Coronavirus cases are rising, with the prospect of more local restrictions and even a second national lockdown. Fraught Brexit talks are also under way and the economy is in deep trouble. How is the construction industry coping with so much uncertainty?
Construction is facing a winter like no other. With covid-19 cases rising again, the looming threat of a second national lockdown and the furlough scheme coming to an end on 31 October, the industry is heading into a period of deep uncertainty that is perhaps unparalleled in living memory.
It was all so different at the beginning of the year, as firms breathed a sigh of relief following the clear result of last December’s general election and the final settling of the Brexit question. Now the outcome of the UK’s trade talks with the EU is just one of the unknowns in an increasingly bewildering mix.
Rishi Sunak, the chancellor, has unveiled the job support scheme to replace the furlough initiative, but already economists have raised doubts about the new support measures. Torsten Bell, director of think tank the Resolution Foundation, was one of those to point out the scheme’s “avoidable design flaws” which mean that employers would pay 33% more to employ two part-time workers than to hire one full-time worker.
There are nevertheless glimmers of hope. In the summer, construction was the sector with the biggest drop in the proportion of its workers being furloughed, down by 62% since the industry’s peak use of the scheme in April. There are also signs that the government may be rethinking the introduction of the IR35 tax, which could cripple thousands of small firms if introduced as planned next April. And, unlike in March, when the pandemic caught the industry by surprise and sites across the country were forced to close, firms are much better prepared should a second lockdown be imposed.
So, to gauge how the sector is bracing for the challenges ahead, Building asked some of the industry’s biggest players how they would respond to the prospect of another lockdown, whether the government’s replacement of the furlough scheme is enough, how they are planning for a no-deal outcome in the Brexit talks, and what the future holds in the mid-term.
Steve Beechey, Wates group public sector director
Negotiations will have to be concluded by the middle of October in order to ratify the deal and do all the paperwork, so that means very soon we will know what the situation is. If it’s a no-deal we are into all sorts of complexities [such as] arrangement of deliveries coming through Kent.
It’s obvious that that hasn’t yet been properly resolved by the government in terms of that plan B. So that’s going to be a big thing for the industry in terms of grappling with that issue. And it’s imminent; we’ve only got a matter of weeks now.
Iain Parker, Alinea partner I think this now starts to move up the agenda, and while there has been discussion and strategies outlined by contractors, the ability to source and transport materials to site when needed will move sharply into focus. Buying in advance of programme dates, the use of consolidation centres for storage and a review of supply chains generally will remain hot topics for months to come.
Richard Steer, Gleeds Worldwide chair From recent research we have undertaken across clients, consultants and contractors, those working in the built environment place fear of a no-deal Brexit on the same level as the failure to find a vaccine for covid, such is the worry.
For us the key word is “confidence”. We need investors to feel confident that there is a viable property market and that there is stability in cost predictions and likely occupancy rates, once something is built.
The hope of some sort of equilibrium in the market is not bolstered by talk of a no-deal Brexit and the drip, drip, drip of bad news about negotiations. Horror stories of possible delays in materials and logistics logjams are not what we require.
What worries me is the government’s apparent lack of competence and consistency
Meanwhile, due to the pandemic, the chancellor faces a near impossible task of trying to achieve a stable economy while simultaneously shutting down business. His latest measures post furlough, such as debt payment delays, top-up wage grants and VAT payment suspensions, are helpful for the SMEs in our sector, and rumours that the IR35 issue has been shelved, if true, will be welcome. However, the fear of a recession caused by covid combined with a no-deal Brexit is keeping many of us awake at night.
Mark Reynolds, Mace chief executive Looking ahead at the event of a no-deal in Brexit trade negotiations, we’ve carried out risk assessments to prepare our business for further disruption. Our greatest concerns relate to the availability of materials that are vital for our construction projects, as well as the resilience of supply chains in a no-deal scenario. However, I am hopeful that any outcome of Brexit negotiations will keep Britain moving during this crisis.
The trade associations are doing a fantastic job supporting their members and we are much more joined up today than we were pre-covid. While I was against Brexit and concerned about the impact, I no longer see the risk as high as it was 12 months ago, and it is something we will be able to manage.
