Money invested into construction pays back several times over, that’s the message that needs to get through ahead of next month’s Budget

Chloe McCulloch

We knew 2020 was bad, and now we know just how bad. GDP figures tell us the economy as a whole shrank 9.9% and the biggest fall among its four subsectors was in construction, which took a 12.5% hit. While useful to know, these figures are probably not keeping construction execs up at night because what they, and no doubt everyone else, really wants to know is what is going to happen next.

In any case such stark figures mask a more nuanced picture, one where the industry rallied pretty well in the last quarter, growing 4.6% and helping the economy avoid the dreaded double-dip recession. As Simon Rawlinson at Arcadis puts it, in many ways “it’s a great story of resilience” with infrastructure and residential proving the best performers.

Still, it is true that many companies are struggling with the twin burdens of Brexit and the pandemic, as demonstrated when accountant EY released worrying statistics showing that profit warnings among listed construction firms have hit a historic high. And among the smaller firms there is evidence from Aecom that SMEs are feeling the extra burden most from Brexit red tape. Meanwhile, we are seeing the first big consultants reassessing their need for office space in London as covid looks like it could have a permanent effect on working patterns.

The idea of a fully functioning national retrofit programme has been dealt a blow

The Construction Leadership Council (CLC) acknowledged all these pressures in its open letter to the chancellor that sought to make a special case for the industry ahead of his Budget next month. In short, the letter was a plea for more state intervention to boost companies facing “extremely challenging times”.

But crucially, the CLC is not asking for a handout to survive – unlike other parts of the economy that have effectively been shut down by covid, construction has largely kept going during all the lockdowns. Its argument is that investment in the industry is vital to the whole country’s economic recovery. The exact amount of value that £1 of spending on construction creates for the wider economy has varied over time, but the CLC now puts it at nearly £3. Moreover, it argues, the government needs construction to be in a fit state to help achieve its stated priorities of achieving net zero targets, building safety remediation works and protecting jobs.

As arguments go, these seem quite compelling – especially to you, the construction professionals working on projects and pipelines of work that create jobs and valuable assets to local communities. But is the message getting through to the Treasury? Pleas to press the pause button on reverse charge VAT, and for that matter IR35 tax rules, have so far had little success. There have been hints of a six-week extension to the stamp duty holiday, but that is a far cry from the extra nine to 12 months the CLC is asking for – although housebuilders will welcome the two-month extension to Help to Buy to get existing deals over the line.

> Also read: Aecom’s market forecast

And on the big programmes of work the signs so far have been disappointing too. Take the extra £3.5bn for the Building Safety Fund to replace dangerous cladding, announced by Robert Jenrick this month. On the face of it, it is a large chunk of public money, but as critics have pointed out, not nearly enough to deal with the huge scale and range of defects afflicting so many occupied residential buildings. Residents in buildings under 18m will be expected to take out a loan to pay for the costs, while proposals for a tax and levy on developers leave many questions unanswered.

The idea of a fully functioning and strategically thought-out national retrofit programme has also been dealt a blow. We know that domestic carbon emissions account for about a fifth of the UK’s total – and this latest cold snap during lockdown can only have made more residents aware of the financial costs of poorly insulated homes. So it is galling to hear that because of bureaucratic delays only 5%, or £71m, of the current Green Homes Grant has been spent and that the remaining £1.4bn will not be rolled over to the next financial year.

Building safety and retrofitting existing buildings are two urgent priorities for this country. Perhaps some setbacks are inevitable as government and industry seek solutions while in the grip of a pandemic, but clearly the progress made so far is not good enough. Surely it is possible to create the right incentives and the right level of investment to make our buildings both safe and energy efficient and to look at how the two programmes of work can progress in tandem?

Yes, we know the chancellor has many competing priorities to address in his Budget. And yes, construction may not be the most needy of sectors appealing for investment. But well-calibrated incentives and funding packages to boost the industry would ripple out far beyond to wider society. All eyes will be on Sunak to see if his Budget brings that prospect a step closer.

Chloë McCulloch is the editor of Building

Upcoming CLC webinar

Key members of the CLC will be talking about these and other issues ahead of the Budget.

> Sign up for free to our webinar on 1 March, 12-1pm

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