ONS Statistics and the Construction Industry

Josh Mathias is MD of The Hythe Group, in this feature for UKCO he writes about the latest Office for National Statistics (ONS) Construction Output figures

Recent ONS figures that the number of people employed in the construction industry hit a seven-year low is worrying but not surprising. 2.17m people were employed in the construction industry between July and September this year, showing that 142,000 jobs have been shed since the start of the pandemic.

I’ve been in the construction and engineering business since I joined as a 22 year-old labourer. While we still have a full order book at Hythe Group, we’ve seen huge delays in contracts starting, land developments put on hold and city renovations delayed as a result of the crisis.

Covid is undoubtedly the main factor – but the problem is also due to the uncertainty around how the government will act next in its anti-covid planning.

The construction sector is very sensitive to government decisions. When the government lightened its restrictions to on-site activity and told the construction industry to go back to work, the industry reacted positively, moving swiftly to ensure all active sites were compliant and working within social distancing guidelines. Because of this, active projects are continuing and being completed in good time. However, the uncertainty and lack of stability over government policies is affecting future projects.

It might be considered positive that the government has been trigger-heavy with fiscal responses to the pandemic. Yet the uncertainty around which ones he will use next can be crippling. Our clients talk about how a reduction in business rates, company VAT or corporation tax could result in more companies being created, and a further pipeline of projects. Nevertheless, the big decisions around projects are still being held back or pushed into other quarters whilst the dust settles over Covid, and also of course – Brexit.

Those bankrolling major construction projects probably suspected that the lifting of restrictions in the summer would not necessarily mean a lockdown-free winter. So the end to lockdown did not necessarily mean that everyone immediately restarted projects that were put on hold. Many of our clients want to wait a year, and see what happens. This leaves construction firms having to lay off staff – especially if they lack the cash flow that is “king” for smaller businesses.

This is why I believe smaller businesses, which are more dependent on cash flow, have been the most affected, and is where we will continue to see job cuts. The government’s support has helped but I fear it has delayed the inevitable demise of a percentage of small businesses who can not weather the storm.

Many may assume the Chancellor’s furlough schemes are enough to offset cuts, but furlough will taper off, and end in April. So many smaller firms will wonder why they should delay the inevitable, especially if they run up costs by keeping inactive staff on payroll.

As well as uncertainty, remote working is also a factor. This might not be relevant to construction because Covid regulations have allowed our workers to continue on site. But the pipeline of construction work has its source in CEO suites – now sitting empty, as corporate decision makers work from home. In cases of sensitive projects, executives are unable to take paperwork home, and so approvals struggle to get over the finish line. In some cases, our workers have to wait two weeks or more to start on a project. Crucial aspects of sign-offs simply get lost in translation when people aren’t in the physical workplace. On one occasion, one of our clients thought a project was underway – but we hadn’t even received a purchase order.

Covid has rightly been the government’s focus for most of the last year, but let’s not forget Brexit. This is delaying even more decisions, causing further withdrawals from the pipeline of work & putting even more strain on SMEs that depend on the roll down of contracts.

Take, for example, tariffs on exports: if the customer base for a manufacturing company’s goods is mainland Europe, and the company faces high tariffs on exports to the EU as a result of No Deal, they are bound to consider shifting their base to mainland Europe. As a result, we in the construction industry must also slam our foot on the brakes.

Apart from uncertainty around Brexit and Covid, there is one, more long-term factor, which is close to my heart. For several years, there has been a gap in apprenticeship funding. Such schemes are the lifeblood for our sector – they allow old-school tradesmen to pass their knowledge onto the next generation. I’ve always made a point at Hythe of training and developing young employees to our high standards, and taking a personal interest in their development. We have felt the impact of dwindling apprenticeships particularly in skills related to mechanical , heating and ventilation. The older generation with a higher skill set and understanding of the trades are no longer here to pass on their skillset and work ethic. So we have a younger generation of skilled tradespeople teaching apprentices, who themselves may have learned from less experienced tradespeople. So it dilutes the teaching standards of the future generations. So if junior tradespeople lack the skills required, it is harder for us to employ them.

The reason we still have sound bookings for the coming year is partially because we have re-aligned our work around public sector contracts relating to healthcare and education. In the private sector, there is more incentive to press pause, but Covid isn’t going to make the public need for hospitals and universities disappear. Still for any firm, big or small, there is always concern that work could be withdrawn or delayed.

My prediction is that the major contractors will see the largest job cuts, but ultimately survive the process and rebuild post-Covid. It is the SMEs, who are unable to absorb costs for long periods of time, and which will ultimately close. The loss of jobs for each company may be small – but they add up when you look at all the companies that may not survive this year’s uncertainties. The major contractors will display the largest job cuts but will ultimately survive and rebuild as the industry settles.

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