Glenigan Breakfast Briefing: The impact of the General Election on UK construction

 

Type: DeHavilland Report - Event

Speaking at Glenigan’s Breakfast Briefing event on the impact of the General Election on UK construction were:

 

The event was hosted by Glenigan in cooperation with Bloomberg. It was chaired by Construction News Consultant Editor Denise Chevin.

 

Welcoming delegates to the event, Ms Chevin asserted that, broadly speaking, the construction industry was relieved that Conservative Party had secured a majority at the 2015 General Election. 

 

Whilst she noted there was “plenty of work in the pipeline”, she posed the question: “Was it right to put our faith in the Conservatives?”

 

Opening his remarks, Mr Baseley welcomed the public recognition that meant housebuilding was firmly placed high on the political agenda. 

He welcomed the National Planning Policy Framework pledge to increase supply to 200,000 housebuilding permissions per year. 

 

At a strategic level, land was being delivered, he continued, and demand had been stimulated by the Help to Buy equity loans scheme.

 

It was the “game changer”, he argued, which had helped to unlock demand for those who could afford mortgage repayments but could not find the funding for a deposit. This had allowed approximately 50,000 homes to be bought and he welcomed Government plans to extend the programme. 

 

Housing had enjoyed a far quicker recovery as a result of scheme, he noted, and the increase in activity meant that 100,000 additional people had been employed in the last two years. 

 

However, he warned there was “still some way to go” and housing was “still a massive problem”. 

 

It explained that, simply, homebuilding was “massively under-delivering” – a problem which had been present for the last 20 years. 

 

He said that the lack of housing development had the greatest impact on the 20-34 homeowner bracket, with an estimated 3.3m individuals between these ages living at home with their parents. 

 

In the last ten years, owner occupation amongst 25-34 years old fallen from 59 per cent to 36 per cent, he highlighted. 

 

Yet, Mr Baseley went on, the ticking “time-bomb” was the ability of the Government and industry to provide an adequate strategy to deal with the UK’s ageing population. 

 

Moving to London, he asserted that the Mayor’s housing target was “dramatically being missed”.

 

Looking at the industry more broadly, he said there would be huge economic and social benefits from building more homes. The annual contribution of such activity to the economy was estimated at £19.2bn, and important contributions included building schools and hospitals. 

 

Ahead of the election, he explained that the construction industry had come to politicians with “several asks”. Principally it had sought action to address “end–to-end” delays in the planning system, and had also requested a formalised extension of the Help to Buy Equity Loan scheme. 

 

Planning problems were a result of poor resourcing at a local level, he argued. 

 

He stated that another of the industry’s demands involved the release of public sector land. He called for reform to the land release system to ensure the process would no longer be “cumbersome”. 

Moving to the Conservative Manifesto, he noted that the party placed a greater emphasis on home ownership. This, he stated, was illustrated by its commitment to build 200,000 “starter homes”, available at a 20 per cent discount. 

 

He expressed some concern about the Right to Buy Scheme’s extension to housing associations, but welcomed the continuation of Help to Buy. 

 

Continuing, he claimed the biggest “single drag” facing the industry involved addressing the question of recruiting skilled professionals to roll out housing plans. 

 

The industry faced a monumental task to recruit, train and retain staff, he noted, predicting that the supply chain would also face capacity constraints. 

 

Moreover, land and planning regulation was “too complex” and the Help to Buy scheme was only set to run until 2020. This meant the building industry would face concerns over future sales.

 

A recent Home Builders Federation new home supply survey had revealed that planning delays, labour availability and labour costs remained the principle problems, he highlighted. 

 

Moreover, the number of SME builders had been in decline, he lamented. This was a result of barriers to entry, he argued. He stressed that SME output must increase. 

 

Challenges went beyond these factors, he explained, and there would be greater Government scrutiny of the industry to deliver on Government plans. He noted that steps should also be taken to manage its overall image. 

