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Housing minister calls for VAT reduction to support construction recovery

Housing minister Kevin Stewart is calling for the UK Government to reduce VAT charged on construction works to existing buildings to 5% to support the sector’s recovery from the coronavirus pandemic.

In a letter to chancellor of the exchequer Rishi Sunak, Mr Stewart said that while successive Scottish ministers have made such requests at various points in recent years, the “exceptional circumstances” faced by the construction industry as a result of the pandemic has brought this issue to the fore once again.

Setting out the benefits the reduction would bring, Mr Stewart added:

  1. A reduction in the cost of such work would undoubtedly encourage and enable domestic investment (which can be undertaken safely under well-developed safe operating practices which have been developed and adopted by industry) at a time when many households are reluctant to invest due to financial uncertainty.
  2. The pandemic is clearly bringing major changes in our working and home lives and existing buildings need to be adapted in order to support these new patterns of behaviour. Without this we risk losing buildings that could have been re-purposed and may well force people to work in unsatisfactory conditions at home. A reduction in VAT would significantly increase building flexibility and also send a clear signal that government is actively responding to these changing patterns.
  3. In responding to the climate crisis it is essential that we make best use of existing buildings and the current favourable VAT treatment for new buildings is a perverse incentive in this respect. Making our existing buildings as heat and energy efficient as possible will be critical to meeting our net zero carbon emissions in the future and a reduction in VAT would undoubtedly incentivise such investment.

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The minister said: “It is at the request of industry that I write to urge you to reconsider this vitally important matter with a view to delivering the stimulus that this VAT reduction would provide.

“Many industry partners have commented that this is probably the single most significant change that could support recovery in the domestic construction sector.

“Successive Scottish ministers have made such requests at various points in recent years but the exceptional circumstances faced by the construction industry as a result of the pandemic has brought this issue to the fore once again.”

Hew Edgar, head of UK government relations and city strategy at the Royal Institution of Chartered Surveyors (RICS), said: “RICS fully endorses this call from the Scottish Government and have long been advocating for a change to the VAT regime to stimulate the repair, maintenance and enhancement of existing property as part of a build back greener approach to construction.”

Source: Scottish Construction Now

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Brexit uncertainty constrains construction sector optimism, says new RICS survey

The uncertain outlook for the UK economy has led to reduced optimism, according to the results of the Q3 2019 RICS UK Construction and Infrastructure Market Survey, with anecdotal evidence from respondents suggesting that the housing market slowdown, coupled with unrelenting Brexit and political uncertainty, is weighing on investment decisions.

With the country heading towards a third general election in five years, the survey found that the mood in the construction sector is downbeat in the face of financial constraints, skills shortages, and slim margins.

The survey’s key findings include:

  • Workloads fall across most construction sectors in the UK as Brexit impacts investment;
  • Despite a lack of new business enquiries and rising labour costs, firms continue to hire;
  • 40% believe that Build to Rent will be a game-changer in increasing housing supply within ten years;
  • 53% of respondents seeing modern methods of construction feature more prominently in projects over recent years.

The survey results point to a notable deceleration in workloads, this quarter, with only a net balance of +10% reporting an increase in total workloads, down on average from +33% between 2013 and Q2 2016.

Breaking this down, workloads in the commercial and industrial sectors are at a near standstill, with infrastructure reporting the strongest rise, a net balance of +18% more respondents citing an increase rather than a decrease in infrastructure workloads (compared to +20% in Q2).

Activity in both private and public housing has eased with net balances of +14% and +11%, respectively. (Down from +26% and +22% in Q2).

As this seems to suggest it will be difficult to fulfil the current government’s house building ambition, the survey found that 40% believe that build-to-rent will be a game-changer in increasing housing supply within ten years, and 53% of respondents said that modern methods of construction have featured more prominently in the projects they have evaluated or undertaken in the past three years.

Jeffrey Matsu, RICS chief economist, said: “As the country heads to its third general election in five years, the mood music across the sector is relatively downbeat. However, while the pace of construction activity has moderated since the referendum, order books remain full as surveyors work through a backlog of previous projects.

“The outlook has the potential to materially improve, depending on the amount of fiscal spending that is authorised by government in the next spending review. Such pump priming has disproportionately supported construction and infrastructure works in the past.”

Hew Edgar, RICS head of government affairs, said: “The UK’s construction sector has shown resilience in its contribution to the economy over a difficult decade. We are, however, at a national level seeing issues such as financial constraints, skills shortages, stagnant productivity, variable quality, output lagging behind target, and slim margins. Whilst not the panacea to resolve all these problems, off-site manufacture and modern methods of construction represent an opportunity to address many of these issues.”

