Construction is facing rapid rises in its wage bill, according to a government report due to be released this week.
The latest annual State of the Construction Industry report, sponsored by the DTI, says that the continuing shortage of skilled tradesmen and a decline in the number of graduates with professional degrees will lead to increases in labour costs.

The report says: "In summary, the industry is in a delicate position, with skills shortages apparent in many areas. The short-term effects of high capacity utilisation are higher costs and prices."

The report notes that in the past the sector has shown an ability to absorb such increased costs, but that it will probably take a number of years to do it this time.

A spokesperson for the Association of Consulting Engineers, one of the contributors to the report, said: "Concerns persist about future workload being hampered by the skills shortage in skilled engineers and the relatively low fee levels for consultancy work."

The report said that the low number of entrants on construction-related degree courses was a matter of concern as the average age of the workforce in the industry was rising.

Some companies have seen insurance premiums rise to such levels, they have to increase prices

DTI’s State of the Construction Industry report

The only exception to this trend was in architecture, where the first-year intake on undergraduate courses increased by about 400 to 2000 between 1997/8 and 2001/2.

The report also noted that the future of consultants and contractors had been badly affected by the rises in employer liability and professional indemnity insurance and some firms could be at risk.

The report said: "Some companies have seen their premiums rise to such levels that they face an uncertain future if they cannot increase prices to reflect such premium hikes."

A Construction Products Association survey recently showed that average insurance premiums had risen 123% over the past year among members.