The coalition's neglect of construction cannot be ignored

Ministers need to champion construction through an active industrial strategy.

These days, it’s obligatory to mention the Olympics and particularly the dazzling spectacle of the opening ceremony.  In an evening of highlights, whether it was the Queen jumping out of a helicopter, the celebration of the NHS, or Arctic Monkeys playing a Beatles song, there was one important but often overlooked feature.  As Steve Redgrave entered the stadium with the Olympic torch, prior to handing it onto the next generation of young athletes, he was applauded by a contingent of hard hat-wearing construction workers, responsible for building the great Games complex on time, to budget and without a fatality during construction, which cannot be said of other Games.

Perhaps inevitably, in an evening of such jaw-dropping scenes, this important element was overlooked. But the government’s dire neglect of this vital sector can no longer be ignored. It is undermining one of the best means of pulling the country out of the recession made in Downing Street.

The construction sector is a unique barometer of the national economy.  Investment made now pumps money back into the local economy several times over, acting as an immediate and long term boost. As the Office for Budget Responsibility has noted, the multiplier effect for capital spending is higher than for spending in other areas.  Investment in construction also generates additional social and economic benefits, by boosting employment and increasing the number of apprentices. Cranes on the skyline are a good indicator of confidence in the future overall performance of the economy.  Manufacturers have told me that they need this confidence to be building or expanding factories; but the current lack of confidence means they are not taking the decisions to expand, and they want government on their side assisting their business to grow and take on new employees.

This is why recent announcements about the state of the construction sector are causes for such deep concern. They indicate that a jump out of the recession into growth is not coming soon, with  construction output falling by 5.2 per cent in the second quarter of the year, on top of the 4.9 per cent fall in the first quarter, and the Construction Products Association revising down its forecasts for construction output.  The key driver behind last week’s fall in GDP, the biggest since the height of the global financial crisis in 2009 , was the state of the construction sector. And the government’s decision to cut public expenditure and raise taxes too far and too fast is making matters worse. Confidence has been shattered: between now and 2014, £10bn of public sector construction activity is expected to disappear. Whilst the much-needed boost in construction demand provided by the Olympics has made a real difference, now completed, this is dropping out of the equation. Ministers’ assurances that private sector recovery would offset the sharp reduction in public sector work haven’t been matched by reality.

But it doesn’t have to be like this.  The government should realise that the construction sector is part of the solution to the problem, not the problem itself.  A government which was serious about an active industrial strategy, identifying the sectors which are important to the future performance of our economy, would value and nurture the construction sector.  Intelligent government, working together with private enterprise, would help to identify and realise the opportunities such as decarbonising our housing and industrial stock, enhancing the long-term efficiency of the economy by improving our infrastructure and building much needed homes; and bring additional benefits like the extra jobs that are created.

This neglect of this important sector by the government has far-reaching consequences.  When I was a housing minister in the last Labour government, I looked at the impact that the recession of the early 1990s had on construction and housebuilding rates for the decade after that. Skills and capacity were lost to the industry forever as former construction workers eventually found work elsewhere and didn’t come back and this had an impact on housebuilding rates for years to come.

If anything, the scars will be much deeper and more difficult to heal with this recession.  We have never seen a drop in output in construction of this magnitude in modern times. As a result of this fall, it will be difficult for the sector to bounce back without government taking action. There could be repercussions in terms of lost output and increased drag on economic growth for decades to come.

That is why the government needs to champion construction instead of neglecting it.  We need a sense of urgency, certainty and action. This means working with the industry to encourage investment now and in the long-term and to help unlock building opportunities; using measured incentives and tax cuts as a means of stimulating construction now. To this end, I’ve suggested that ministers should urgently convene a construction summit.

We’ve argued for bringing forward long-term investment projects, introducing a temporary cut in VAT to 5% on home improvements and a one year National Insurance tax break for all small firms taking on extra workers. We would repeat the bankers bonus tax, providing £1.2 billion to fund the construction of more than 25,000 new affordable homes across the country, generating 20,000 jobs and many more in the supply chain. It is not too late for the government to take this action now.

Politicians rightly talk about building a better future; it is hard to see how this is possible without a thriving construction sector.

The Olympic boost to construction will soon fade. Photograph: Getty Images.

Iain Wright is the shadow minister for competitiveness and enterprise.

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I was wrong about Help to Buy - but I'm still glad it's gone

As a mortgage journalist in 2013, I was deeply sceptical of the guarantee scheme. 

If you just read the headlines about Help to Buy, you could be under the impression that Theresa May has just axed an important scheme for first-time buyers. If you're on the left, you might conclude that she is on a mission to make life worse for ordinary working people. If you just enjoy blue-on-blue action, it's a swipe at the Chancellor she sacked, George Osborne.

Except it's none of those things. Help to Buy mortgage guarantee scheme is a policy that actually worked pretty well - despite the concerns of financial journalists including me - and has served its purpose.

When Osborne first announced Help to Buy in 2013, it was controversial. Mortgage journalists, such as I was at the time, were still mopping up news from the financial crisis. We were still writing up reports about the toxic loan books that had brought the banks crashing down. The idea of the Government promising to bail out mortgage borrowers seemed the height of recklessness.

But the Government always intended Help to Buy mortgage guarantee to act as a stimulus, not a long-term solution. From the beginning, it had an end date - 31 December 2016. The idea was to encourage big banks to start lending again.

So far, the record of Help to Buy has been pretty good. A first-time buyer in 2013 with a 5 per cent deposit had 56 mortgage products to choose from - not much when you consider some of those products would have been ridiculously expensive or would come with many strings attached. By 2016, according to Moneyfacts, first-time buyers had 271 products to choose from, nearly a five-fold increase

Over the same period, financial regulators have introduced much tougher mortgage affordability rules. First-time buyers can be expected to be interrogated about their income, their little luxuries and how they would cope if interest rates rose (contrary to our expectations in 2013, the Bank of England base rate has actually fallen). 

A criticism that still rings true, however, is that the mortgage guarantee scheme only helps boost demand for properties, while doing nothing about the lack of housing supply. Unlike its sister scheme, the Help to Buy equity loan scheme, there is no incentive for property companies to build more homes. According to FullFact, there were just 112,000 homes being built in England and Wales in 2010. By 2015, that had increased, but only to a mere 149,000.

This lack of supply helps to prop up house prices - one of the factors making it so difficult to get on the housing ladder in the first place. In July, the average house price in England was £233,000. This means a first-time buyer with a 5 per cent deposit of £11,650 would still need to be earning nearly £50,000 to meet most mortgage affordability criteria. In other words, the Help to Buy mortgage guarantee is targeted squarely at the middle class.

The Government plans to maintain the Help to Buy equity loan scheme, which is restricted to new builds, and the Help to Buy ISA, which rewards savers at a time of low interest rates. As for Help to Buy mortgage guarantee, the scheme may be dead, but so long as high street banks are offering 95 per cent mortgages, its effects are still with us.