CPA: Construction products industry barometer falls to new low
The sale of construction products has reached a new low according to the latest Ernst and Young/ Construction Products Association Activity Barometer. Overall the survey records a score for the final quarter of the year of just 13, compared to a 50 mark, which represents ‘no change’.
This is the lowest result since the barometer started sixteen quarters ago and a dramatic fall from the score of 80 recorded in the second quarter of 2007 when the barometer peaked. Looking forward, manufacturers are even more pessimistic with a figure of just 7 representing expected sales in the first quarter of 2009.
Commenting on the results, Michael Ankers, Chief Executive for the Construction Products Association said; “Heavy side manufacturers have been hardest hit by the recent fall in housing and the slowdown in the industrial and commercial sectors. The barometer for heavy side manufacturers in this quarter stands at only 3, meaning virtually all heavy side manufacturers are finding that sales have fallen over the last quarter; some have seen orders fall by 40% in less than a month. Light side manufacturers have so far not been as badly hit because they come later in the construction process but the expectation is that with little new work in the pipeline, they will begin to experience more dramatic falls.”
Ankers continued; “What is of particular concern is that the situation has deteriorated significantly in the last few weeks. However we are not an industry that is turning to government for subsidies, but are looking for increased government investment which will sustain employment and economic activity whilst delivering projects that will benefit the UK in the long term. Separately the Construction Products Association has written to Lord Mandelson amongst others, with a range of proposals for action that the government should consider urgently. These include addressing the problems of liquidity and credit, reigniting the housing market, improving the energy efficiency of the existing housing stock and reducing the regulatory and fiscal burden on industry.”
Full details of these proposals are attached in the notes to editors.
Ends
NOTES TO EDITORS:
1. The Construction Products Association represents the UK’s manufacturers and suppliers of construction products, components and fittings. The Association acts as the voice of the construction products sector, representing the industry-wide view of its members. The sector has an annual turnover of £40 billion and accounts for 40% of total construction output. The Association’s membership was surveyed in the week beginning 8 December 2008.
2. The Construction Products Association’s Construction Activity Barometer provides an advance indicator of trading conditions and prospects across the construction products industry at the end of each quarter. The Barometer complements the Association’s more detailed Construction Industry Trade Survey, published in conjunction with the Construction Confederation a month after the quarter in question, which provides a detailed assessment of a wide range of market pressures facing the industry; from manufacturers’ cost pressures and capacity utilisation, to the availability of site labour and contractors tender prices.
3. Product definitions: Heavy side products are typically structural materials used early in the construction process and include materials used in transport and other civil engineering projects. Heavy side materials include: aggregates, cement, ready-mix concrete, constructional & reinforcing steel and masonry products. Light side products are typically installed later in the construction process and include internal fittings & services. Light side products include: heating & ventilation systems, plumbing, electrical & lighting, doors & windows, kitchen furniture and thermal.
Construction Products Industry Proposals for Government Action
A primary role for the government at this time is to restore confidence in the economy and its prospects going forward so that businesses begin to invest, and consumers feel confident enough in their own prospects to start spending again. The construction industry can play a key part in this by delivering much needed investment in the infrastructure and public services that are key to the country’s long term economic growth. This will at the same time maintain levels of employment and economic activity that will help minimise the impact of the economic downturn in the short term.
One of the advantages of investment in construction compared with more broad based financial packages is the low propensity to attract imports, and the relatively high level of UK based employment that will be created. Only 15% of construction products is imported and these make up only about 6% of the total turnover of the construction industry, a far better return for the UK economy than expenditure on a wider range of consumer goods.
Retaining skills in the industry to ensure we can deliver the various construction programmes is vital. Skilled people we will need in the future are currently being lost to the industry and may never return, and we would like the government to consider steps taken by the Dutch government to support the continued employment of key workers in industry for up to six months in order to try to ensure their skills are not lost and the future recovery is not held back.
More specific measures we would like to see government take are:
Liquidity and Credit
. A particular feature of this recession is the lack of credit and capital available to companies across all sectors of industry. The Bank of England has played its part through the recent significant reductions in interest rates. The government must ensure that the benefit of these reductions is passed on to businesses, and continue to put pressure on the lending institutions to make money available to viable businesses for their everyday operations. Unless this happens, we will see many more bankruptcies than are necessary.
. Withdrawal of credit insurance has become a major issue across the construction products industry and we are being told that the insurers are taking fairly arbitrary decisions which are affecting companies that are perfectly sound. SMEs are particularly suffering from these actions. Unless this problem can be resolved very quickly, it may be necessary for government to intervene on a temporary basis through some form of guarantee to the insurers or direct support to companies that meet pre-determined requirements.
