CBI tells government: construction vital to UK plc

Business and industry leaders are increasing pressure on the government to commit to capital spending on construction, after a detailed report revealed every pound spent in the industry produces a £2.84 increase in GDP.

The report, commissioned by the UK Contractors Group and backed by the CBI, comes as the latest economic data reinforces concerns the construction sector is facing further sharp falls in output, in defiance of growing optimism over the summer.

Official figures last week showed construction shrank 1.1% in the third quarter of 2009 – a larger decline than the previous quarter, when the sector shrank 0.8%. Output was 13% down on the same period last year.

We’re going to see a concerted campaign on this over the next six to nine months

Stephen Ratcliffe, UKCG

The Office for National Statistics said construction had made a “significant contribution” to the overall decline in GDP. Research for Building’s market also shows an acceleration in falls in tender prices (see table, below).

The UKCG and CBI are using their research, which was carried out by economic consultant LEK, to push for the next government to commit to capital spending in construction to stimulate the industry and the wider economy. The research, called Construction in the UK Economy, says:

• The industry is responsible for a greater increase in GDP per £1 spent than most other sectors, including agriculture and motor vehicles. This is because of its large labour pool, diverse supply chain and low level of imports
• Construction is responsible for a £28.7bn spin-off market in other sectors each year, including machinery, aggregates and plastic
• The sector has been hit worse than any other by redundancies. Its redundancy rate is 2.2 per 100 employees, which is 40% more than manufacturing and 50% greater than the finance sector.

The report also emphasised the long-term benefits of investment in the industry, calculating that a £0.44 investment in building a new school would generate up to £5.04 of extra economic output in the economy over 30 years, owing to factors including improved education. The figure was calculated by applying economic multipliers to data from delivery body Partnerships for Schools on educational improvement in new school buildings.

This is important to the construction industry, but also to the wider community

John Cridland, CBI

John Cridland, deputy director of the CBI, said: “This issue is important to the construction industry, but it’s also a matter for the wider business community, which needs investment in infrastructure.”

Stephen Ratcliffe, chief executive of the UK Contractors Group, said: “We’re going to see a concerted campaign on this over the next six to nine months. We’re under no illusion that we are going to see falls in government spending, but we want to see that slowdown gradual and targeted.”

He said the UKCG had already had talk with business secretary Peter Mandelson over the issues, and would be emphasising its findings to ministers and shadow ministers before the election.

A raft of other new figures cast gloom on the construction industry this week. Statistics released by the British Bankers Association showed that lending to construction firms continued to fall in September, contracting by £500m.