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Government urged to delay VAT changes to avoid disruption

The Government has not properly prepared the construction industry for major VAT changes coming in October and needs to delay their implementation to avoid chaos, the Federation of Master Builders (FMB) has said in a letter to the Financial Secretary to the Treasury.

New data published by the FMB shows that:

  • Over two-thirds of construction SMEs (69%) have not even heard of reverse charge VAT; and
  • Of those who have, more than two-thirds (67%) have not prepared for the changes

This comes after HMRC published guidance on reverse charge VAT just four months before the changes were due to come into place. This has been criticised for being inaccessible to most in the industry and is even contradictory in places. HMRC was also due to have a dedicated website and marketing campaign for the changes to help prepare the hundreds of thousands construction companies who will be impacted by the changes.

Reverse charge VAT will have a serious impact on cash flow, as well as being a significant administrative burden, fundamentally changing the way construction companies invoice their clients and pay their taxes to HMRC.

Brian Berry, Chief Executive of the FMB, said “Construction companies are already struggling with Brexit uncertainty, sky-rocketing material price rises and skill shortages and reverse charge VAT is yet another thing for them to deal with. What makes things worse is that HMRC has failed to deliver on its promise to help the industry to prepare. The guidance is not user-friendly and even tax experts are scratching their heads over it.”

“It’s therefore not surprising that the vast majority of construction SMEs are not aware of the impending changes, despite widespread promotion by the FMB. Small business owners are busy people and clearly they don’t have time to read everything we send them. For those who are aware, they haven’t had a chance to change their systems yet as they were waiting for guidance to be published that has only just emerged. That’s why we are calling on the Government to delay the changes by another six months and to use the extra time to improve the guidance and work with us to undertake a more intensive communications campaign. HMRC should also consider holding workshops across the country to explain the changes.”

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Government must act as construction apprenticeship starts drop by 44%

The Government must review its approach to apprenticeships following new statistics published which show that construction apprenticeship starts have plummeted by almost half.

According to the Federation of Master Builders (FMB), in March 2019 there were only 694 Construction, Planning and the Built Environment apprenticeship starts compared with 1,247 in March 2018.

Brian Berry, Chief Executive of the Federation of Master Builders, said “Construction apprenticeship starts have suffered a serious hit and we now need decisive action from the Government in order to reverse this decline. The Government must accept the recommendation made in the Review of Post-18 Education and Funding, to make provision for full funding, at all ages, for first qualifications at Level 2 and 3. The Government is uniquely placed to drive the apprenticeship agenda, and if Ministers want to achieve their target of three million apprenticeship starts by the end of next year, they must review apprenticeship policy, including the Apprenticeship Levy.”

“Of course the construction industry itself must do more to rally around a shared ambition to promote the industry and all its merits, such as innovation, design and entrepreneurship. The drop in starts by almost half should sound the alarm that we aren’t doing enough to get the message out there. If we don’t address the skills shortage by increasing training and apprenticeships, the construction industry won’t be able to expand and grow. Introducing a mandatory licensing scheme for UK construction could help create the culture change our industry needs by improving our reputation through increased quality and professionalism and thus make us more attractive to new entrants.”

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Boost economy now by cutting VAT on home improvements, experts urge

Industry experts The Federation of Master Builders (FMB) are calling for the Government to cut the VAT on home improvement work following official data from the ONS. The information shows that whilst there a rise in output has been observed over the first quarter of 2019, construction output actually decreased month-on-month by 1.9% and the repair and maintenance series fell to its lowest level since December 2018, experiencing a fall of 3.1% compared to the previous month.

Speaking about this, Brian Berry, Chief Executive of the Federation of Master Builders, said “It’s not at all surprising that construction output has dropped at the end of the first quarter of this year, given the unprecedented political uncertainty we’ve been facing. To get us through these turbulent times, the Government must be bold in its thinking when it comes to supporting the economy bucking any downward turn. One course of action would be to cut VAT on work in the home improvement and private domestic sectors from 20% to 5%”

“A cut in VAT would help stimulate demand from homeowners resulting in more work for the thousands of small to medium-sized construction companies which would help support local economies and increase training opportunities. This is all the more important given that the FMB’s own State of Trade Survey for Q1 2019 saw the first dip in workloads for small builders in six years.”

