Construction Industry

Steve Rotheram Excerpts

Tuesday 28th June 2011 Westminster Hall

[Steve Rotheram (Liverpool, Walton) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Caton. I am delighted to have secured a debate about an issue on which, for once, I believe I can actually speak with some authority.

I started my working life as an apprentice bricklayer under a scheme administered by the Construction Industry Training Board in the late 1970s. In those days, under the CITB training programme, people were given six months off the site to get relevant tools experience, site understanding and health and safety training, before being placed with the company under an indentured apprenticeship agreement. My placement was with Fairclough Civil Engineering, and after completing my three years, I worked for Fairclough International—it is now part of the AMEC group—in the Falkland Islands. That was in 1983, just a few months after the cessation of hostilities with Argentina.

On my return, I started my own construction business. After surviving two Tory-led recessions in the 1980s, I was persuaded to go into training to pass on my skills to a new generation of construction trainees. Eventually, I took up a post as a business manager at the now defunct Learning and Skills Council, where I oversaw funding for—yes, you guessed it—construction training programmes across Merseyside.

During that period, I graduated in construction studies from Liverpool John Moores university and began a master’s degree in contemporary urban renaissance. Although I did not manage to complete it, it gave me an insight into many different, and sometimes tangential, construction perspectives. Although there are far more eminent construction commentators than me, I can speak with a degree of understanding on this issue, given my broad personal experience.

I want to record my interest as a member of the Union of Construction, Allied Trades and Technicians and as one of its sponsored MPs, although I receive no remuneration for that. I would also like it noted that my son, Steven, is an apprentice electrician with M. J. Quinn. For the purpose of clarification, I should also say that I have previously proudly professed that I am the only brickie in Parliament, although my hon. Friend the Member for Derby North (Chris Williamson) also lays claim to that most sought-after designation because of his trade background.

In recent weeks and months, much of the business, innovation and skills debate has been about ways to improve the opportunities for a high-skilled work force in a low-skill economy. One of the previous Labour Government’s greatest achievements was to give those who wanted to do so the chance to go on to further education through the introduction of the education maintenance allowance and the university loans system. As a result, Britain now has the most talented generation in recent history. Job opportunities in science and technology, graphic design and public relations, which were the preserve of the well connected, are now at the fingertips of this more industrious generation of Britons. Real progress has been made in diversifying the skills sets offered to young people across the country, but in areas such as my constituency, traditional industries such as construction also have a real part to play.

I am pleased that the Minister, who is responsible for construction, recently said:

“An efficient, effective and profitable construction industry is at the heart of any growing economy.”

That is why urgent action is needed from the Government to save the industry from the brink. The Government’s approach must change, because it is clearly not working, as we saw from the previous quarter’s growth figures. We already knew that construction had been hit extremely hard in the global financial crisis, but the 3.3% fall in output—the steepest the industry has suffered since the financial crisis of 2008—is all the evidence we need that things need to change.

I have given Members an insight into my background in the industry, and although I do not profess to be an expert, my interest in the sector spans three decades. That is why I know there is a fundamental problem with the Government’s thinking when the Construction Products Association’s economics director, Noble Francis, says:

“It is likely that construction output will fall 2% in 2011 and this will inevitably hold back economic recovery given that construction accounts for around 10% of the UK economy.”

[Susan Elan Jones (Clwyd South) (Lab)]

Does my hon. Friend agree that the VAT rise is having a significant effect on the construction industry and making life extremely hard for the many small and medium-sized construction firms in many of our constituencies?

[Steve Rotheram]

My hon. Friend is absolutely correct. That is certainly true of the refurb and maintenance sector. At the end of my speech, I hope to come up with some suggestions, which the Minister might like to take away to contemplate, given this issue with VAT.

I can almost predict what the Minister will say in reply to my comment about economic stagnation. I will try to pre-empt him by simply pointing out that although last winter’s adverse weather conditions will have had an adverse effect on construction, the weather was bad the year before, and we saw nothing like the fall in output that we did this year. The fall has more to do with a lack of confidence than with too much snow or the wrong kind of snow.

