The case for construction

The industry has marshalled compelling arguments to persuade government to spare it from capital spending cuts. Aaron Morby looks at the case for construction.

The intense national debate about putting the public finances straight has panicked everybody from the smallest builders to our biggest national contractors.

With it comes a dangerous mood of resignation that the spending axe is swinging constructions way.

But rather than accepting what many contractors see as inevitable, the country's leading firms have decided to put up a fight to make sure construction is not eyed an easy target.

What has angered the major contractors is the government's mistaken belief that a sector like the automotive industry is more valuable to the UK than construction. Both industries have been equally battered by the ferocity of the economic crisis, but only the car industry has received any meaningful state aid.

With the construction industry now facing prolonged downturn even on current Treasury spending forecast, industry leaders have circled the wagons in a last stand to fight a devastating round of further public spending programme cuts.

The aim is to persuade government to cut bloated public services, not precious capital spending.

A first salvo was fired off in the Treasury's direction last week with the publication of a study commissioned by the London mayor's office arguing that London's Crossrail and Tube upgrade project would deliver a staggering £24bn of wider economic benefits to the UK.

Project benefit claims like this are not new, but they should make the Treasury think twice about steering the projects into the sidings.

Ground-breaking study

What should carry more weight in Whitehall is a ground-breaking study for the UK Contractors Group. The report, Construction in the UK Economy: The Benefits of Investment, is the first real pound-for-pound analysis of construction's contribution to the UK. It offers a convincing case for investing in the industry because construction multiplies all investment. In the general case, every £1 spent on construction leads to an increase in GDP of £2.84.

UKCG chairman James Wates, says the industry has to get behind this finding.

"This is the first time the industry has put together a set of compelling and powerful arguments to support the case for investment in infrastructure, he says.

"As an industry we have often undersold our contribution to the wider economy, yet this industry has huge potential to stimulate economic growth and employment."

Business leaders at the CBI have seized on the report for their pre-Budget submission, which has called on the Treasury to think more creatively about spending cuts.

Wates adds: "This report provides clear messages, which I hope the whole industry can get behind. It gives us the ammunition to play our part in the national debate.

"Now is the time for the whole industry to come together behind the CBI to press the message home."

In some areas, such as building schools, the economic benefits of construction are even more pronounced.

The report's authors from economic consultant LEK Consulting estimate that every £1 spent in this area leads to a total economic benefit of between £3.87 and £5.04, partly because of the direct benefit to the economy, but also because of improved education services that lead to a long-term benefit via a higher-skilled workforce.

Public finances

The CBI argues that £120bn needs to be saved to bring the public finances back on track by 2015/16 and has set out a menu of more inventive current public spending savings that could save as much as £136bn.

It warns a long-term failure to maintain adequate levels of investment in infrastructure would be catastrophically short-sighted.

John Cridland, CBI deputy-director general, said: "With the Chancellor's Pre-Budget Report looming, the CBI is continuing to press the case for protecting capital spending by government.

"A strong economy needs fit-for-purpose schools and hospitals, and it will be the construction industry that builds the new transport and energy infrastructure needed to shift to a low-carbon economy.

The low-carbon argument may yet prove to be a key weapon in the industry's armoury. The government's vaunted low-carbon transition plan sets seriously challenging targets for 2018-22. Crucially, construction is a prerequisite for achieving 80% of these goals.

So does it make any sense to delivery a body blow to construction when the government expects all new homes and schools to be zero-carbon rated by 2016, public sector buildings by 2019 and all new buildings by 2019?

Another persuasive line is that construction directly stimulates home-grown economic activity because it attracts just 8% of imports, reducing the leakage of benefits abroad which besets the automotive industry where 28% of the parts needed for UK car assembly are imported.

Rosemary Beales, director of the Civil Engineering Contractors Association (CECA), says: "The facts show that investing in construction is the quickest route to stimulating the economy in both the short and long term.

"However, in order to get the £2.84 increase in GDP, there has to be £1 available to invest in the first place.

"Construction in the UK economy provides us with a very useful starting point for lobbying the decision makers in this government and the next over the hard choices they will have to make on public spending.

"CECA will continue to put the case for long-term planned investment in critical infrastructure such as energy, transport and water. If we allow these assets to deteriorate, our economy will not grow and our quality of life will suffer," she says.

"The focus must now be on demonstrating that consistent investment, backed up by a steady flow of spending, is the route to value-for-money as we build up to the General Election."

Safeguarding spending

While safeguarding planned spending is the big priority, John McDonough, chairman of the CBI's Construction Council, believes government must go further than simply maintaining investment.

He says: "To ensure that the construction industry can play its role in the UK's economic recovery, we need to make sure that good procurement practices do not fall by the wayside during the recession.

"We have already seen worrying signs of some clients using the recession as an excuse to seek the lowest possible tender prices. The government needs to lead the way, and work with the construction industry to ensure the focus remains on innovation, partnership and value for money.

"We are also facing a serious skills shortage, which could hinder plans to deliver a low-carbon economy. Young people are being hit particularly hard in the jobs market. He adds: "The government must immediately provide more financial support for construction businesses to take on apprentices in order to ensure we have the right skills to build the new infrastructure for a low-carbon economy."

His concern touches on another more compelling argument. The authors of the report point out that construction tackles the unemployment crisis more effectively than any other industry.

As Bob Whincap, president of the National Access and Scaffolding Confederation says: "We need to spell out the fact that construction is often the last-chance saloon for many disaffected youngsters.

"We are getting them back on track and helping them to make a real contribution."

The report's author Colin Farmer points out that construction employs many lower skilled workers, who are typically more vulnerable in a downturn. The research also shows that six out of 10 construction workers are located in areas suffering higher than average unemployment.

He says: "It is quite clear that construction exerts powerful leverage on the economy and jobs.

"What everybody has to remember is this works both ways, so spending cuts will hit construction and magnify onto a very damaging wider economic impact."