Professional Documents
Culture Documents
A study commissioned by
October 2009 the UK Contractors Group
Foreword
After 12 years of sustained growth, the construction The UK construction industry makes a tremendous
industry is facing its worst economic downturn since contribution to the national economy.
the second world war. Output has dropped around
This report outlines the essential relationship between the
20% this year and we expect to see further falls before
construction sector and numerous broad social and
we reach the bottom of the downturn.
economic objectives including regional development,
At the same time, there is an intense national debate about the volume employment, and the delivery of the UK’s low-carbon future.
of public spending. Everyone is clear that the level must be reduced
We all recognise that there is great pressure to reduce public spending
and there will be some tough decisions for the politicians to make.
given the state of the public finances.
About 40% of our business comes from the public sector and so
construction will not be immune from these decisions. It is important However, the CBI believes that a long-term failure to maintain adequate
therefore that those making the tough choices are well informed. levels of investment in infrastructure would be short-sighted. A strong
economy requires fit-for-purpose schools and hospitals. Investment in high
As an industry we have often undersold our contribution to the wider
quality transport infrastructure is vital to ensure that the UK remains
economy yet this industry has huge potential to stimulate economic
competitive. Urban capital regeneration projects can attract a nucleus of
growth and employment.
new business and generate rising prosperity. Supporting infrastructure
This report seeks to quantify that contribution and puts forward a development in the technology sector boosts knowledge and innovation,
persuasive case for continued public sector investment in creating the technological base that will give UK firms a competitive edge.
construction. It provides clear messages which I hope the whole
The CBI urges Government to ensure appropriate long-term investment
industry can get behind. This report gives us the ammunition to play
levels that will safeguard and enhance the UK’s economic position.
our part in the national debate.
John Cridland CBE
James Wates
Deputy Director
Chairman
CBI
UKCG
Contribution to employment 18
Benefits of investment 26
Conclusion 31
Introduction
This study has been commissioned by the UK Contractors Group and was conducted during August and
September, 2009
The objectives of this study are to demonstrate the impacts of the UK construction industry on the UK
economy, and specifically to highlight the benefits of investing in construction
Construction* is a major contributor to UK GDP (directly c. 8.5% in 2008, rising to c.10% overall* when the entire value chain
is considered) and a driver of historical GDP growth
The construction industry value chain consists of c.300,000* firms, including many small- and medium-sized family and local
businesses
- the sector employs c.3 million* people in a multitude of roles representing 8% of UK employment
- a significant proportion of construction employees (>60%) are low-skilled labourers with relatively limited alternative
employment opportunities
Construction is also an important driver of growth for other sectors, without which there would be a loss of domestic
production capacity and skills
UK government investment has played an important role in growing the UK’s capital stock
- government investment in construction has historically focused on infrastructure, education, housing and health
- government has historically represented 30-40% of construction demand
Compared to its European counterparts, the UK has suffered from a more pronounced decline in construction activity since
the onset of the recession
- the impact on the construction sector is already apparent through sharp increases in company closures (an increase of
over 40% between Q4 2008 and Q1 2009) and individual bankruptcies and redundancies (an increase in bankruptcies
of c. 35% between Q4 2008 and Q1 2009 and a redundancy rate of 28 per 1,000 employees in Q1 2009 – the highest
amongst UK industries)
Note: * Construction here refers to the whole construction value chain defined as being the UK Standard Industrial Classification of Economic
Activities (SIC, 2003) codes 45 (construction) and 74.2 (architectural and engineering activities) and the construction products sector
Source: ONS; BERR; Annual Business Inquiry; Registry Trust; Insolvency Agency; Financial Times; L.E.K. analysis
UK Contractors Group. Construction in the UK economy. 3
Construction in the UK economy
Role in Planning, New build and repair and Installation of fixtures and Supply of basic
value architecture and maintenance of both fittings, including gas materials, e.g.,
design residential and non- fittings, plumbing, heating aggregates and
chain residential buildings, and ventilation plant, cement
Civil and structural
engineers, quantity including specialist trades, sound and heat insulation, Supply of value
surveyors e.g., bricklaying, roofing, electrical fixtures and added building
Project planning and scaffolding fittings materials and
management Extensions, site Painting and decorating, building products,
preparation, major glazing, plastering, tiling, e.g., bricks, blocks,
alternations and on site joinery and pavings
enhancements carpentry, flooring,
Civil engineering: plumbing, etc.