“Cutting VAT would also be an important step to help encourage more retrofits of our existing buildings to make them more energy efficient and deliver a cut in carbon emissions.”

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Alarm bells sound for construction as output plummets

Rising costs and uncertainty relating to Brexit are to blame for the sharp drop in output growth in January 2019, the Federation of Master Builders (FMB) has said in response to the latest PMI data.

The January 2019 PMI data revealed a fall from 52.8 in December to 50.6 in January, against the neutral reading of 50.0. January data pointed to a loss of momentum for the UK construction sector, with business activity growth grinding to its weakest for ten months.

Commenting on the results, Brian Berry Chief Executive of the FMB, said “The latest PMI data shows a slowdown in growth in construction with business activity growth easing to its weakest for ten months. The ongoing political uncertainty is partly to blame for this set-back. Political uncertainty is the enemy of construction firms that rely on the spending power of homeowners to commission home improvement projects. The UK is set to leave the EU next month, and yet we are still none the wiser about what the future holds. Given these intense headwinds, it should not be surprising that the sector suffered such a sharp decline.”

“Alongside the political uncertainty, the cost of doing business is also rising for construction firms up and down the country. Material prices have been rising steadily since the depreciation of sterling following the EU referendum. Looking ahead, material prices are expected to continue to cause a headache for the construction industry with recent research from the FMB showing that 87% of builders believe that material prices will rise in the next six months. What’s more the construction skills crisis means that key trades are extremely difficult to recruit and the upshot of this is rising wages in construction. Tradespeople know they can command higher salaries than they did preciously as workers are scarce, and this means a squeeze in margins for firms. This will only worsen if the post-Brexit immigration system that the Government has planned goes ahead. If the sector isn’t able to draw upon crucial EU workers of all skill levels, who have so far served to mitigate this shortage, the slowdown of growth will continue.”

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Construction output rises despite Brexit uncertainty

The Government must not be complacent about the damage a ‘no deal’ Brexit would cause amid positive signs of growth in the UK construction industry, says the Federation of Master Builders (FMB).

Commenting on the construction output figures for November 2018, published by the Office for National Statistics, Sarah McMonagle, Director of External Affairs at the FMB, said “The UK construction sector grew by 2.1 per cent during September to November 2018 compared with the previous three months. This is despite unparalleled levels of political uncertainty around the very real prospect of a ‘no deal’ scenario. However, we are urging the Government not to allow these results to create a false sense of security. Since November, political uncertainty has cranked up and is increasing every day. A growing and prosperous construction sector will be a distant memory if the Government allows the UK to crash out of the EU without a deal in place.”

“The construction industry is also extremely concerned about the Government’s proposed post-Brexit immigration system. In the Immigration White Paper, published at the end of last year, the Government revealed that they will make few allowances for low skilled workers to enter the UK post-Brexit. Most tradespeople will be defined as low skilled and therefore will not be permitted to enter the UK, regardless of whether they are from the EU or further afield. It is crucial that the Government introduces a post-Brexit immigration system that continues to allow us to draw on essential migrant workers or else their house building and infrastructure targets will be totally unachievable.”

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Price-hikes on skips and diesel prove problematic for builders

According to the latest construction industry research, nearly two-thirds of builders have had to pass skip price increases on to clients and a fifth have had to pass on diesel price rises, making home improvement projects more expensive for home owners. Building Specifier delve into the details provided by experts the Federation of Master Builders.