[Jim Shannon (Strangford) (DUP)]

I represent an area where construction is very important and job opportunities for apprentices are critical. The construction industry has suffered a significant downturn over the past few years, and the background information certainly indicates that; indeed, another company in Northern Ireland folded just this week. We are always hard on the banks, but they were keen to lend money, albeit often without suitable guarantees. Does the hon. Gentleman feel that the Government should have more contact with the banks to encourage them to show more flexibility now so that companies that are having difficulties can get through them?

[Steve Rotheram]

The hon. Gentleman makes an important point about the banks. Again, I would like to tease the issue out further in my contribution. We cannot underplay the fact that one reason for the failure of construction is the lack of lending by banks.

Urgent Government action is needed to save the industry from the brink. The Minister must surely understand the relationship between public sector spending and private sector growth. Despite the at times relentless desire of the coalition Government to drive a wedge between the public and private sectors, the two are heavily interlinked and co-reliant in the construction industry. If we cut one, the other will bleed, and the construction sector is now haemorrhaging and in need of a transfusion.

To take the example of Building Schools for the Future, the cancellation of 719 school improvement projects was devastating for not only head teachers, staff in classrooms and parents and children left with substandard facilities, but the construction companies that had won the contracts, and that has serious ramifications for the sector. As Steve Bratt, the group chief executive officer at the Electrical Contractors Association, said:

“Although any party in power would have had to take major steps to reduce the deficit, the cuts to public sector construction projects such as BSF are a case of short-term gain but long-term pain.”

The cancellation of the schools building programme is creating uncertainty in the construction industry. Furthermore, ambiguity over potential construction jobs in hospitals and prisons, in building and civil engineering alike, continues to cause great concern and leads to low confidence in the Government’s ability to secure the UK construction industry.

[Gordon Banks (Ochil and South Perthshire) (Lab)]

Like my hon. Friend I spent 40 years of my life in the construction industry, and I am glad that people from that industry are in the House. Does my hon. Friend agree that the Government’s target on skills is significantly at risk, because their approach significantly challenges the construction sector’s ability to give training and to deliver skills to the marketplace? The Government treat the industry as the private sector, whereas as my hon. Friend said, it is fed from both private and public sectors. Will my hon. Friend also comment on the ownership of not only construction companies but supply companies in the UK, and whether he is worried that we are losing UK ownership of those companies?

[Steve Rotheram]

My hon. Friend is right. There are big supply chain issues that need to be addressed. On the earlier point, about apprenticeships, uncertainty in the sector prevents companies from thinking long term, so they stop taking on apprentices. I remember when, in the 1980s, under the Thatcher Government, pretty much all the construction industry stopped taking on apprentices. That created long-term problems for the industry, and skills shortages many years later, which meant heavy intervention was needed to plug the gap.

I am sure that the Minister is fully aware that every £1 spent on construction leads to an increase in gross domestic product of nearly £3 and stimulates growth elsewhere in the economy worth nearly £2; I think he recognises that, so surely he agrees with me that monumental cuts in construction make no economic sense. The Minister and the Department for Business, Innovation and Skills need urgently to tackle the problem, but that urgency, like leadership, has been sadly lacking in the past few months. It has been widely reported that currently one in five firms going into administration are from the construction industry. That is a frightening figure, when we recall that construction is responsible for about 10% of the UK economy. The alarming statistics keep on coming for the Minister. Research undertaken by the Financial Times has found that construction orders have fallen by 40% in the past 12 months. That is before the Government’s programme of the deepest and most unfair cuts in recent history has even taken full effect.

Jonathan Hook, global head of construction at PwC, said:

“It is the end of the money—coming through from Government stimulus—and no one knows if, when and to what extent, the private sector will come back.

It is a substantial reduction, but if you look at the numbers companies are reporting—you are not really seeing it reflected yet. They are trading off work that was won three years ago, but it is creating a bow wave of falling activity in two years.”

There is more: Anthony Cork, director of Wilkins Kennedy, said;

“The Government has slashed capital spending on infrastructure across the board in order to plug the deficit and that has pushed the construction sector into a double dip.