construction of roads,
railways, runways, bridges
and tunnels, harbours,
canals, drainage systems
Note: * Architectural & engineering services and related technical consultancy; Professional services output is calculated as a ratio of
total turnover and assumes that architects and consultants contribute 80% of output in SIC code 74.2
Source: BERR; DTI; ONS; Construction Products Association (CPA); Annual Business Inquiry
UK Contractors Group. Construction in the UK economy. 4
Construction in the UK economy
The report is structured in three parts that, together, support the overall message
Government investment in construction is the most beneficial use of stimulative public expenditure
in both the short and longer term, and any reduction in construction expenditure would have
significant immediate and enduring negative consequences for the UK
2 Contribution to employment
- Construction is the best sector for stimulating employment. The employment that construction provides
benefits lower skilled and young workers who have relatively few alternative opportunities. Many
regions are heavily dependent on construction jobs
3 Benefits of investment
- Construction is not only immediate economic production, it is also investment rather than consumption,
which provides significant long-term economic and social benefits
The construction industry is a driver of growth in other sectors due to its heavy reliance on an extended and varied
supply chain
£1 spent on construction output generates a total of £2.84 in total economic activity (i.e. GDP increase)
In addition to the economic benefits, every £1 invested in construction provides financial returns to the Treasury in tax
income and benefit savings
In the short term, construction is one of the most effective sectors in which the government could invest to stimulate
economic activity
Compared to other sectors, construction relies little on imports; hence, investment in construction is more likely than
other sectors to generate additional economic activity within the UK
Private construction output is very sensitive to changes in GDP; private activity has contracted sharply in the current
downturn, causing reductions in GDP and employment
Private sector construction spend is falling faster than in previous recessions; CVAs, receiverships and bankruptcies in
the construction sector have increased since the onset of the current recession
Construction has had the greatest increase in redundancy rate in the UK since the start of the current recession
Even if current government plans in construction are maintained, construction output is expected to fall significantly
over the next 2-3 years. Any reduction in public expenditure would exacerbate this problem
Note: * Construction is defined here as SIC code 45 and excludes construction products and business services, e.g., architecture and surveying
UK Contractors Group. Construction in the UK economy. 6
Impact on economic activity
Note: * Construction is defined here as SIC code 45 and excludes construction products and business services, e.g., architecture and surveying;
** Construction output for GB only
Source: ONS
UK Contractors Group. Construction in the UK economy. 7
Impact on economic activity
supply
Manufacturing
Construction***
activities
Financial and insurance
Transport
motor vehicles
Sales, maintenance & repair of
Real estate activities
Government
1994
2008
Hotels and restaurants
Note: * GVA plus taxes minus subsidies is equivalent to GDP; ** Other business services includes non-financial professional services, e.g.,
marketing; *** Construction is defined as SIC code 45 and excludes construction products and business services, e.g., architecture and surveying
Source: ONS; L.E.K. analysis
UK Contractors Group. Construction in the UK economy. 8
Impact on economic activity
The construction industry is a driver of growth in other sectors due to its heavy
reliance on an extended and varied supply chain
30
Architectural activities and technical consultancy - real estate
Owning and dealing in real estate - architectural and technical consultancy
20
Renting of machinery
- plastic products
10 - wood products
Aggregates - metal products
0
2007
- mining and quarrying
Note: * Construction is defined as SIC code 45 and excludes construction products and business services, e.g., architecture and surveying
Source: ONS; L.E.K. analysis
UK Contractors Group. Construction in the UK economy. 9
Impact on economic activity
Investment
Direct Indirect Induced
in
impact impact impact
construction
The type I output multiplier is a measure of the direct and indirect effects associated with an additional £1 spend on a particular sector. The type I
multiplier for construction in the UK was estimated by the ONS to be 2.09
Type II multipliers include the induced impacts associated with the increased economic activity and income in the economy. This has been
estimated by L.E.K. based on income tax and National Insurance rates, indirect taxes, savings ratios, and import share of disposable income
Direct effect Taking into account direct, indirect and induced tax
effects allows us to estimate the net financial costs to the
