The construction industry is in crisis

Before becoming an MP, I spent 30 years in construction, working for some big players in the industry before setting up my own business in Fife in 1986. At the time, the industry had its challenges, but the succession of grim news over the course of the recession really has given me pause for thought and made me wonder if I would have succeeded in similar circumstances today.

Over recent months, poor performance in construction has been obvious in almost every major statistical release from the ONS. Last week’s GDP figures confirmed of contraction of close to 5% in the construction industry and no or anaemic growth going back to every quarter since mid-2010.

And in Scotland, the numbers are even more eye-watering. While some sectors have performed modestly over the past year, construction has seen a 7.3% reduction. For an industry that employs around 6% of all people in work in Scotland, this decline has a devastating effect.

And the signs are that there is little chance of an improvement any time soon. While there have been sparks of life in the industry, with announcements of a few major construction projects in Scotland over the past few weeks, the signs all point to a continued slowdown. Yesterday, the quarterly report from the Scottish Building Federation reported a further drop in industry confidence and only 5% of businesses saying that they are more confident about the prospects for the next year than the previous one.

Much of the continued crisis in the construction industry has its roots in the slowdown in large scale, privately funded projects. However, there is much that Governments at both Holyrood and Westminster could be doing.

At Holyrood, the glacial pace of the Scottish Government’s reform agenda for procurement is holding up one valuable source of business for building companies. While Alex Salmond has repeatedly pointed to ‘shovel ready projects’ and complained about lack of support from the UK Government for capital spending, it seems that his own administration at Holyrood are doing little to ease the way for firms to bid for public contracts.

63% of construction firms surveyed by the Scottish Building Federation with a turnover of less than £2m said they had submitted no pre-qualification questionnaires for public procurement in the past three years. Many also said they were put off from applying for public projects due to the high costs associated with application. It’s little wonder that firms choose not to apply for this work when the average success rate for application is only 3%. The Scottish Government also needs to make sure it’s doing everything it can to attract SMEs – including ensure that there are contract appropriate for every size of business.

The UK Government has also stymied the sector with the continued difficulty for developers to access finance for new construction projects. As Ed Balls and others have pointed out, banks need to start lending to small and medium sized enterprises again in order to get the economy moving.

Finally, political decisions in Scotland have very directly impacted on the construction sector. When around 40% of the industry’s business comes from housing, the Scottish government’s decision to take £100m out of the housing budget couldn’t have helped the sector at this time.

What’s needed from both Governments – at Holyrood and Westminster – is recognition that the fortunes of our economy are tied to the fortunes of our construction industry. The woeful GDP figures from recent months could have been remedied with stronger performance in construction. After all, not only is construction a massive industry in its own right. It’s also the industry that keeps other sectors in business through new offices, warehouses, roads and rail.

But at its roots, this economic crisis continues to be a crisis of demand. If the Government can’t provide us all – consumers and builders alike – with the reassurance we need about future economic performance, then further slumps in our construction sector are inevitable.

Gordon Banks MP is a Shadow Minister for Scotland