Housing
The government must continue to press the banks and building societies to release the funds needed to revitalise the mortgage market. Government criticism of these lending institutions has so far had limited success. Far more effective would be to commit to the recommendation in the Crosby Report that government should intervene in the mortgage market by guaranteeing £100bn of mortgage-backed securities in 2009 and 2010. This would have a major impact on the market at this time and it is very disappointing that the government is not intending to act on this until the spring budget at the earliest.
. The government must speed up its own programme for social and affordable housing. The commitment it has given is to deliver 75,000 social and affordable houses by the end of the current CSR. It is clear that the private sector is not going to be able to deliver these homes directly or through Section 106 agreements. The public sector must therefore be more proactive through investment in new developments and the purchase of unsold private sector homes that are suitable for this kind of housing in order to ensure that the 75,000 target is met. This will help maintain skills in the housebuilding sector and retain capacity in the suppliers to the industry as well as meeting an urgent need for new housing.
. The role of the new Homes and Communities Agency must be much more focused on assembling land suitable for both private and public development and investing in the infrastructure needed for viable development on this land. This will help the delivery of publicly funded housing in the short term and ensure private housebuilders can respond quickly when the market for private sector housing returns.
Government Capital Programmes
. The recent Pre Budget Report included proposals to bring forward £3billion of capital spending from later in the Spending Review period and provided details of where this money will be spent. Whilst we welcomed this announcement, the challenge is not to make the money available, but to ensure that it delivers projects on the ground. Only 35 schools have been opened under the Building Schools for the Future programme in the five years since it was launched and this is against an original target to complete 350 schools by the end of 2008. What we want to see is an indication from government that it is taking specific steps in relation to the way these and other projects are procured so that the programmes can actually be delivered on time. Lack of funding has not been a problem in the past; it is the delivery mechanism that has caused the delays.
. As well as education, there is an urgent need for investment in transport infrastructure, energy capacity and storage, social housing, and flood defences, and a long term commitment by government to programmes (with clear output targets) in these areas will encourage companies in our industry to maintain their investments in the UK, and ensure that the public sector obtains value for money for its investments at a time when there is capacity in the market.
Improving the Energy Efficiency of the Existing Housing Stock
This provides a real opportunity for government to do more both to stimulate economic activity in the industry and to help meet its demanding carbon reduction targets. The need for action as part of the climate change agenda has been reinforced by recent reports from both the CLG and BERR Select Committees and also by this month’s report from the Committee on Climate Change. Specific actions the government should be taking are:
. The CERT scheme is not working as effectively as it should and the targets set for the utilities are not feeding through into meaningful action on the ground in the way that the industry and those who should be benefiting from this initiative would expect. One of our major companies that supplies these insulation products reports that in October 70% of the applications from elderly people seeking funding support for improving the insulation in their homes were turned down because the energy companies had already met their targets for that month. What seems to be happening is that the energy suppliers are meeting their ‘targets’ in a range of different ways including offering advice on energy efficiency (which may not be acted upon) and the unsolicited delivery of energy efficiency light bulbs, which the recipients may not use.
In addition we understand that announcements made in September increasing the target funding for the CERT scheme will not come through until May because they need an Act of Parliament to approve them. Government needs urgently to review the operation of this scheme both to ensure that in the short term it is delivering the energy savings that are expected of it, and to provide a longer term commitment to manufacturers and installers to ensure they make the long term investment in the products that are needed to insulate the existing housing stock, as well as the training of those needed to install them.
. CERT, however, is only a small part of what can be done to improve the energy efficiency of our housing and ensure we meet our targets for carbon reduction. It makes no sense to charge a lower rate of VAT on energy than the products that will reduce the need for it, and Government should reduce VAT to 5% on all energy efficient products and provide time-limited funding support for those who wish to improve the energy efficiency of their homes up to the current requirements of the building regulations. This will particularly help SMEs in the industry as they typically undertake this work.
Reducing the Regulatory and Fiscal Burden on Businesses
Government should take specific measures to remove the regulatory and fiscal burden on businesses at this time to help ensure many more survive the recession and are there to take advantage of the recovery.
. The PBR included a number of measures largely to help SMEs, including the temporary suspension of empty property rates for buildings with a rateable value of less than £15,000. This will not help the vast majority of companies in our sector and will undoubtedly encourage many companies to close plants altogether rather than mothball them. Empty property rates should be suspended for all companies at this time as the original objectives behind the measure have long been overtaken by the economic events of the last 12 months.
. For those companies that are part of the EUETS scheme, it continues to be an anomaly that they also have to pay the Climate Change Levy. These companies are already typically paying more for their energy in the UK than in other European countries and a suspension of the Levy for these companies would help address, but not entirely remove, this imbalance.
FOR FURTHER INFORMATION CONTACT:
Simon Storer, Communications and External Affairs Director
Construction Products Association
Tel : 020 7323 3770
Fax : 020 7323 0307
Mobile: 07702 862 257
E-mail : simon.storer@constructionproducts.org.uk
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