Construction Industry

Standard Note: Last updated: Author: Section: SN/EP/1432 30 October 2013 Chris Rhodes Economic Policy and Statistics

In 2012 the construction industry in the UK contributed 83.0 billion in economic output, 6% of the total. 2.01 million jobs or 7% of the UK total were in the construction industry in June 2013. The construction industry, particularly house building, faired badly during the recession. Output in the construction sector fell faster than the whole economy in 2008. 2009 saw the sector recover faster than the economy as a whole, and 2010 and 2011 saw broadly flat growth, followed by another contraction in 2012. The key Government strategy paper on the construction industry is Construction 2025, published in July 2013. The Government also highlighted the construction industry in the March 2011 Plan for Growth. These documents are summarised and key policies highlighted.

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Contents
1 Contribution to the economy 1.1 Gross value added 1.2 Employment 1.3 Sectors within the construction industry 2 The impact of the recession 2.1 on economic output 2.2 on the value of orders 2.3 on house-building 2.4 on infrastructure construction 3 Coalition Government Policy 3.1 Construction 2025 3.2 Plan for Growth 4 Labour Government policy during the recession 3 3 4 4 5 5 5 5 6 6 6 7 8

1
1.1

Contribution to the economy

Gross value added

The contribution of any industry to the UK economy is best measured by its gross value added (GVA). GVA only considers the actual added value of the industry, and excludes costs incurred. The table below shows the gross value added by the construction industry in 2012 prices and as a share of the economy. In 2012, the gross value added of the construction industry was 83.0 billion, 6.0% of the total economy. The GVA of the industry fell over the year to 2012, by 6.0%. The industry contributed 19.5 billion less in 2012 compared to the pre-recession peak in 2007, a 19.1% fall. Output from the construction sector is at its lowest level since 2002 in real terms.
Construction sector's contribution to the economy Gross Value Added billions (2012 prices) 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 59.4 63.0 64.6 69.5 74.1 79.4 85.5 90.7 94.1 97.9 102.5 96.1 88.6 87.2 88.2 83.0
HMT, GDP Deflator

% change 6.1% 2.5% 7.6% 6.5% 7.2% 7.7% 6.1% 3.7% 4.0% 4.7% -6.2% -7.9% -1.5% 1.1% -6.0%

% of economy 5.6% 5.8% 5.8% 6.0% 6.2% 6.5% 6.7% 6.9% 6.9% 7.0% 7.1% 6.7% 6.4% 6.3% 6.4% 6.0%

Sources: ONS, Blue Book , Series ABML and KKI3

1.2

Employment

There were 2.01 million jobs in the construction industry in June 2013, 6.6% of the total. The number of jobs in the construction industry over the last thirty years is shown in the table below. Over the last ten years, the number of workforce jobs in the construction industry peaked in 2007 at 2.29 million.
Workforce jobs in the construction industry, UK Construction jobs (millions) % of all jobs 1983 1993 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: Notes:

1.79 1.84 2.04 2.11 2.18 2.25 2.29 2.27 2.23 2.08 2.03 2.01 2.01

7.0% 7.2% 7.1% 7.1% 7.2% 7.3% 7.6% 7.6% 7.3% 7.0% 6.7% 6.8% 6.6%

ONS Nomis Database, Workforce Jobs June each year

1.3

Sectors within the construction industry

The table below shows how the value of new orders in the construction industry split between different sectors. Private commercial construction and private housing construction accounted for over half of the value of all new orders in Q1 2013. Public non-housing construction accounted for a fifth of all construction.
Value of new orders for new construction obtained by main contractors in Great Britain by sector, Q1 2013 bn Private commercial Private Housing Other public non-housing Private infrastructure Public Housing Public infrastructure Private industrial Total 3.3 3.2 2.6 1.2 1.0 0.8 0.6 12.8 % of total 25.7% 25.4% 20.1% 9.7% 8.1% 6.1% 4.9%

Source: ONS, Value of new orders in the Construction Industry

2
2.1

The impact of the recession

on economic output
Gross value added by sector Indexed, Q1 2008=100
105

Output in the construction sector fell faster than the whole economy in 2008. 2009 saw the sector recover faster than the economy as a whole, and 2010 and 2011 saw broadly flat growth, followed by another contraction in 2012. Construction sector output is now 18.9% down on the Q1 2008 level, whilst the whole economy is 3.7% down over the same period. 1

100 Whole economy 95

90 Construction 85

80 2008

2009

2010

2011

2012

2013

2.2

on the value of orders

Value of orders for new construction obtained by main contractors Great Britain, billions, current prices 14 12 10 Private 8 6 4 2 0 2008 Public

The chart on the right shows the value of orders for new construction obtained by the main contractors in Great Britain. 2 It shows that in the first quarter of 2008, the value of new orders from the private sector was more than twice that of new orders in the public sector. By the first quarter of 2009, new orders in the private sector had fallen to around half the 2008 level.

2009

2010

2011

2012

2013

2.3

on house-building

The recession had a particularly large impact on house building. The chart on the right shows the value of orders for new housing construction obtained by main contractors in Great Britain between the first quarter of 2008 and the first quarter of 2013.

Value of orders for new housing orders Great Britain, billion

4 3 2 1 0 2008

Private

Public

2009

2010

2011

2012

2013

Total housing orders fell sharply in 2007 and 2008 and although they have recovered slightly, they are still around a quarter below their 2007 levels. In Q1 2013, total housing orders totalled 4.3 billion.