Rab Bennetts, co-founder of Bennetts Associates What worries me is the government’s apparent lack of competence and consistency, which means they are far from on top of the chaos that Brexit is going to cause. Not to mention climate change, the fallout from Grenfell, break-up of the union, breaking [international] law. All of these things will affect the economy and society in ways that need to be managed.
A second lockdown
Gary Sullivan, Wilson James chair A second lockdown is still a possibility if these latest measures introduced by the government are not adhered to. However, the construction industry has already proved that it can work safely and accommodate safe working practices as per the guidelines.
Organisations such as Build UK – with collaboration from contractors and trade associations – have done a great job at keeping people informed and engaged. They have helped with the messaging and guidelines we are able to issue to our workforce of construction logistics teams. And they, in turn, are helping to keep construction sites open.
While the immediate future remains uncertain, we have every confidence that the construction industry has measures in place to keep operating.
Noble Francis, Construction Products Association chief economist A second national lockdown is a big “if” at this stage, given that the restrictions so far announced have been relatively minor. The key will be the extent to which we see infections rising sharply with the colder weather alongside flu, but the government will want to avoid a national lockdown to the extent seen between 23 March and mid-May, given the impacts on the UK economy.
While the immediate future remains uncertain, we have every confidence that the construction industry has measures in place to keep operating
Gary Sullivan, Wilson James
However, if we were to see a second national lockdown, then it would clearly have a significant impact on the UK economy and on the construction industry. But activity would not fall as much as in the initial lockdown, due to a higher degree of business continuity and increased learning from the first lockdown. For instance, in construction, there are site operating procedures and other safety measures that were not there on 23 March.
Valeria Passetti, principal architect, Conception Architects The idea of a new lockdown is very worrying for the damage it could do to existing site work and the psychological effect it could have on potential clients, colleagues and staff.
Simone de Gale, founder of Simone de Gale Architects We need well-defined, thought-through plans on safe ways for businesses to operate, and measured and staggered integration of social activity while a certified vaccination procedure is established and the threat to life is lessened.
The measures provided in the job support scheme are further short-term solutions, and the same complications will evolve again once these new packages come to an end.
The job support scheme
Iain Parker With the latest figures from the ONS showing that 6% of the industry are still on partial furlough and over 1% have been made permanently redundant, the chancellor’s news is very welcome.
Retaining people in the industry is key, as we know from previous recessions the construction workforce is likely to contract quite a bit and if the industry is to bounce back after this we will need skilled workers and general labour to do so. The replacement [of the] furlough scheme should help with this but without sight of long-term plans – the autumn Budget being cancelled and the Spending Review likely to be kicked down the road again – the question is whether businesses will be willing to pay 55% of wages for 33% of time worked.
Business owners that I talk to are worried that they will have to afford a wage bill that includes payments to staff for time not actually worked
Valeria Passetti I was relieved that the government decided to continue to support businesses, but I am concerned that the business owners that I talk to are worried that they will have to afford a wage bill that includes payments to staff for time not actually worked, and how long they can sustain this. In our company the flexibility in the working pattern is welcomed as it will allow us to work on our existing projects and plan ahead for potential new work, which has been almost non-existent since the start of lockdown.
Paul Hamer, Sir Robert McAlpine chief executive Given that the current furlough scheme will cease to operate at the end of October, and in light of the recently announced additional business restrictions which could last up to six months, it is important that the government ensures both businesses and individuals are properly supported.
For the construction sector, the chancellor’s job support scheme will be vital in ensuring that SME businesses in particular, as a critical component of the industry, are protected from further hardship during this time.
Mark Robinson, Scape chief executive The construction industry remains one of the UK’s hardest-hit sectors; however, like retail, manufacturing and hospitality, it remains a critical component at the top end of what is fast becoming an uneven economic recovery in which some sectors risk being left behind.
The latest figures suggest that post-lockdown growth in construction has begun to slow and, while [the job support scheme] will be welcomed in terms of protecting jobs, it’s imperative that project owners and contractors do all they can to get the next wave of developments off the ground as quickly as possible.
