Storm Clouds Gathering Over The Construction Sector

There are a number of worrying signs for the construction industry with Brexit uncertainty being blamed for a nervous property market.

According to the Federation of Master Builder’s (FMB) ‘State of Trade’ survey for the second quarter or 2019, the UK average suggests that the construction industry grew in the second quarter of the year with 27% of respondents citing improved workloads compared with 22% in Q1.

However, there are warning signs on the horizon that suggest the new build sector is starting to contract.

21% of UK-wide small construction companies reported a decrease in employment levels for the first time in over five years.

77% of builders are worried that material prices are already rising and will increase exponentially in the event of a no-deal.

Whilst 37% of SME construction owners are forecasting higher workloads in the future, this has fallen from 41% reported in Q1.

Overall, non-residential workloads reported a negative net balance of -3% for the second quarter of 2019.

In Wales, workloads, expected workloads and enquiries decreased by 24% when compared with the opening quarter of 2019. In Northern Ireland, this figure dropped by 44% to a negative net balance of -3%. England’s positive net balance of +10% for predicted workloads did not change between Q1 and Q2.

The FMB has urged the Government to reconsider and delay the implementation of Reverse Charge VAT after the construction industry output remained negative for the third consecutive month in July.

It is claimed that the tax changes are confusing and will present the construction sector with another obstacle it will struggle to overcome at such an uncertain time.

Brian Berry, Chief Executive of the Federation of Master Builders, said:

“The fall in construction activity for the third month in a row and business optimism being at its lowest levels since 2012 means the building industry is heading towards crunch time. The Government must immediately postpone its plans for a complex and burdensome tax change if the supply chain is to start to turnaround its consistent decline. The time is not right to implement Reverse Charge VAT, which would restrict cash flow and add extra administrative burdens which risk sending small businesses to the wall. The Government’s guidance on the policy is confusing and complex, and it wasn’t published with enough time for companies to prepare.

“Reverse Charge VAT, Making Tax Digital and a no-deal Brexit will create the perfect storm for construction’s small businesses, and today’s PMI data shows that the resilience is not there to weather it. If we are to deliver the housing and infrastructure that we need now and in the future, we will need to maintain capacity in the construction industry which means looking after the supply chain. The Government must support the industry by delaying Reverse Charge VAT for six months at least.”

Ifan Glyn, Director of FMB Cymru, said:

“Local builders in Wales are still busy but there are warning signs we can’t ignore. Lots of construction employers are starting to see enquiries about future projects drying up, which is no surprise given that the threat of a no-deal Brexit looks increasingly plausible. Homeowners in Wales are sitting tight to see what happens to the economy before committing to commissioning meaty home improvement works, such as loft conversions and extensions. This is the bread and butter of your typical local building firm so we aren’t surprised to see the pace of growth slowing.”

Gavin McGuire, Director of FMB Northern Ireland, said:

“Builders in NI are struggling compared to the rest of the UK, and its highly concerning that the market is actually shrinking. Alarm bells should be ringing in all of our ears as if we experience a sustained downturn, we could lose capacity in the NI construction sector for good. Builders continue to tender for work but clients are unwilling to commit to significant projects as we all wait with bated breath to see how Brexit plays out, and whether a way forward is found in terms of the deadlock at Stormont.

“Local builders are the bedrock of the entire construction industry and train two-thirds of all construction apprentices. Without them, the industry cannot deliver the homes NI so desperately needs. In order to boost the market here in NI and avoid any long-term loss in capacity in the construction sector, local authorities with planning functions must work with industry to speed the planning process as a matter of urgency. For larger developments, it takes an average of 59 weeks for a planning application to receive a decision. This is an unacceptable amount of time when you consider that these delays act as a break on economic growth and the delivery of new homes.”

Today's Conveyancer