Although the poor weather in December inevitably had an adverse effect on construction work, it also did one year earlier. It is clear that the recovery in construction during the middle of 2010 has now ended abruptly and that private sector work is not coming through strongly enough to sustain growth.”

He predicted a 2% decline in construction in 2011.

We have heard the key statistic that every £1 spent on construction generates a total of £2.84 in economic activity. We need, desperately and urgently, to generate economic activity, which is the exact opposite of what the Government are doing. For smaller construction firms in particular, a lack of available work is being caused by the deliberate decisions of this Government to withdraw investment from projects such as Building Schools for the Future. The interlink between the public and private sectors in construction is of huge importance. We lack work in the construction sector, but, at the same time, there are also increases in prices for construction companies. The Specialist Engineering Contractors’ Group tells me that the price of copper has risen by 275% in the past two years, and that the price of iron ore has more than doubled to $200 per metric tonne since last summer.

Some good work is going on in relation to project bank accounts. It was initiated by the previous Government and has been taken forward by this Government, but even that is under threat.

[Gordon Banks]

On the issue of price increases, my hon. Friend is right to highlight international commodity prices, but price increases are also being forced by the economic conditions delivered by this Government. Production capabilities are being closed down and jobs are being lost, so the price of the finished product is being driven up.

[Ian Lucas]

Absolutely. The other key point is that this Government increased VAT at the beginning of this year. They have increased the price of any business that offers goods for sale and services within the construction sector. The FMB says:

“The situation for small construction firms has been made more perilous by the VAT increase at the start of the year.”

A deliberate decision and act of Government policy is making the position of construction companies more perilous. That is a damning statement.

[The Minister of State, Department for Business, Innovation and Skills (Mr Mark Prisk)]

The hon. Gentleman has rightly cited the concerns of the FMB. Does he support its call for a 5% cut in VAT, over and above the claims of the shadow Chancellor, the right hon. Member for Morley and Outwood (Ed Balls)? Is that what the Labour party would do?

[Ian Lucas]

If the Minister listens to the rest of my speech, he will hear me address that particular point. The increase was wrong-headed, the wrong policy and an example of the Government being wrong again. They are beginning to look increasingly like Herbert Hoover, rather than Franklin D. Roosevelt. That is why we are saying that we need to look at alternatives to the policy that is being pursued at present. If we continue with the policy that the Government are doggedly pursuing, it will be disastrous for the construction industry. That is why the Labour party will propose reductions in VAT when we next discuss the Finance (No. 3) Bill. My right hon. Friend the shadow Chancellor has already proposed an emergency reduction in VAT. The Government make complacent observations on the matter, but the situation is urgent. Not only is the construction sector under massive threat, but it is not able to provide the number of apprentices needed within the sector to maintain it. Businesses have no confidence in offering any jobs to people, let alone in taking on employment. The Government simply have to recognise that sort of reduction in confidence in the sector.

The FMB has made various proposals, as the Minister has mentioned. Our shadow Treasury team has made proposals in relation to the Finance (No. 3) Bill, and I hope that the Minister and the Government will start listening. If they do not, all of the rhetoric about growth and rebalancing the economy that we hear coming out of No. 1 Victoria street will be recognised for what it is, which is rhetoric alone. The Government are being hounded by the Treasury, and the Department for Business, Innovation and Skills is being sidelined. It is a Department with no influence in a Government who are pursuing a bankrupt economic policy that is leading to more bankrupt companies. Such companies are increasing in number, as shown by the figures that I quoted earlier. That is the reality of what is happening on the ground.

I pay tribute to the good work that the Minister is trying to do in areas such as the development of a low-carbon economy, the green investment bank and the green deal, but they are chugging along and are nowhere near arriving yet. The position is urgent. The Government need to contribute a positive answer to the crisis facing the construction industry. We need action, not words, and we need it now.

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[Mr Prisk]

Absolutely. That is why our approach is not just about one part of central Government; it is about the whole of government. The hon. Gentleman is right. We need to ensure that the package sizes are varied sufficiently, so that SMEs can participate.

On skills and apprenticeships, first, we are ensuring that young people can at an earlier age—14 onwards—get their hands dirty and start to learn good trades and crafts. We are expanding the university technology colleges—there will be 24 of them—so that we can ensure that, yes, young people get their basic English, maths and so on, but that from 14 onwards they can start to learn a trade and a craft. That is important. Secondly, we have rightly heard a lot about apprenticeships. That is why, over the coming four years, we are putting £250 million of extra money in to deliver 250,000 additional apprenticeship places. Concerns have been raised about whether we are making enough progress and whether there are enough places. In this first year, the evidence is that the take-up has been 100,000 places. That is double the number originally expected and is an encouraging sign.

[Ian Lucas]

Is the Minister not concerned that, according to figures released yesterday, the proportion of apprentices in construction has fallen? Is that not a matter of real concern? Places are not available within the industry because there is not enough work.

[Mr Prisk]

I do not deny that there is a challenge in construction. We cannot force that number. The point is to ensure that we put the funding in place, so that businesses who wish to do so can participate. In that first year, we have seen a good picture overall.

The important issue of green skills was mentioned. For the record, we have agreed a clear strategy with the sector skills councils and established a programme to create an additional 1,000 apprenticeship slots for green skills. Last week the “Low Carbon Construction Action Plan” was published. That document sets out our response to the industry’s programme in terms of 65 specific tasks, including skills and investment. We do not simply want to set out what we might do in five, six or seven years’ time; there is a programme for what happens now, through the next four or five years. The programme is specific in that context.

I shall turn briefly to Building Schools for the Future. The reality is that it was a hideously complex programme with an overrunning budget, an incredible duplication of processes and wasteful outcomes. It has been suggested that Building Schools for the Future is the end of school building. It is not. The Department for Education has spelt out clearly that we intend to ensure that £15.8 billion is available for schools spending over the four-year comprehensive spending review period. Clearly, we need to get value for money and to strip away what the industry has told us are some of the processes that block the system and do not deliver the calibre of buildings that our children deserve. That is why the Department will be responding to the independent James review. I am mindful of the time, so I will respond in writing to the point that the hon. Member for Wrexham made on low carbon.

Let me draw my thoughts to a conclusion. I come from the sector, so I recognise that these have been tough times and that the industry is not out of the woods yet. There are glimmers of opportunity, but there are challenges as well. For the first time, we have an infrastructure plan in place and a rolling programme for the funding of infrastructure and construction schemes—