As outlined by the prime minister earlier this summer, the public sector will be pivotal in that respect, as projects look to move through procurement and delivery at pace.
Marc Cairns, co-founder of architecture firm New Practice As far as payroll is concerned we’re in October, so the delay has resulted in us making two redundancies that we might not have done if we had had this information at the beginning of August, when we were having to make big decisions.
The job support scheme is not very generous. I wouldn’t call it a replacement for the furlough scheme. It won’t be very useful to us or many of our peers across architecture.
Robert Sakula, Ash Sakula Architects co-founder I haven’t done the maths yet, but the scheme could be helpful in helping us manage workload against staff retention. Right now, I don’t think we’re going to need it, but who knows what’s around the corner?
The longer-term view
Mark Reynolds Following the prime minister’s announcement regarding the latest restrictions, construction sites can continue to operate, and this is a positive step for the future of our industry. It helps us steadily return to normal productivity levels, protecting employment and delivering the housing and infrastructure we need to recover from this crisis.
While further restrictions might be implemented, I don’t expect these to impact work on construction sites, where we’ve worked hard to implement measures that ensure the safety and wellbeing of our employees and of the communities we build in.
We have come through the worst and implemented several measures to ensure we continue to deliver for our clients and minimise any threats to our business. However, the long-term impact on the other sectors will no doubt have an impact on future workload. This is where we need the government to deliver on their Project Speed commitments.
Hopefully we will be over the worst of it by the beginning of the next financial year
Mark Robinson, Scape
Mark Robinson There is going to be some slippage on programme because there are not as many people on site and overall projects are going to take longer to deliver. There may be a premium on some imported materials too so overall projects are going to be more expensive.
I’ve been saying to our delivery partners that these are your long-term clients, so don’t use this as the opportunity to make super profits – just be very open and transparent about the additional costs as the clients are expecting that.
We are saying to clients that unfortunately the projects you commissioned before covid are going to take longer to deliver and are going to be more expensive. Our promise to our clients is to try and keep that to a minimum.
The legacy of the virus won’t hit the public sector until next year. We are already seeing a slowdown in project commissioning, but next year is going to be painful. Clients are going to have to make tough decisions around their capital programmes and future ambitions.
Much of this depends on how much money is going to be allocated to capital grant for next year. We still don’t know that yet. We will make sure we do everything right now as best we can and through a second wave. Hopefully, we will be over the worst of it by the beginning of the next financial year.
Mark Cairns A lot of our work is community-led development. We are helping those groups service a need. There’s a lot of money being spent and my concern is whether in two or three years’ time there will be any money to invest in grass-
roots development as opposed to just wanting to get as many planes in the sky as possible.
Simon Erridge, director at Bennetts Associates For us and a lot of other architects it’s the looming recession and structural changes to our cities, work and homes that’s far more of a threat than short-term issues about being able to lay off staff.
The future of work is completely up in the air, and where we live. We are designing buildings for the future and there’s very little we know about what they are going to be like. Are the changes to the way we work going to change our cities significantly? No one knows.
Our commercial clients are carrying on investing and moving forward, which is very encouraging. Things we were nervous about stopping are carrying on – partly because no one is certain enough about the future to make decisions. But it’s the early part of next year, when there may be less work around – that’s when we will have to innovate and think about what people will want in future.
Keith Waller, Construction Innovation Hub programme director When we consider the major impact that covid-19 has had on our sector, it is clear that construction, along with many other sectors of the economy, will be irrevocably changed. The new normal will be anything but normal. The aftershocks of covid-19 may well be with us for years to come, with digitally enabled new ways of working becoming the norm and working practices which we used to take for granted becoming redundant.
The past few months have been bruising for our sector, with projects put on ice and many talented people put on furlough or facing redundancy. But what we’ve also seen this year is a resolute determination to weather this storm together, seen most clearly in the ambitious Construction Leadership Council’s Roadmap to Recovery.
If we can manage to hold firm with that sense of collective determination and channel it into the movement for change, then we’ll look back on 2020 not just as a year of crisis, but the year when construction finally embarked in earnest on its long overdue transformation.