Concluding, he welcomed the renewed salience of housing on the political agenda, but warned that the industry “would be watched in ways they have not been watched before”, and would have to “up their game”.

 

 

Opening his remarks, Mr Wilén acknowledged that election expectations had focused on the assumed political uncertainty and potential coalition negotiations. 

 

As a result of the Conservative majority, Mr Wilén asked: “Is this just business as usual?” He noted the relatively few ministerial changes among those responsible for the construction sector. 

 

Energy, housing and large-scale infrastructure development were major policy concerns for the new Government, he said.

 

Regarding risk factors for the construction industry, he pointed to the forthcoming EU Referendum.

 

Moving on, he argued that consumer expenditure was on the rise and the Government was on track to deliver its desired private-sector led growth. The construction of private housing, hotels and leisure facilities was dependent on consumer demand but would benefit from the type of growth currently forecast, he claimed. 

 

Commenting on GDP as a whole, he explained that the current forecast indicated that the UK’s economy had experienced “above-trend growth” as it sat at over two per cent. This painted a very “positive picture”, he commented. 

 

 

Mr Crane opened with a forecast for social housing, which he noted had experienced significant funding changes. The Right to Buy extension could signal a risk for the sector and lead to “slow” growth, he suggested. He explained that Glenigan had forecast a decline in the social housing sector.

 

However, he noted that student housing had offset some of the decline. 

 

By contrast, the education sector was growing in response to the continued need to provide primary school building programmes, he went on. This was a result of the Priority School Building Programme and investment that had come forward from this sector, which was also mirrored by an increase in university building.

 

However, Mr Crane explained that there had been a more recent freeze in university construction, which had led to a forecast decline for the start of the year. This could have been a result of Labour’s plan to decrease tuition fees, he noted. 

 

Moving on, he observed that health was a “less positive area”. Capital had been steadily squeezed by day-to-day spending in the NHS and overall construction had been slow.

 

Yet, consumer prospects were more positive, with household earnings and employment forecast to grow – with important effects for the retail, housing and leisure industries. 

 

Moving to the private housing sector, Mr Crane pointed to the increase in mortgage approvals which had led to restrictions imposed by the Bank of England to “take heat out the market”. This might have worked “a bit too well”, he argued. 

 

Private non-residential activity had welcomed strong levels of investment, and he forecast that growth would continue. 

 

Regarding retail construction, he asserted that spending by supermarkets had been a crucial factor in the immediate aftermath of the financial crisis, but it had slowed in recent years.

 

Town centre redevelopment and the increased investment by shopping centres in construction had offset the “drag” from the slump in supermarket construction, he explained. This was good news for the hotel industry, especially in London. For instance, Premier Inn had “ramped up plans”. 

 

Moving to office construction, he observed that the sector had collapsed during the crash but had experienced an increase in confidence and demand. Recent growth had been focused in London, he explained, but it was expected to ripple out to Manchester and Scottish cities. 

 

The industrial sector was the “star” of construction, largely driven forward by consumer trends moving people away from town centres, and pushing investor interest in logistics space. 

 

However, he noted that the EU Referendum could be a risk for export-focused manufacturing and limit the investment in construction.

 

Moving to transport, he noted that the growth pattern looked sustained. He observed that investment was principally focused on the road network but was not a rapid driver of growth in the short term.

 

Focusing on the energy sector, he argued that changes to funding were needed in order to drive construction investment, but was a “positive” area of growth as a result of consumer demand. 

 

Energy would drive overall growth in civil engineering, he added. 

 

Concluding, he highlighted that the main Government priority involved tightening the Budget, which, he argued, would have an impact on public sector growth.

Instead, expected private sector growth would drive expansion in the UK’s construction industry. 

 

 

Providing commentary on the 2015 General Election result, Ms Haswell warned against the assumption that a Conservative majority would bring political certainty and stability. 

