Prior to the National Federation of Builders' Labour Party conference fringe event, chief executive Julia Evans outlines what is stunting growth in the construction sector.
The National Federation of Builders (NFB) is holding a fringe event at the Labour and Conservative Party conferences, concentrating on the importance of construction to economic growth. In terms of economic growth, how important is it to get Britain building again?
I think it's crucial. Construction contributes over eight per cent of the UK's GDP, yet it has been generally shrinking for most of the last year. This has dragged down growth figures for the economy as a whole. Construction also provides an impetus to growth in other sectors. The multiplier effect, especially of new house building, is significant. And given that the total value of new house building has halved (falling from £19.8bn to about £10bn) since 2007, this weakness is a significant contributor to the weak growth we are seeing across the entire economy.
At the end of May the government published its construction strategy. The government has committed to reform its relationship with its major construction suppliers; how positive is this for the sector, and is such reform overdue?
The government's construction strategy is certainly welcome, particularly as I believe it signals the start of a more collaborative working partnership between the entire industry and government. And there is much to applaud in the strategy, from the insistence on an increased level of standardisation to more integrated team working, and a clearer indication of future work, allowing the industry to plan more effectively. However, we should not underestimate the scale of the task ahead which will require many companies to change the way they do business. It will pose particular challenges to construction SMEs and we hope this is recognised and taken into account, in light of the government's pledge to award 25 per cent of central government work to SMEs.
Have high levels of waste and inefficiency in the public sector procurement process been stunting the industry for some time?
The NFB has long advocated cutting the cost of the procurement process rather than cutting capital spending and is pleased to see the government making a commitment to achieving better value over the lowest cost.
It is undoubtedly true that a lot of waste and efficiency has crept into public sector procurement. Just one example of this is the plethora of different pre-qualification questionnaires that have been in use. A major survey of procurement practices by the NFB in 2010 found that our members were, on average, spending thousands of pounds a year on the cost of registration fees alone, and 22 per cent were spending more than a month a year filling in pre-qualification forms. Hopefully, that is now beginning to change, with reforms like PAS 91, the standardised pre-qualification questionnaire. PAS 91, which was developed with the direct involvement of the NFB, reduces the time and cost required to complete questionnaires for suppliers. It also reduces the time and cost for clients, both when developing questionnaires and when assessing responses.
Under the government's localism agenda, would you like to see the reform of local authority procurement practices, particularly concerning SMEs?
Well, widespread use of PAS 91 would be a major step forward. PAS 91 is now compulsory for all central government construction procurement, but more needs to be done to persuade all public sector clients, particularly local authorities and those acting for them, to adopt it. The trend towards bundling contracts together, as part of framework agreements, is also a major source of concern for SME builders, as contracts then become too big for smaller contractors to bid for. There is a suspicion that this is done because of lack of capacity in local authority procurement services, rather than for any sound economic reasons.
We have also seen the publication of the government's draft National Planning Policy framework – is this a positive move for the construction industry and ultimately economic growth?
Yes, it is positive in many respects and particularly on the duty of planning to assist growth where it can. However, there is no guidance as to what housing numbers should be, to replace the regional targets which were scrapped. Because of this, the system is heavily reliant on assumptions that local authorities will voluntarily encourage growth and more housebuilding in response to the presumption in favour of sustainable development and incentives like the New Homes Bonus. The concern is that the new system is more likely to end in a standoff between local authorities, the planning inspectorate and secretary of state. This will further obstruct the investment in new development which we so urgently need.
The lack of bank lending and access to mortgages, particularly for first-time buyers, has a huge impact on the industry – would you like the government to introduce measures encouraging banks to lend?
Yes, absolutely. And there are ways this could be done. Roger Humber, who is strategic policy adviser to the House Builders' Association, a division of the NFB, has argued that if the Bank of England decides to do another round of quantitative easing, it should be targeted through Northern Rock into the housing market. This will guarantee that it is used, thus genuinely stimulating employment and knock-on consumer purchases down the housebuilding chain, rather than disappearing into bank balance sheets.
Looking beyond conference, what will be the focus in terms of policy and lobbying for the NFB going forward into the next parliamentary term?
Construction generates more economic activity for every taxpayer pound spent than almost any other industry, so we will be focusing on removing barriers to construction activity, and looking at ways of unlocking growth on stalled construction projects to boost regeneration. The Green Deal, the government's incoming energy efficiency scheme, currently looks like a massive market for renovation that is being divided between the energy companies and large retailers, leaving consumers and the local companies they currently trust getting a raw deal. We will be exploring how to increase the level of participation of local accredited tradesmen and we are also part of the 'cut the VAT coalition' pressing for a reduction in VAT on Green Deal measures to make it more attractive to consumers.
The mortgage market and construction are both recording sluggish activity, in part because of limited access to finance. The British Bankers' Association's figures show that lending to construction fell by £614m in June and by £349m in July. Until this fundamental issue is addressed, it is very hard for construction to contribute positively to the UK's economic recovery.