By Rob O’Connor

Source: Infrastructure Intelligence

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Construction growth slows as Brexit delays building projects

Output in Britain’s construction sector grew at the slowest pace for three months in December as Brexit worries continue to hold the industry back.

The Markit/CIPS UK Construction purchasing managers’ index (PMI) fell to 52.8 in December, down from 53.4 the previous month.

A reading above 50 indicates growth but economists had been expecting a reading of 52.9.

December’s modest rate of expansion was the slowest seen since September 2018.

Tim Moore, of IHS Markit, which compiles the survey, said: “UK construction firms signalled a slowdown in housing and commercial activity growth during December, which more than offset a strong performance for civil engineering at the end of 2018.

“Subdued domestic economic conditions and an intense headwind from political uncertainty resulted in the weakest upturn in commercial work for seven months.”

Commercial building was the worst performing category, while work on civil engineering projects was the strongest area of construction activity.

Construction companies cited “heightened political uncertainty” resulting in delays to spending decisions among clients, especially in relation to commercial development projects.

Duncan Brock, group director at the Chartered Institute of Procurement and Supply, added: “With a slight rise in new orders and a softening in overall activity growth, firms continued to be impacted by Brexit-related uncertainty and reluctance by clients to place orders especially for commercial projects.”

However, business confidence was the highest since last April and well above the near six-year low seen in October.

Survey respondents were buoyed by a boost to growth from work on big-ticket transport and energy infrastructure projects in 2019.

Source: BT

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UK construction growth at weakest level for six months

Britain’s construction sector suffered its weakest growth for six months in September as the “Brexit blot on the landscape” held back activity, according to a report.

The closely-watched Markit/CIPS UK Construction purchasing managers’ index (PMI) showed a weaker-than-expected reading of 52.1 in September down from 52.9 in August, with house building losing momentum.

A reading above 50 indicates growth, but economists had expected the reading to remain at 52.9 according to consensus figures from Pantheon Macroeconomics.

The weakest overall activity in six months shows that caution and Brexit concern remain roadblocks to strong growth.

Duncan Brock, CIPS

The report said the September data indicated the sector continues to be in a “downbeat mood”, with business optimism at its second lowest level since the beginning of 2013.

This comes despite the figures showing the biggest rise in new orders since December 2016.

“The Brexit blot on the landscape was still in evidence as housing activity slowed to a pre-April growth rate and clients hesitated to place orders,” said Duncan Brock, group director at the Chartered Institute of Procurement & Supply (CIPS).

Civil engineering was the worst-performing sector, as activity declined at a faster rate.

A lack of new work to replace completed projects was blamed, after a summer uplift caused in large part by work delayed earlier in the year.

Mr Brock added: “This tale of feast and famine offers little in the way of reassurance and is more about holding on to stable growth than a sprint to the finish.

“The weakest overall activity in six months shows that caution and Brexit concern remain roadblocks to strong growth.”

The slower growth in house building comes as Nationwide Building Society also released data on Tuesday showing property prices edged up just 0.3% month-on-month in September.

Howard Archer, chief economic adviser at EY ITEM Club, said the weaker housing market could continue to act as a drag on construction.

“There is the risk that house building activity could be pressurised by extended lacklustre housing market activity and subdued prices amid challenging fundamentals,” he said.

The PMI survey of firms showed that optimism for the year ahead declined in September.

Construction companies cited political and investor concerns about Brexit as a factor in lower confidence.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said this was supported by official data which has indicated a decline in new orders and housing starts in the second quarter.

“Accordingly, we doubt that the construction sector will make a positive contribution to GDP (gross domestic product) growth over the next few quarters,” he said.


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Worst case no-deal Brexit could see 43,000 fewer UK construction jobs, report says

A no-deal Brexit could see up to 43,000 fewer construction jobs in the UK, according to an economic forecast commissioned by the mayor of London.

The research undertaken by analysts Cambridge Econmetrics has produced a damning report on the adverse effects a hard Brexit could have on the UK economy and various sectors. Sadiq Khan claims the study shows that a no-deal outcome could cost the country half a million jobs and £50bn in lost investment by 2030.

The findings also looked at London alone where increased housing numbers are desperately needed. Experts believe there could be 5,000 fewer jobs and a drop in output of up to £1.2bn by 2030 in the construction sector should the UK decide to walk away from a deal and leave both the EU customs union and single market.

