Construction has not had an auspicious start to 2018, and ongoing trends of government interference and uncertainty over Brexit don’t signal much sign of improvement
So let’s see, how’s it been going so far in 2018? A flu pandemic; the massive corporate collapse of Carillion affecting hundreds of thousands of people in the construction industry; and the loss of £350m a day in output from the UK economy because of the Brexit fiasco. And we’re only into month two?
But surely things are going to get better? Well … Looking towards this year as a whole, in its latest forecasts the Construction Products Association (CPA) expects zero growth in 2018. The industry is expected to recover by 2019, with growth of 2% predicted. I am not personally convinced about this happening since the rationale used by the CPA for the return to growth in 2019 is that it expects that the deal with the EU will be agreed, or at least, that the details will be clearer. A “no deal” Brexit or any delays to HS2 would clearly hamper these forecasts. And to say the government is in a permanent state of vacillation over Brexit is an understatement of the same magnitude as arguing that Harvey Weinstein has a bit of an image problem.
I struggle to see why the government likes to batter the industry whenever it gets the chance, especially concerning residential, a big tax earner for the Treasury
Even isolated bright spots in this gloomy picture are difficult to find. Infrastructure spending is regarded as a key stimulus for the industry, but it is currently a worry that the Civil Engineering Contractors Association (CECA) latest Workload Trends Survey for the final quarter of last year did not make comforting reading. Having surveyed 105 contractors across 10 sectors including motorways and trunk roads, airports and railways more than a third (35%) of respondents said workloads had fallen. On balance, only 4% of respondents reported an increase in tender prices for new construction work and improvements, which is the lowest balance in five years.
Construction is clearly having a hard time. So with the industry being so important to the economy, I still struggle to see why the government likes to batter the industry whenever it gets the chance, especially concerning residential, a big tax earner for the Treasury. Recently the latest housing spokesman, Sajid Javid, has warned of a more “muscular” approach from the government towards developers that are sitting on land. This seems totally unfair political posturing. Especially since Sir Oliver Letwin is currently examining the whole area of land-banking for the government. No wonder builders railed at the renewed claims that the industry is sitting on plots unnecessarily, as their share prices dropped.
The Labour Party has suggested an even harsher stance, talking of an unspecified “land grab” policy. The argument for this is seemingly based on the politics of spite and envy rather than shrewd fiscal analysis.
Carillion’s collapse tarnishes our sector in many ways. Parents are hardly likely to advise their offspring to enter an industry that appears to be so unreliable
While the latest numbers from the Office for National Statistics seem to suggest a form of industrial atrophy has set in for those of us operating in the built environment, it does not mean that we are sitting idle. It is not the case that we are sluggish or slow in my own business. Here is where a contradiction in “statistics versus reality” is exposed. I believe the upcoming Mipim event, for instance, will be illustrative of a very busy and extremely buoyant global market. A great deal of the world is motoring ahead at the moment, with once moribund economies that were struck low by the crash of 2008 now bouncing back with a vengeance. For instance it was notable that Spain’s latest auction of 10-year debt was hugely oversubscribed, leading to a 1.4% yield and its nearest parity of return against German bonds in seven years.
Another indicator of buoyant activity, I would argue, is the shortage of the best available talent to get things built. This is causing substantive wage inflation and also impacting churn, where the well qualified and experienced job hop. Not traditional indicators of an industry struggling for work.
And given that we don’t have enough people entering the industry, starting the year with a disaster like Carillion will, I fear, have a long-term impact far beyond the tenure of liquidators and reach of cash-strapped subcontractors who are owed money. This corporate collapse tarnishes our sector in many ways, and parents are hardly likely to advise their offspring to enter an industry that appears to be so unreliable. When one of construction’s leviathan whale-sized companies can be seen to sink into the depths faster than a diver from Blue Planet, they may well advise another career path.
Therefore as 2018 carries on it may be that the only thing of which we can be certain this year and beyond, is that we have to live with a talent shortage on an ongoing basis, and adapt accordingly.
Richard Steer is chairman of Gleeds Worldwide