Brian Berry: Time to cut cost of building for future

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RISING building costs and material shortages are putting the economic recovery in the SME construction sector under threat, which is why the Government should be looking at ways to help reduce costs in the building industry.

The latest Federation of Master Builders (FMB) state of trade survey for the first three months of 2014 shows that rising building costs and material shortages are causing serious concern in the building industry, with 80 per cent per cent of SME firms expecting the situation to worsen over the next six months.

Our members are reporting that materials prices are generally around 10 per cent higher across the board, with small construction firms highlighting timber products such as sheet materials and timber fencing being particularly expensive.

The increase in the price of timber fencing is largely due to the severe storms that battered the UK last winter. Added to this are concerns over the ready supply of materials such as bricks, which could scupper the ability of SME house builders to plug the shortfall in housing supply – this at a time when we need to rapidly increase the number of new homes.

Small house builders report that brick manufacturers are asking them to wait until the beginning of 2015 for new orders of bricks and our members perceive this prolonged delay to be a decision to prioritise brick orders from large house builders. If this problem continues, SME house builders may be forced to build with alternative materials or risk stalling sites for the rest of this year.

In the Yorkshire and Humber region, a net growth balance was recorded. This net growth incorporates recent workloads, expected workloads, and enquiries in Yorkshire and Humber and it shows the difference between those reporting higher and those reporting lower results.

The figure would suggest the region’s SME construction sector is making particularly good progress as we finally emerge from a five-year economic downturn in the construction industry.

Although our survey shows four consecutive quarters of positive results for UK construction SMEs, this needs to be taken in context. Immediately prior to this positive run of results, construction SMEs experienced a crippling 21 consecutive quarters of overall negative results. In fact we have to look as far back as 2007 before we can find another set of four consecutive positive trade surveys. Put simply, although we are now in recovery mode, we are not yet operating at pre-recession levels, and there is much more government must do if it wants to secure the economic recovery in the SME construction sector.

So at a time when economic growth is still tentative, what can the Government do? Ask most construction SMEs this question and they will quickly answer that they want government to reduce VAT on housing renovation and repair from 20 per cent to five per cent.

According to recent independent economic research by Experian, this could provide a huge economic stimulus of more than £15bn over a five-year period from 2015 to 2020. This VAT reduction could also create more than 42,000 extra full-time equivalent construction jobs and an additional 53,000 jobs in the wider economy by the end of the five years – that is the lifetime of the next Parliament.

A targeted VAT reduction would also help reduce the cost of living for individuals and families by empowering them to make their homes more energy efficient. Linked to this, a cut in VAT would therefore help the next government progress towards the UK’s legally binding carbon reduction targets by reducing the emissions from our existing housing stock.

Contrary to popular belief, EU rules do permit member states to apply a reduced rate of VAT on housing renovation and repair. Currently 12 EU countries out of 28 are applying a reduced rate on this type of work in the public and/or private domestic sector.

The FMB and more than 60 other organisations that are convinced of the various benefits, are urging all political parties to include a 2015 general election manifesto commitment to reduce VAT on housing renovation and repair. This will help the construction industry, and indeed the wider economy, secure long-term growth, fulfil the UK’s environmental pledges and lessen the impact of the cost of living crisis on hard-working individuals and families.

• Brian Berry is chief executive of the Federation of Master Builders. Find out more about the FMB’s ‘Cut the VAT Campaign’ by visiting www.cutthevat.co.uk