 

Recounting the high number of rebellions in the last Parliament, Ms Haswell explained that Conservative backbench rebels would be determined to make principled stands and vote against their Government. This was a sure signal that Mr Cameron’s slim seat majority could signal trouble. 

 

Commons backbenchers had become increasingly rebellious and MPs were anxious to distinguish themselves as free and fearless figures, she highlighted. 

 

This was particularly evident in the tension between infrastructure-minded Government ministers and MPs who were considered “locally cautious”. MPs such as Cheryl Gillan were an example of Conservative members with a strong loyalty to constituents and a staunch opposition to HS2. 

 

Furthermore, the influential backbench 1922 Committee had been immediately consulted by Prime Minister David Cameron in an attempt to head off backbench rebellions. 

 

Moving to Government policy, Ms Haswell argued that the Conservative Party had been willing to “look beyond London” with projects such as the “Northern Powerhouse” and the shift in rhetoric towards “blue collar conservatism”. 

 

The Conservative Party was hoping to consolidate its popularity in the South West, Ms Haswell stated, noting that it had also focused on infrastructure development in that region. 

 

Shifting back to the potential challenges ahead, Ms Haswell explained that because Mr Cameron had limited his tenure as leader of the Conservative Party, the inevitable leadership contest could cause uncertainty. 

 

Moving to specific policy areas, Ms Haswell explained that renewable energy could face a “cloudy outlook” as the Government had sought to prevent onshore wind developments. 

 

However, the allocation of the Energy and Climate Change Committee Chair’s role to SNP MP Angus Brendan MacNeil could signal support for renewables and a critical counterpart to Amber Rudd at the Department of Energy and Climate Change. 

 

Placing a spotlight on the forthcoming Housing Bill, Ms Haswell pointed to specific technical challenges that could arise, whilst highlighting negative stakeholder responses to the Right to Buy Scheme extension to Housing Associations. 

 

Moving to the London Mayoral battle, Ms Haswell explained that Labour candidate Tessa Jowell would focus on a radical housing policy platform whilst Conservative candidate Zac Goldsmith had recently singled out the construction industry as partly responsible for the capital’s air pollution. 

 

Concluding, Ms Haswell reiterated that this Government faced complex political challenges, particularly from within its own party.

 

The “biggest political headache” was the EU referendum, she noted, as questions had already been raised as to whether Mr Cameron could deliver his promised renegotiation and secure the backing of the electorate. 

 

 

Mr Hanson opened the Bloomberg analysis with a focus on the UK economic forecast, fiscal policy, and the key challenges ahead. 

Firstly, he provided an overview of the UK’s economic forecast and explained that the fall in oil prices had a large impact on the UK economy. Domestic demand and household consumption were principle drivers of demand, he added. 

 

The emergency budget to be announced in July would incorporate four months of OBR data, he stated. 

 

He explained that there had been a fall in the momentum of growth in the UK at the start of this year but the principal driver of the relatively weak growth had been consumption. Trade had dragged, and he warned that the UK was “in a bit of a rocky point”. 

 

Moving on, he asserted that deflation announced in April was not surprising, and to be expected given the fall in oil prices. 

 

Inflation had been affected by oil prices and the exchange rate, but history showed this was “usual”, Mr Hanson confirmed. 

 

With nominal wages and inflation falling, he explained that this secured real wage growth in the economy. However, he pointed out that economists had questioned why wage growth had been slow give the fall in unemployment. 

 

The Office for Budget Responsibility (OBR) would bring use such information in to inform its forecast and revise down growth this year. He explained the balance of growth was likely to be the same, with households driving growth. 

 

Overall, the long term trend in rates of growth would remain unchanged, he added.

 

He explained that the main takeaway point from his analysis was that there would not be a huge change into the economic outlook, but the fiscal outlook could change. 

 

He pointed to the large spending cuts announced in March, which would have a wider impact on growth. 

 

Continuing, he noted that in Chancellor George Osborne’s Mansion House speech, he had announced plans to ensure that during OBR-categorised “normal times”, future Governments would have to maintain a surplus. 

