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The coalition's neglect of construction cannot be ignored

Ministers need to champion construction through an active industrial strategy.

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

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.