Rico Wojtulewicz is head of policy and market insight at the National Federation of Builders
The media and government often focus heavily on housing and housebuilders, which is understandable as new housing supply is a tangible measure of solving a known issue and demonstrating government commitment. However, what is often overlooked is that building a house requires far more than housebuilders. Without roads, services, commercial spaces, groundworkers, and much more, housing is just an unliveable box.
“The UK construction industry will continue to tread water, if it is lucky”
In December 2024, the highest value sector in output was non-housing repair and maintenance (RMI) at £3.9bn, followed by private housing (£3.2bn), private housing RMI (£2.9bn) infrastructure (£2.47bn), and private commercial projects (£2.17bn).
For sustainable growth, we need employment spaces, new roads and railways, energy projects, manufacturing plants, wastewater facilities, reservoirs, utilities, new hospitals, refurbishment, regeneration and retrofit, mining and much more.
These non-housing projects justify and support housing developments, create thriving places, grow worker capacity and expand industry knowledge.
Yet, they are rarely discussed, and neither are the growth barriers.
Without our contractors, civil engineers, heritage builders, specialist constructors, and commercial and industrial builders, the UK economy would grind to a halt.
Barriers to construction growth
Most non-housing projects are contracted out, meaning a strong and specialised contractor sector is crucial for delivery, project variation, and talent retention. However, contracting is not very profitable, with margins averaging 3.9 per cent, the lowest globally. While planning reforms will ensure clients are not wasting time and money, unlocking more funding for works, it won’t fix the core challenges:
- Procurement: The newly reformed public procurement process will remain expensive, dominated by large contractors, lacking accountability, and with little tangible support for regional contractors.
- Late payment rules: Late payment rules remain toothless with no punishment for bad payers and on-time loopholes, for example when using ‘agreed terms’. Yet, the Federation of Small Businesses reports that late payments are responsible for 50,000 business closures and 37 per cent of SMEs suffer cashflow issues.
- Environmental: Perverse environmental rules may ultimately cost clients but, too often, unfairly delay projects, keeping workforces inactive or unavailable.
- Planning permissions: Planning permissions with non-housing requirements, for example a school or GP surgery, can change at the discretion of a statutory consultee, meaning work pipelines can suddenly end. Planning permission impacts contractors directly, as they will still need clear conditions to start, progress or complete projects.
- Government regulations: Government regulations can and do change mid-project or bid, for example the ending of the red diesel rebate, adding unexpected costs.
- Retentions: Retentions and insurance costs are spiralling and in the case of retentions, may stay locked up for years until projects fully complete.
- Regulatory changes: Regulatory changes, such as procurement rules or BIM, practically preclude SMEs from accessing frameworks, yet still see them win the work as subcontractors.
Why make changes?
The construction industry employs 2.75 million people, yet there are 37,000 vacancies. The Construction Industry Training Board expects an extra 251,500 workers will be needed by 2028 to meet output. These figures do not predict for the additional workforce needed to deliver net-zero targets.
If the industry continues to operate under a system of poor and late payment, onerous and ever-changing regulation, and procurement dominated by large contractors, we cannot hope to fill the 37,000 jobs without immigration or for future output to be met. This is because 73 per cent of construction apprentices are trained by SMEs, which typically provide them with work pipelines and the career experience to progress into specialised skills or specialised business.
That level for vital career and business progression cannot be achieved with uncertain employment and lowest-price contracts, and it means that the UK construction industry will continue to tread water, if it is lucky.
What needs to change?
- Regulations must focus on not harming business cashflow.
- The trainers and retainers must be recognised as key to industry capacity and rewarded through tax breaks and procurement.
- Late payment must be tackled with sticks, as carrots are not working.
- Cashflow impacting policies, such as retention and taxation, need to be rethought or scrapped.
With new housing dominating the news and political landscape, it is easy to forget about the whole construction industry. However, with the fall of ISG in 2024, it does feel as though the lessons from the downfall of Carillion have not been learnt. Construction accounts for 16.3 per cent of insolvencies in England and Wales, with more than half delivering specialised construction activities.
It is time for the government to act. The first move must be to highlight the importance of non-housing construction and its function to deliver and underpin UK growth.