Construction Industry

Lord Shipley Excerpts

Thursday 23rd October 2014 Lords Chamber

[Lord Shipley (LD)]

My Lords, I thank the noble Lord, Lord O’Neill of Clackmannan, for initiating this very important debate and pay tribute to the widely acknowledged efforts over many years of the noble Lord, Lord Prescott, to build affordable homes.

I welcome the debate. The recession led to at least one benefit, particularly for social housing providers, in that construction-related activity became scarcer and, as a consequence, contractors reduced their costs significantly as tendering became increasingly competitive. However, there were serious downsides to the recession, one being that company workforces were reduced. Many small and medium-sized companies went out of business or became smaller and the industry as a whole lost experienced, skilled workers—some 400,000 according to the Construction Industry Training Board—which led to its ability to increase its capacity when an upturn came being seriously diminished. I suggest to the Minister that it would be beneficial to the sector if the Government would look at whether there are any ways to provide a more stable construction sector which is more resilient to upturns and downturns in the economy.

Despite the construction market recovering right across the UK, many social housing providers in particular have faced capacity problems with both labour and materials—for example, a shortage of bricklayers, bricks and roofing materials. As manufacturers of building materials also cut capacity during the recession, the ability to get production up to meet market demand has proved difficult and prices have risen. The labour shortage has been compounded by the lack of apprentices trained in recent years due to the competitive nature of the industry and the lack of incentives to take them on. I see the labour shortage as a problem for the construction industry itself to sort out, not just the Government. It must invest more in training. I welcome a number of the Government’s actions to help expand construction—for example, their Construction 2025 strategy paper, and not least their creation of the Construction Leadership Council, with its emphasis on training, getting sufficient numbers into the sector, reducing costs and delivering buildings more quickly. These are all commendable actions, as is the drive to higher exports to help reduce our trade gap and the use of advanced technologies, particularly in sustainable, low-carbon and green construction.

I have spoken previously in your Lordships’ House on the subject of procurement. I hope that the Minister will confirm that the Government are keeping under careful review the impact of government policies on the SME construction sector. There is a government pledge to award at least 25% of contracts to SME construction firms and the same figure appears in the Lyons report. There are benefits to using small companies: profits accrue locally, training is provided locally and local labour is recruited—there is a local legacy. However, the pre-qualification questionnaire process is still a very time-and resource-intensive process and can prove a big burden for small companies. There are various PQQ schemes and I wonder whether we could look at greater standardisation of that process. I wonder, too, whether the Government are content with the current operation of framework agreements. I understand that they can offer cost savings. The trouble is that SMEs trying to win public sector work can find these agreements a barrier, not least because public sector organisations tend to prefer big firms when assessing firms’ capacity to deliver a contract. Awarding points in a tick-box exercise for the size of a firm’s turnover will always disadvantage smaller companies. Those smaller companies can, of course, be part of the supply chain to a main contractor but quality second-tier firms which are local or regional, but not national, can easily lose out to firms outside the area which accept poorer terms and conditions, poorer payment practices and may have poorer training opportunities in the locality. I agree entirely with the point made by the noble Lord, Lord O’Neill of Clackmannan, about late payment. That is an endemic problem in the industry and the enforcement of payment within 30 days should be made a government priority.

I will refer briefly to the borrowing cap on local councils. I have wanted to see the cap lifted but I hope, at the very least, that the Government can introduce a greater degree of flexibility, set against some clear targets. For example, for many local authorities, maintaining the existing housing stock can require all of their borrowing capacity. Their ability to build new homes is therefore significantly reduced. If the Government were minded to allow local authorities to exceed the cap in certain circumstances, that would increase the amount of construction activity.

There are also issues around planning: we have heard some of them and some are shown in the Lyons report. I hope the Minister will take a look at what is being said. I am now clear that the planning system is holding back some development. It is very important that local councils do not impose unreasonable conditions, and 18 months to get permission through to start on site is simply too long, particularly for social housing.

Will the Minister also look at regional differences in housing market areas? As a mechanism to deliver affordable housing, Section 106 is effective in areas with high land values but less so in areas with low ones. It would make sense to devolve more policy on housing down to the sub-regions of England where measures can be tailored to meet local housing conditions.

Finally, I am a keen advocate of a housing investment bank, as they have in the Netherlands. This could increase the amount available for investment in housing, particularly from pension funds. Together with the possibility of incentives for brownfield development, that would build more houses. The Lyons report is a very valuable report, with an important set of proposals. There is a lot there that I hope the Government will pay very close attention to.