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Industry case to Treasury: Why key interventions are needed

The CLC鈥檚 letter is upfront about construction鈥檚 importance to the wider economy, pointing out early on that the industry contributes 8% of the UK鈥檚 GDP, employs over 10% of its workforce and that, for every 拢1 spent, the industry 鈥� made up largely of SMEs 鈥� contributes nearly 拢3 of value to the whole economy. Therefore, the argument follows, spending on its priorities should be seen as an investment in a nation struggling to get back on its feet.

National Retrofit Strategy

Costing 拢525bn over 20 years, which works out at an eye-watering 拢26bn a year, the national retrofit strategy is by far the biggest single request in the letter. It would also require the existing workforce to be 鈥渕ore than doubled鈥� to 500,000, with new workers undergoing an 鈥渋ntensive鈥� training programme alongside piloting and field trials.

The programme would seek to make the UK鈥檚 28 million homes, which currently account for 20% of the UK鈥檚 carbon emissions, more energy-efficient by installing improvements such as insulation and heat pumps.

Despite the price tag, Watts said the government would have to commit to it sooner or later if it wanted to reach its target of hitting net zero by 2050.

He said: 鈥淭here has to be a retrofit strategy and the government will have to do something about that, otherwise it鈥檚 going to have to acknowledge that it can鈥檛 meet its commitments 鈥� none of these things are going to come cheap.鈥�

But 2050 is still a long way off and, despite the economic benefits which the CLC claims it will bring, the government may feel that the existing Green Homes Grant will do for now.

Expansion of the 好色先生TV Safety Fund

Having simmered away since the fire at Grenfell Tower in 2017, the cladding scandal erupted again this week. A rebellion of 34 Tory MPs over the issue prompted housing minister Christopher Pincher to promise a solution.

A cross-party consensus has formed that the current 拢1.6bn fund set up to cover the cost of remediating the UK鈥檚 dangerous cladding is not nearly enough. According to Watts, the true sum could be as high as 拢15bn.

Watts, whose work at the CLC is focused on building safety, said that he had been in discussions with officials from the Ministry of Housing, Communities and Local Government on the issue 鈥渆very week for the last several months鈥�.

He said that MHCLG 鈥渒now full well the extent of the issue and they know that there鈥檚 not enough money in the current fund to remediate all the buildings with unsafe cladding on them, even over 18 metres, so we鈥檙e pushing against not necessarily an open door but an understanding that what we are asking for is not ridiculous. It鈥檚 necessary.鈥�

Considering the pressure which the government is now under, this commitment seems like a no-brainer. Not taking the opportunity to decisively address the issue would be too damaging for ministers to consider.

Stamp duty holiday extension

Given the way the housing market has boomed over the past year in defiance of an economic catastrophe which has seen other sectors, such as hospitality, almost brought to a standstill, this policy could be the least likely to come off.

Introduced in July last year, the holiday has contributed to a surge in the housing market which saw property website Rightmove record its busiest-ever start to the new year last month, with site visits 30% up on the same period in 2020, before the pandemic.

Arcadis head of strategic research and insight Simon Rawlinson said he thought the likelihood of ministers opting for an extension was 鈥渕inimal鈥�, but it would have a positive impact if they did: 鈥淭he argument for the extension of a holiday is that the trickle-down effects around the wider consumer economy are quite considerable in terms of what people spend when they move.鈥�

He added that ministers will be wary of creating a repeat of the 2008 stamp duty holiday, which resulted in a sharp fall in housing transactions when it came to an end.

Construction Products Association economics director Noble Francis said the policy makes sense in the short term: 鈥淚t not only increases transactions in the general housing market but it also boosts new housebuilding and residential repair, maintenance and improvements work, which often tends to occur within the first six to nine  months of purchasing a property.鈥�

Nevertheless, further support for a still-thriving housing market is likely to be lower down the list of government priorities than it was last year.

Reverse VAT charge withdrawal

With Sunak scrambling to find ways to replenish the public coffers, the Budget might seem like a counter-intuitive time to announce tax breaks. The government has already confirmed that the Reverse VAT charge will go ahead on 1 March, with the IR35 tax set to follow in April and an exemption on red diesel tax in 2022.

With the government championing construction as the driver of the post-covid recovery, however, there is a chance that the Treasury might reconsider.

鈥淩everse charge VAT is highly problematic for SME builders,鈥� said Francis. 鈥淕iven rises in labour and materials costs in the last few months, their margins have already been hit, even in sectors where activity levels are relatively high.鈥�

He said that a simple six-month delay to the tax would not be enough, adding that Sunak should 鈥渨ithdraw its introduction, or it needs a longer-term delay and for government to work with industry to ensure that business models change over time鈥�.

Watts suggested it was unlikely that ministers would consider scrapping the tax as an option, but he said he would not be 鈥渁t all surprised鈥� if there was some movement on its date of introduction.

Extension of employer apprenticeship incentives

With construction鈥檚 EU workforce falling by more than a quarter in the 12 months to the third quarter of last year, ramping up apprenticeships could be not only an obvious option for Sunak but a policy that could save the industry from disaster.

According to Watts, it is 鈥減erhaps the most important鈥� of the requests in the CLC鈥檚 letter.

Construction Industry Training Board (CITB) head of policy and external affaird Mike Hobday said that the government had been working with the CITB and the industry via the CLC to 鈥漴etain existing apprentices and safeguard construction apprenticeships for the future鈥�. 

While this may not sound like the 鈥渆xtension鈥� of apprenticeship incentives asked for by the CLC in its letter, the government may find that further falls in EU construction workers could require something to be done to avert major long term hikes in project costs and delivery times.

With a climbdown on the new points based immigration system looking unlikely, added support for apprenticeships could be a more realistic option for the government to address labour shortages over the coming years.