The question now is how quickly private sector construction work will be able to pick up the slack left by the public sector. So far this has not happened.”

The most devastating impact, in areas such as Liverpool, Walton and many other pathfinder areas, has been the withdrawal of housing market renewal funding, which has not only decimated the house building industry but left swathes of derelict land and boarded-up terraced streets without much prospect of development. Because of the economic downturn it is widely acknowledged that the construction industry’s saving grace was major public sector infrastructure projects such as Building Schools for the Future, and new hospitals and prisons. The Labour Government were right to bring forward additional capital project spending to help the industry to stay afloat. They were also committed to the building of additional social housing, including new council homes, in the latter half of 2009 and early 2010, with additional commitments to employ local workers and train apprentices.

I made my maiden speech as a councillor in Liverpool on the ability of local authorities to use social clauses to ensure that, for publicly funded construction projects, they would achieve the best possible outcomes for local labour and apprenticeships. Unfortunately, Liverpool was at that time controlled by the Liberal Democrats, and they missed the opportunity. Our current Labour administration is not making the same mistake. The previous Government put their money where their mouth was, and provided Kickstart funding in October 2009 to help 54 stalled private sector housing projects to restart work. Those commitments were primed to give the depressed housing sector a much-needed stimulus. The confidence that the Labour Government were instilling in the industry was the key factor. By the first quarter of 2010, all the construction surveys and indicators showed that confidence was returning to the sector. Firms were reassured that work would come their way, with many projects scheduled to start in mid-2010, and those companies were gearing up to take advantage of the opportunities.

Cancelling those programmes devastated the sector and demonstrated that the Government have little regard for the work that it does. It ripped the confidence out of the industry. The state is obviously the largest client of the construction industry. The Government’s role in procurement policy is therefore vital—and more so in times of economic downturn, when the private sector is less able to provide the work that is needed. I can personally testify to the way lack of investment in the 1980s stored up trouble for the industry many years later, and created huge skills shortages. That is because the industry operates on a two to three-year lag. It did not need to have the confidence torn out of it once again, within weeks of the formation of the coalition.

Given the time constraints that we are under, I shall catalogue just a few of the licentious achievements of the coalition in the past year, as they have single-handedly knocked the stuffing out of the fragile construction industry. On 17 June 2010 the Government cancelled millions of pounds worth of infrastructure projects including the North Tees and Hartlepool hospital, the A14 road widening, the Kent Thameside strategic transport programme, the Leeds Holt Park well-being centre, and the Birmingham magistrates court. On 4 July 2010, the Government announced major cuts of £220 million to the budget of the Department for Communities and Local Government. It was claimed that that was because of a black hole in the funding for the Homes and Communities Agency, and that it would result in many of the newly announced social and council housing building projects being cancelled. We later proved that there was not a black hole in the funding, so why have the cancelled projects not been reinstated?

[Catherine McKinnell (Newcastle upon Tyne North) (Lab)]

I congratulate my hon. Friend on securing a timely debate. Does he share my concern about the Homes and Communities Agency, and the fact that it has scrapped its national targets for the number of apprenticeship scheme places provided through agency funding? Is he concerned about the impact of that on the number of apprenticeships that will be created?

[Steve Rotheram]

That decision is regrettable. It seems that the Government say things such as “We are going to create 250,000 apprenticeships,” but do not realise the knock-on effect of other policies. The training tap cannot be turned on and off. For construction trades colleges need to gear up, and they need space. Sometimes, once construction programmes have ceased, other uses are found for the space and it is not possible just to go back and scrap whatever it has been used for temporarily, to re-instigate construction training. It is more complex than that, however, because the staff that have been let go cannot always be re-employed, yet relevant construction experience is necessary; we also need people with teaching qualifications to train students to the NVQ standards. It is another short-term gain, but there will be long-term pain for the construction sector.