1 2

ONS series L2N8 and YBEZ ONS, New Orders in the Construction Industry

2.4

on infrastructure construction

Despite a big increase in public sector infrastructure orders in late 2012, the private sector generally accounts for the majority of infrastructure construction. In Q1 2013, private sector infrastructure orders totalled 1.2 billion and public sector infrastructure orders totalled 780 million.
Value of orders for new infrastructure construction obtained by main contractors in Great Britain billion, current prices
3

Private

Public

0 2008

2009

2010

2011

2012

2013

Coalition Government Policy

This section summarises the key Government documents and initiatives relevant to the construction sector. Information on Government infrastructure spending and policy can be found in the Library Note, Infrastructure Policy. 3.1 Construction 2025

In July 2013, the Government published Construction 2025, which summarises the industrial strategy for the construction sector in the coming decade. 3 The Government will work in conjunction with a range of industry bodies to achieve the following central ambitions of the strategy: 4 1. A 33% reduction in both the initial cost of construction and the whole life cost of assets (from 2010/09 levels). 2. A 50% reduction in the overall time from inception to completion for new build and refurbished assets (based on industry standards in 2013). 3. A 50% reduction in greenhouse gas emissions in the built environment (compared to 1990). 4. A 50% reduction in the trade gap between total exports and total imports for construction products and materials (from February 2013 deficit of 6 billion).
3 4

BIS, Construction 2025, July 2013 Ibid, p19

Construction 2025 outlines an action plan which includes the steps Government and industry will take in the short and medium term to achieve the ambitions: Smart construction/digital design. Building on the relative strength of the UK as a hub for digital design. Low carbon and sustainable construction. Using technological developments and new materials to reduce the ecological impact of construction. Global trade. Using the UKs trade relationships to foster new opportunities and investment. Image of the industry. Engage with young people to overcome negative stereotypes. Maintain high health and safety standards. Skills and capabilities. Make apprenticeships less dependent on market fluctuations. Establish common gateway for construction skills and qualifications. Enlarge the Construction Skills Certification Scheme, so that it becomes a nationally recognised and required means of establishing qualifications. Future work opportunities. Government will work to refine the infrastructure pipeline so that it provides a better indication of future demand. Develop a demand map for the industry, including regional data and construction type data showing where shortfalls will occur. Supply chain. Identify blockages and issues in the supply chain and work to resolve them. Promote the range of financial products available to SMEs working in construction. Research and Innovation. Develop funding and collaboration opportunities for businesses and researchers in areas identified as priorities. Improve post project evaluation and knowledge sharing. 3.2 Plan for Growth

The Plan for Growth, published alongside the Budget in March 2011, set out how Government policy would aim to encourage growth in a number of industries, including construction. 5 The document stressed the importance of investment in infrastructure projects and house building for the UK economy. The Government announced a number of actions to assist the construction industry in particular, alongside more general measures to reduce regulations and reform the planning system. The Plan for Growth Government announced that it would publish a long term forward view of projects and programmes as part of the National Infrastructure Plan 2011. This was published in November 2011. 6 The Government has since reported on progress against the plan. 7 The Plan for Growth also announced a commitment to publish a quarterly rolling two year forward programme of infrastructure and construction projects where public funding is agreed. The Government also stated that procurement of construction projects would be reformed to reduce costs.
5 6 7

HM Treasury/ Department for Business Innovation and Skills, Plan for Growth, March 2011, p115 See HM Treasury, Infrastructure Investment Pipeline Data HM Treasury, Infrastructure delivery update, March 2012

A number of measures were announced in the Plan for Growth which aimed to support house building. Under the FirstBuy programme, the Government would provide equity loans, jointly funded with house-builders, to assist with the purchase of a new build property. The Government stated that this would help at least 10,000 first time buyers. In addition, the Government announced that they would accelerate the release of public sector land to encourage new homes to be built. Reforms to stamp duty land tax rules applied to bulk purchases were announced to reduce a barrier to investment in residential property in order to promote the supply of private rented housing. A range of measures to remove barriers to entry for new Real Estate Investment Trusts were also announced. There would also be reforms to construction standards and codes in order to remove redundancy and duplication. New regulations for zero carbon homes to apply from 2016 were announced. The Government has published a Plan for Growth Implementation Update which reports progress against the proposals. Information about the Governments construction policy is available on the Construction pages of the BIS website

Labour Government policy during the recession

The Labour Government brought forward capital spending during 2009 in order to support the construction industry. The November 2008 Pre-Budget Report stated that:
as part of the Governments fiscal stimulus package, bring forward 3 billion of capital spending from 2010-11 into 2009-10 and 2008-09 for housing, education, transport and other construction projects, supporting industries and jobs across the country. 8

The Pre-Budget Report continued by stating that the construction industry was expected to be disproportionately affected by the economic downturn. Existing spending programmes would be brought forward as this could be done quickly, rather than initiating new projects which could take time. Bringing the spending forward would also mean that the boost would be temporary, as it would be offset in future years. 9 In May 2009 the then Chief Secretary to the Treasury, Yvette Cooper, confirmed that the majority of the public sector capital projects being brought forward involved construction activity. 10 Programmes were also introduced to encourage house building. The Kickstart programme of 1 billion was targeted at currently stalled sites to support the development of high-quality mixed tenure developments. A social housing new build programme provided 460 million funding for local authorities to deliver new social housing on land they already owned. 11

8 9 10 11

HM Treasury, Pre-Budget Report 2008, para 1.30 Ibid, para 2.42 HC Deb 21 May 2009 c1508W See HC Deb 4 November 2009