Treasury from spending £1 supporting the construction
Income tax and NI 0.12
industry
Benefits 0.23
These estimates assume that increased demand in the
Corporation tax 0.01 economy would reduce current unemployment which is
likely to be the case at current levels of depressed
Stamp duty 0 - 0.02* economic output
Note: For new buildings (the tax and benefits effects are c. 1p higher for renewals and maintenance); * Not included in total; ** Excludes benefit allowance
savings; Indirect tax effects have been calculated by multiplying the additional tax earnings for each sector from spending £1 by their contribution to the
indirect impacts of construction (i.e., the £1.09 of the construction type I multiplier); The induced effect has been calculated by multiplying the median
additional tax earnings from £1 investment in sector output by the induced output effect associated with £1 investment in construction
Source: ONS; Oxford Economics; L.E.K. analysis
UK Contractors Group. Construction in the UK economy. 11
Impact on economic activity
In the short term, construction is one of the most effective sectors in which the
government could invest to stimulate economic activity
UK type I output multipliers by selected sectors
Note: Construction is defined as SIC code 45 and excludes construction products and business services, e.g., architecture and surveying
Source: ONS; L.E.K. analysis
UK Contractors Group. Construction in the UK economy. 13
Impact on economic activity
1Q 2003
1Q 2004
1Q 2005
1Q 2006
1Q 2007
1Q 2008
1Q 2009
0
100 Q3 Q4 Q1 Q2 Q3 Q4 Q1E
2007 2008 2009
Bankruptcies amongst self-employed*
(3Q 2007-1QE 09, not seasonally adjusted)
80 Number of people
750
600
Private output is
60 450
falling at a faster
rate than in 300
previous
recessions 150
40 0
(12) (8) (4) 0 4 8 12 16 Q3 Q4 Q1 Q2 Q3 Q4 Q1
Number of quarters from technical start of recession 2007 2008 2009
Note: * Construction only; Infrastructure is attributed solely to public after 1Q1980; Early 1980s recession excludes housing; Nominal prices
Source: ONS; BERR; Registry Trust; Insolvency Agency; L.E.K. analysis
UK Contractors Group. Construction in the UK economy. 15
Impact on economic activity
The construction sector has had the greatest increase in redundancy rate in the
UK since the start of the current recession
UK redundancies by industry
(1Q 2007-2Q 09)
Redundancy rate (per 100)
PPT change in The construction sector has had the
redundancy rate
4 highest redundancy rate in the UK
(Q42007-Q209)
(c. 28 per 1,000 employees) since
the start of the current recession
- construction's redundancy rate is
3 c.40% greater than manufacturing
Construction 2.2 and c.50% greater than financial
intermediation and business services
“… The construction industry has endured a
Manufacturing 1.2 prolonged period of discomfort, as a
2 sharp slowdown in house building and a
Financial intermediation and 1.2 drying up of new commercial building
business services projects has caused an estimated 16 per
cent decline in output during this year,
Distribution, hotels and restaurants 0.5 making it the country’s leading source of
redundancies during the recession …”
1
Transport and communications n/a* Financial Times,
UK total 0.1 10 September 2009
1Q 2008
2Q 2008
3Q 2008
4Q 2008
1Q 2009
2Q 2009
Note: * No data available for certain quarters when sample sizes are too small to provide estimates; Not seasonally adjusted
Source: ONS; Financial Times
UK Contractors Group. Construction in the UK economy. 16
Impact on economic activity
Construction employs c.8% of the UK workforce, and has been a major contributor to employment growth
Due to its labour intensity, additional spending on construction output can generate more employment opportunities
than other sectors that have recently received significant government support
Construction currently employs many lower skilled workers who are typically most vulnerable at times of recession
Comparing regional employment data highlights the significance of construction output to many local economies - 60%
of the GB construction workforce is in regions where unemployment is higher than average or would be in the absence
of construction
Government funded and / or government influenced projects represent a large proportion of pipeline regional
construction
Construction employs c.8% of the UK workforce, and has been a major contributor
to employment growth
UK workforce by industry Growth in UK workforce by industry (CAGR)
(2008) (1993-08)
Percent Percent
31.7m Mining, Energy & Water Construction employment has out-
100 Agriculture, Forestry, Fishing and Hunting 3.0 performed other traditional employment
Transport, Storage and Communication sectors, such as manufacturing (2.1)%
90 2.5
Other Business Services **
and agriculture (1.5)%
Construction* 2.0
80
Manufacturing 1.5
70 UK total workforce CAGR
1.0
Banking, Finance &
60 0.5
Insurance and Business
Services
50 0.0
40 (0.5) 0 4 8 12 16 20 24 28 32
Distribution, Hotels & Restaurants Workforce, millions (2008)
(1.0)
30
(1.5)
20
(2.0)
Public Administration,
10 Education and Health (2.5)
Communication
of Motor Vehicles
Public Administration,