Mayor of London, Sadiq Khan, said: “If the government continue to mishandle the negotiations we could be heading for a lost decade of lower growth and lower employment. The analysis concludes that the harder the Brexit we end up with, the bigger the potential impact on jobs, growth and living standards.”

The analysis looks at the potential impact five different Brexit scenarios could have on nine key sectors of the economy. It shows that every Brexit outcome analysed would be bad for the British economy, but that the harder the Brexit, the more severe the consequences. The worst of the five scenarios postulates a departure in March 2019 with no deal or transition arrangements and researches have estimated this would lead to 482,000 fewer jobs across the entire UK and a loss of £46.8bn in investment by 2030.

“If the government continue to mishandle the negotiations we could be heading for a lost decade of lower growth and lower employment.”
Sadiq Khan, mayor of London.

James Murray, deputy mayor for housing and residential development, said: “This report lays bare the huge risks we would face as a result of Government’s failure to secure a Brexit deal that works for London and the rest of the UK. The fact the Mayor has had do the prime minister’s job in publishing the full impact of Brexit is truly damning. It shows the scale of the blow that a no-deal hard Brexit could have on our homebuilding efforts. London needs 13,000 additional construction workers to build the homes the capital needs – we simply cannot afford to lose skilled European labour.”

The research was commissioned after the Brexit secretary David Davis told MPs in December the government had failed to produce any economic forecasts on the likely impacts Brexit could have. Answering questions from the Brexit select committee, Davis also said no economic impact study had been undertaken before the cabinet decision to leave the customs union.

The Labour mayor was also a strong supporter of the remain campaign and has since argued for the UK to stay in the EU’s single market and customs union. Davis’s admissions in December have said to ignite a drive to produce some research-based evidence of future impacts. While the report’s authors have stressed the figures are reliant on a range of factors, it is the first time analysis like this had been undertaken to delve into the wider impacts of a no-deal Brexit.

Analysis by Melanie Leech, chief executive of the British Property Federation

Not knowing if we’ll have enough skilled workers to resource the construction industry over the coming years is deeply concerning.

We urge government to provide clarity on the status of EU workers as soon as possible – we are already seeing this uncertainty undermine regeneration up and down the country.

Government must get migration policy right if we wish to build much-needed homes and the physical environments capable of driving innovation, which underpin a successful post-Brexit UK.

Source: Infrastructure Intelligence

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Finance a vital resource as billing delays hit building industry

Businesses in the UK construction sector have been hit by a leap in payment delays, with invoices taking an average of 69 days to be settled.

Analysis of more than 13,000 companies by Funding Options, the online business finance supermarket, shows that delays have risen 8% in the past two years.

It warns that a single late payment can be an issue even for successful firms, which can be caught out if a major client delays a payment significantly. If that late payment coincides with a major bill coming in, such as a tax, VAT or rent payment, the consequences can be severe.

Furthermore, the construction sector has a long supply chain which includes many small and medium-sized enterprises and delayed payments could create a domino effect that impacts hundreds of small suppliers.

Slow payment of bills is a major reason why the construction sector has such a high number of insolvencies; 2,557 construction firms entered insolvency during 2016.

Conrad Ford, CEO of Funding Options, said: “What this data again underlines is that the construction sector has a persistent problem getting clients to pay early on.

“Long supply chains in industries like construction mean that the ripple effect of delays is likely to affect many other businesses further down, with SMEs hit the hardest. In an industry with high overheads in terms of materials and labour costs, this can be difficult to deal with.

“These figures show that it’s more important than ever that the construction sector fully understand the options available to them to free up the funds they require and to minimise the impact of late payment and other poor payment practices.”

Choices available to manage cash flow range from invoice finance and asset finance to crowdfunding and peer-to-peer lending.

Ford added: “Unfortunately, small businesses leaders often don’t know which sort of finance is the best fit for a particular need, or who is out there to provide it.”

Funding Options as a UK online marketplace for business finance, raising tens of millions of pounds for SME finance each year.

It works with dozens of lenders across the alternative business funding spectrum, from challenger banks to invoice finance, hire purchase, leasing, peer-to-peer lending and property funding.

Funding Options has been designated by HM Treasury and the British Business Bank for the bank referral scheme, to help UK SMEs find alternative finance when they are unsuccessful with the major banks.

Average wait in days for invoice payment in construction sector

funding options

Source: Funding Options