 

This, he asserted, was a move to impose a “fiscal straight jacket” around Labour. 

 

Employment growth had been strong but tilted toward low paid jobs, he highlighted. However, the Conservative pledge to legislate against any rise in VAT and Income Tax meant that spending would carry the “full brunt of deficit reduction”. 

 

However, Mr Hanson offered scepticism that Mr Osborne’s pledge to balance the books by 2017 was unachievable and would require “re-profiling”.

 

He predicted that the “rollercoaster” of cuts would have an impact on growth. 

 

Concluding, he expressed concern over the weak growth in productivity and explained that the workforce needed to be more productive to ensure continued growth.

 

On the issue of housing supply, Mr Hanson urged the Government to prevent house price swings by reducing red tape.

 

He stated that he was “relatively sceptical” concerning the Right to Buy scheme, given that it allowed individuals with low incomes to be exposed to interest rate risk, which could backfire. 

 

 

Ms Balderia highlighted the perceived infrastructure gap between the UK and Europe, which appeared most clearly when it came to the construction of airports and highways. The economic gap between UK and the rest of Europe could continue to lengthen, she suggested. 

 

She explained that there was sustainable growth in the UK but the picture was less positive when it came to fixed capital formation. 

 

She pointed to a significant gap in capital investment, and highlighted that the previous year the UK had invested £20bn less than France. She called for more investment in the UK.

 

This demand for investment was illustrated by the steady population growth in UK, with a projected seven per cent increase in population over four years.

 

In her view, projections for London suggested “things would be harder”, such as congestion and commuter travel, and further underlined the pressing need for more investment. 

 

Whilst the current Government’s plans were sufficient, the “stop-and-start” pace of projects as a result of political upheaval interrupted growth and was not sustainable, she lamented.

 

She suggested that the UK could lose ground as a credible business hub when compared to places such as Frankfurt. 

 

She called for a strong message from key stakeholders to pressure the Government to increase spending. 

 

However, she concluded that, comparatively speaking, the UK was “on top” in Europe in terms of growth – and would continue to be. 

 

 

Commenting on skills shortages within the construction industry, Mr Baseley said it was difficult to ascertain whether this would put the “brakes” on growth. Trying to re-recruit staff and looking towards the armed services for recruitment drives had increased, he added. He warned that recruitment must not be offset by poor quality of training. 

 

Regarding clashes between Government and industry on migration, Mr Baseley suggested that this issue “was way down on the list” on the industry’s agenda. Freedom of movement would remain, he predicted, as the UK had been a magnet as a result of this policy.

 

He issued a stark warning that the South of England would struggle to build current housing units without migration from areas such as Poland. 

 

Commenting on the dwindling number of SME builders, Mr Baseley stated that reforms to planning and reductions in red tape were essential for growth.

 

Mr Wilén added that the planning process was the greatest limitation for SME building and suggested that if Section 106 agreements were expedited, this would be “helpful”. 

 

Providing additional comment, Mr Baseley argued that the housebuilding industry had become far more complex. This was acutely more problematic for small builders, he stated, because simple small schemes struggled to secure loans to cover initial costs and struggled with the planning system. As a result, he believed the decline of housebuilding SMEs to be a long-term trend. 

 

Following a question on Government support for self-build, the panel noted that ministers had placed this further up the political agenda. This was an aspect of the new Housing Bill, Ms Haswell added. 

 

Mr Baseley noted that the Government was committed to what it called “custom build”. Growth was dependent on a plethora of different builds and he declared that although self-build initiatives were not a panacea, they should be encouraged. 

 

Responding to a question on what could be a “wild card” for the economy, Mr Hanson stated that the crucial issue was the lack of credit supply for small businesses.

The flow of credit to SMEs was “atrocious”, he argued, suggesting that this could derail the recovery.

 

He added that another important improvement would involve shifting to a more efficient use of labour.