Irish construction workers and firms can make “a real difference” in turning the UK sector’s recent slowdown around, a leading construction economist has said.
The building trade suffered a sharp slowdown in activity in December, according to the Markit/Cips UK construction purchasing managers’ index (PMI).
In addition, Kier Group, the construction and services company involved in major projects including Crossrail and HS2, last week announced the loss of 1,200 jobs in the UK as part of measures to reduce its debt and avoid a collapse akin to those of its rivals Carillion and Interserve.
Dr. Judy Stephenson, a lecturer in economics at University College of London’s Bartlett School of Construction and Project Management, told the Irish World that slumping house prices and Brexit-related uncertainty are bringing the industry to a halt.
An acute skills shortage, particularly of traditional skills such as brick-laying, is also slowing down the progress of large commercial projects, owing to firms preferring work that relies primarily on low-skill labour.
“Employers are worried by the shortage of skills and they’re not planning projects that have skilled needs as they don’t believe they can get the skills,” she said, noting how decreased levels of European migrants since the Brexit vote has exacerbated the shortage.
“A skills shortage leads to less skilled work being commissioned leads to a shortage of work for skilled people. It’s crazy but that’s construction economics for you.”
The levels of immigration of manual labour from Eastern European countries, as well as Ireland where human capital – the economic value of experience skills and knowledge – has traditionally been higher than workers from other European nations, has fallen in recent years, she said.
However, the recent downturn in activity, which followed what Dr. Stephenson describes as a “boom” since 2011 where a “house-building peak” went “under-reported”, can be reversed with the help of financially stable Irish firms and Irish workers.
The most recent Office of National Statistics figures show that, of the 165,000 EU nationals working in construction in the UK, approximately 10 per cent – 16,000 – are Irish nationals.
“The Irish point-of-difference is skill and experience. The Irish firms tend to be well-positioned in the SMEs and well-financed,” she said.
“The Irish have guaranteed rights here, for the moment, and do not face the same immigration controls and prejudices that other European citizens face. There is a potential, given the skills shortage, that Irish firms and Irish workers can make a real difference in the construction industry.”
Last year, Carillion ceased to exist after falling into insolvency, while this year Interserve’s lenders seized control of the company after it was unable to pay its debts.
Fears over the health of the wider outsourcing sector have increased concerns about Kier, which works on multibillion-pound infrastructure projects such as the HS2 high-speed rail line and London’s oft-delayed Crossrail plan.
Since house prices are falling, builders are moderating their building programmes, with some of the aforementioned big projects at risk. A slowdown has affected both the private and public sectors, with Heathrow’s planned construction work expected to be shelved or delayed.
“Those big project stops are Brexit-related. You can’t quite say Brexit has caused them but they’re related to the slowdown in decision-making,” Dr. Stephenson said. “Generally, the outlook is not as healthy as we would like.”
According to Dr. Stephenson, larger contractors are doing so badly because they’re operating on “paper-thin margins” yet continuing to bid for projects to pay off rising debt.
“It’s a classic contractor model. That’s caught up with everybody now. Most of the contracting firms are overburdened with debt. Carillion, Interserve and subsequently Kier, it’s all pretty much the same problem which is debt, whether it’s on the balance sheet or off,” she said. “The only way to keep that business going is to cut costs dramatically, which means redundancies.”
Dr. Stephenson said that nothing will change until the government changes the contracting system.
“They’re allowing people to bid at low-cost rates, which seems clever from the government, but what it really leads them to huge losses when a contractor goes bust,” she said, adding that, since small and medium firms are often subcontractors for the big companies, many of them currently face not being paid by people like Kier.
Dr. Stephenson predicts that low margins in the industry will persist for the “foreseeable future” and that it will take at least five years for contracting systems to be updated and large projects to be rejuvenated, if at all.
But, she insisted, “once the contracting system is sorted out, which is in crisis, then there will definitely be opportunities for larger and smaller firms.”
By Colin Gannon