On 5 July 2010, the Education Secretary announced that the Building Schools for the Future programme was effectively being scrapped. BSF was the biggest construction project in Europe; it was intended to rebuild all 3,500 secondary schools in England. The work was to have been done over 15 years. When the Secretary of State made his announcement, 180 schools had been rebuilt and 231 projects had been given the green light, as they had already reached financial closure. BSF would have cost £45 billion over the lifetime of the project.

Early in September 2010, it was revealed that the Government’s decision to scrap the regional housing strategy had resulted in plans to build 100,000 new homes being shelved by local authorities. That has severely depressed private sector housing. On 20 October 2010, the Government announced their comprehensive spending review. That further confirmed the reduction in Government spending on construction; by 2015, annual construction spending by the Government will have been reduced from £59 billion to £47 billion, a reduction of more than 20%.

Again, the most savagely affected sector was public housing. The housing and regeneration budget is to be cut by 70%, from £6.8 billion to £2 billion—but that £2 billion will be used only on projects to which the Government are legally committed. Surely the Minister cannot blame all those policies on snow. The general consensus is that, at best, the industry is treading water; although some sectors of the industry are improving, such as office building in London, others remain in the doldrums. Despite its flexibility, construction is a complex industry, with hundreds of job roles and professional and technical relationships. Despite being only a few months old, the Government’s construction strategy needs impetus in order to achieve its objectives.

What else can the Government do? To answer an earlier point, we know that bank lending is a major problem for small and medium-sized enterprises; indeed, the banks failed to meet their Project Merlin proposals earlier this year. That is a particular difficulty for construction companies.

Firms in Liverpool tell me that part of the problem is that banking has become too impersonal. Years ago, when a construction firm secured a contract it would phone the manager of the local branch—he was probably known to the firm—to explain the job, say what would be needed and how the job was to be staffed. The bank manager would sometimes pop down to the site to make a physical assessment, and a loan would be negotiated. However, the relationship manager—the bridge between the construction firm and the banker bureaucrats—has now gone. Many banks have their central office space elsewhere, not in places such as Liverpool or wherever the construction firm is based, and companies are refused loans before a thorough assessment can be made.

[Gordon Banks]

I thank my hon. Friend for giving way again. Although some banks do not lend to the sector, in some ways the Government’s broader economic policies are having an impact on the banks by restricting them and preventing them from making the right decisions on lending to the construction sector. The underlying current of concern is the Government’s economic policy.

[Steve Rotheram]

There are real issues with regard to the Government’s economic policy. However, on that aspect of Project Merlin I agree with the Government; setting targets that forced banks to lend to SMEs was the right approach. Unfortunately, they missed their own targets once again.

[Gordon Banks]

The fact that the Government have pulled the rug from under the construction industry through the reduction in state spending is making the industry a less attractive proposition for the banks. That is the point that I was trying to make; the Government’s policy on the construction industry also affects the banks.

[Steve Rotheram]

That point is well made, and spot on. More than a third of members of the Federation of Master Builders have seen their access to credit restricted, and nearly half have had their costs increased since 2008. That is restricting. It is for the Chancellor to use his powers to force the banks that caused the financial crisis to assist SMEs, the very people who will help get the economy going again. It is not acceptable for the Minister and his colleagues to hide behind Project Merlin until the end of the year, hoping that they will meet their targets and reacting only if they do not. The construction firms with which I speak are looking for proactive solutions now, not reactive compromise in six months’ time, after the Government have blundered their way through yet another failed policy.

Markets hate uncertainty, and at present the construction industry does not have enough confidence to kick-start its recovery. It pains me to say that, because I have a vested interest in the industry and plenty of friends who still work in it. It is therefore for the Government to consider matters that affect the industry to determine whether there are mechanisms to assist it.

One such matter is insurance. Ian Fletcher, a friend who runs a small scaffolding company despite the economic uncertainty, is just about keeping his head above water. However, spiralling insurance costs are jeopardising the jobs that he has created. Pressure must be brought to bear to ensure that businesses are not priced out of the market by excessive insurance premiums. We need to restore confidence in the domestic construction sector. Housing has huge potential for growth. The demand is there, but the Government lack a coherent and well considered fiscal plan. Such indecision means fewer homes, fewer construction jobs and fewer supply chain opportunities.