Agriculture, Forestry,
and Business Services
Construction*
Business Services**
0 (3.0)
Manufacturing
Note: * Workforce numbers include sole proprietorships, but exclude professional construction services such as architects and surveyors,
and workforce in the construction products sector; ** Other services include other professional services, e.g., marketing
Source: ONS
UK Contractors Group. Construction in the UK economy. 19
Contribution to employment
Business Services
Manufacturing
& Fishing
Catering
Vehicles
intermediation and
and Repair of Motor
Mining, Electricity,
Communication
Distribution, hotels,
Note: * Workforce numbers include sole proprietorships, but exclude professional construction services such as architects, surveyors and
construction products workforce
Source: ONS
UK Contractors Group. Construction in the UK economy. 20
Contribution to employment
Construction currently employs many lower skilled workers who are typically most
vulnerable at times of recession
Construction workforce* split by skill level
(2009)
Construction* employs c. 8% of UK workers, from
Percent
2.6m highly skilled professionals through to lower skilled
100 Surveyors and architects workers
Civil engineers and technical staff
90 Lower skilled workers (trades and operatives) represent
White collar management c. 63% of the UK construction workforce
80 and I.T. - this varies by region, with Northern Ireland (75%)
and the North East (72%) having the largest
70 proportion of lower skilled workers
Construction managers
Whilst all regions would suffer adverse employment consequences of reduced construction activity,
some will be harder hit than others
The analysis on the following pages identifies and locates these important areas
Source: ONS Annual Population Survey (Jan 2008-Dec 2008); ONS Annual Business Inquiry employee analysis (2007); L.E.K. analysis
UK Contractors Group. Construction in the UK economy. 24
Contribution to employment
South East
North East
Scotland
North West
South West
East of England
East Midlands
West Midlands
Yorkshire & The Humber
Government
62 91 68 48 55 51 63 57 46 50 37 46
as a % of total
Based on the UK Low Carbon Transition Plan, investment in construction is a prerequisite for achieving c.80% of the
current emission reduction targets
Construction represents an investment that will generate long-term benefits for the country
A conservative estimate suggests that £1 invested in school construction could generate c.£1–2 of economic impact
for the UK economy in the long term through higher educational attainment by the pupils taught there
Combining the economic effects, a £1 investment in construction (in the example of a new school) would have a net
cost of only c. £0.44 to the Government for a total benefit of £3.87–5.04
0
Transport
1990-2008
Power and
1990
Change
industry
Total
2022 Net
heavy
Farming,
land and
waste
Total*
2008 Net
Workplaces
Total*
Homes and
and jobs
communities
Construction represents an investment that will generate long-term benefits for the
country – example: building new schools
Building new schools
Background A schools capital programme began in 2005 with the aim of refurbishing or rebuilding all 3,500 of
England’s secondary schools. Continuation of the investment programme is still dependent on
future budget allocations
Long-run Improved educational attainment by pupils Improved health (from better sports and
policy (in terms of GCSE results) kitchen facilities)
objectives
Regeneration of areas of high social
deprivation
Quantification Student performance at newly built schools Outcomes have not been quantified
of outcome to date has been varied; however, the uplift
in the proportion of students achieving 5 or
more A*-C GCSEs can be up to 15%
£1 expenditure
Increased Increased
income tax, NI Savings in income tax, NI Savings in
Government
and benefits and benefits Net
Treasury investment in
corporation tax allowance corporation tax allowance
school £0.44
impact receipts receipt
construction expenditure
Short-term Induced
economy- Indirect impact
impact
wide Increase in UK construction output £2.84
impact (direct impact)
£1.09 £0.75
Increase in
Increase in lifetime
educational £1.03–2.20
earnings
attainment
Long term Increase in education sector
output
£1.03–£2.20
benefits Quality of life and
Other health and
£? wider social and
regeneration benefits
economic benefits
Key: £ £ £ Estimated present value of impact £ Present value of impact excluded from the current analysis £3.87–£5.04
Note: Assumes no stamp duty is paid for the newly constructed school
Source: ONS; L.E.K. analysis
UK Contractors Group. Construction in the UK economy. 30
Construction in the UK economy
2 Contribution to employment
- Construction is the best sector for stimulating employment. The employment that construction provides
benefits lower skilled and young workers who have relatively few alternative opportunities. Many
regions are heavily dependent on construction jobs
3 Benefits of investment
- Construction is not only immediate economic production, it is also investment rather than consumption,
which provides significant long-term economic and social benefits