I am reminded of yet another policy cancellation that has devastated construction—Labour’s HomeBuy Direct scheme. In places such as Liverpool, the construction industry can take people off benefits and put them into a lifetime of work. I know from my own experience—and more latterly from my advice surgeries—that Liverpudlians are desperate to get back to work. They understand the dignity that comes with having a job and being able to provide for their families, and they are worried about their future.

For me, one of the most alarming things is that construction is failing to recruit a sufficient number of apprentices. Every year, despite the recession, the industry still needs more than 30,000 recruits. The lack of confidence in the relationship between the Government and the industry means that, for many people, a job in construction is only a short-term measure and far from stable. For businesses, that lack of confidence manifests itself in a climate in which few SMEs have enough confidence in the future of their business to recruit an apprentice. Quite simply, they are too busy trying to stay afloat.

[Catherine McKinnell]

My hon. Friend is generous in giving way. As he knows, increasing the number of apprenticeships is something that I have been promoting in Parliament through a private Member’s Bill. In discussions on the subject, I have met representatives of the majority of trades in the construction industry, and they all raise significant concerns about the skills shortage for the new green economy. Some of the new business opportunities are available now and will become more so, but we will lose some of those investment opportunities because we do not have the skilled work force, either now or in readiness for the future, to meet those challenges.

[Steve Rotheram]

My hon. Friend makes another important intervention, but it is not even as simple as that. Some of these new technologies need to find space in colleges to train those who will train the providers; we also need to train people with relevant construction qualifications in their specific fields, which means that there will be a lead-in period for such changes. If we had a medium-term strategic plan, we should be considering future job opportunities and starting to plan for when they come to fruition, so that we can ensure that we have people trained and qualified to take up those jobs.

Another fundamental problem is that companies are thinking only in the short term because that is all the Government are doing. Firms are not directly employing workers and they are not prepared to make the effort or take on the cost of training anyone, despite the evidence of significant returns on such investment.

The previous Government recognised that construction companies were not training sufficient numbers of apprentices and began to introduce procurement policies that required contractors to train apprentices on Government construction projects. If companies did not train, they did not get the work. I hope that the Minister will cover that issue in his contribution. Will he tell us whether the present Government support such a policy? If they do, will he explain that to the Minister of State, Cabinet Office, the right hon. Member for West Dorset (Mr Letwin) who apparently does not?

The construction industry and I want the Government to provide additional resource and investment through a major programme of social housing. The housing industry is desperately in need of assistance for both economic and social reasons. There are currently more than 1.8 million people on housing waiting lists. Hundreds of construction firms are ready and willing to get back to work to begin building those houses. Perhaps such an investment would help to rebuild the shattered confidence in the sector. We need to promote a policy to develop green building technologies; to help get people back to work and to create new apprenticeship opportunities. Such a policy would tackle the growing homelessness crisis and the ever-expanding housing waiting lists.

Perhaps the Minister could consider lowering the VAT on home repair, maintenance and improvement works. Such a move could be used as a catalyst to stimulate activity. It could increase the overall tax-take that growth in the sector would generate.

[Gordon Banks]

My hon. Friend talks about finance in the sector. Does he not agree that there is also a need to address mortgage lending? In 2006, the Halifax conducted some research and found that first-time buyers in the private housing sector injected some £2.1 billion of spend into the UK high street. Does he not think that the challenged retail sector would benefit from more first-time buyers re-entering the market? The Government must work with the banks to ensure that we have a decent level of mortgages from about 90% without punitive interest charges and punitive arrangement fees.

[Steve Rotheram]

Most commentators would support that economic argument. Growth creates further growth and confidence. If mortgages were secured for first-time buyers, it would help both the house-building sector and the industry to get back on their feet. To me, such a proposal seems like a no-brainer, but we still have to persuade the Government of our arguments.

I have gone over my time because of all the interventions, so let me say in conclusion that to do nothing but to cross our fingers and hope for the best is not good enough and that our industry deserves better than that.