The key results from the FMB’s research into skip prices are as follows:

  • Three quarters of builders have said that the price of skips has risen over the past 12 months
  • The average cost of an eight yard skip has gone up by £24 over the past year, meaning an additional cost of £360 for the average extension
  • Nearly two-thirds of builders have had to pass skip price increases on to clients, making home improvement projects more expensive for home owners
  • Three quarters of builders said that skip price rises have squeezed their margins

The widely-reported hike in diesel prices is also starting to bite and is having the following impact on small and medium-sized (SME) construction firms:

  • Nearly half of construction SMEs have made lower margins on projects
  • Nearly a fifth (17%) have been forced to raise the prices they charge clients
  • More than one in ten have had to turn down jobs they would have normally accepted as they are too far away
  • 10% have taken steps to reduce vehicle use

Commenting on the research, Brian Berry, Chief Executive of the FMB, said “The increase in the price of skips and diesel is bad news for builders and home owners alike. Nearly two-thirds of builders have had to pass skip price increases on to clients and a fifth have had to pass on diesel price rises. This has made home improvement projects more expensive for home owners. What’s more, the impact of the rising price of skips could have an impact on our communities through a rise in fly-tipping. No matter how much the price of skips might increase, there is never any excuse for fly-tipping and any individuals found doing so should be severely reprimanded. In 2016 and 2017, more than one million incidences of fly-tipping were dealt with by councils in England and the last thing anyone wants is for this number to increase.”

“The increase in the price of skips and diesel have come at a bad time for the UK’s builders. The cost of doing business is rising more generally for construction firms. Wages and salaries are all rocketing because of the ever-worsening skills shortages in construction. What’s more, material prices have been rising because of the depreciation of sterling following the EU referendum. Looking ahead, material prices are expected to cause an even bigger headache going forward, with recent research from the FMB showing that almost 90 percent of builders believe that material prices will rise in the next six months. We are advising builders to price jobs and draft contracts with this plethora of price rises in mind to avoid a further squeeze on already razor thin margins.”

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MAC recommendations would cripple construction

The Migration Advisory Committee’s (MAC) report, which sets out a series of recommendations for the new immigration policy post-Brexit, would cripple the construction industry, according to the Federation of Master Builders (FMB).

Commenting on the MAC report published this week, Brian Berry, Chief Executive of the FMB, said “This report makes very worrying reading for the tens of thousands of small construction firms across the UK who are already deeply concerned about the skills shortage. Its recommendations ignore the pleas of construction employers who have called on the Government to introduce a visa system based on key occupations rather than arbitrary skill levels. Instead, the proposal is to apply the Tier 2 immigration system to EU workers, which would be disastrous for small and micro construction firms. Even if tweaked and improved slightly, the Tier 2 system would not make provision for ample numbers of low skilled workers to enter the UK and these are people the construction industry relies upon. For the Government to make good on its construction and house building targets, it will need sufficient numbers of labourers as well as civil engineers and quantity surveyors.

“It’s not at all clear that EU workers with important skills already in short supply, like bricklaying and carpentry, will not fall foul of a crude and limited definition of ‘high skilled’ worker. In addition, the report explicitly recommends that there should be no migration route for lower skilled workers with the possible exception for seasonal agricultural workers. There is also a vague suggestion that if there was a route for lower skilled workers, it should be aimed at younger people and not be open to workers of all ages. This is far too restrictive and simply won’t meet the needs of the construction industry.

“EU workers are vitally important to the UK construction sector. Nine per cent of our construction workers are from the EU and in London, this increases to one third. These workers have played a very significant role in mitigating the severe skills shortages we have experienced in recent years. The construction industry knows it needs to do much more to recruit and train many more domestic workers. However, given the important role migrant workers have played, and the already high levels of employment in the UK workforce, it is crucial that the post-Brexit immigration system allows us to continue to hire workers of varying skill levels, regardless of where they are from.”

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Cowboy builders cost the UK economy £10bn per year

The UK economy is missing out on £10 billion each year because home owners are so fearful of hiring a cowboy builder, they simply don’t commission building work, according to research by the Federation of Master Builders (FMB).

Key results from the FMB’s research into consumer confidence in the UK’s builders include:

  • The UK economy is missing out on £10 billion of activity per year because of anxiety over cowboy builders
  • One third (32%) of home owners are put off doing major home improvement works requiring a builder because they fear hiring a dodgy builder
  • If all home owners had full confidence in the building industry, they would typically spend an average of £40,000 on major home improvement projects over the next five years

Brian Berry, Chief Executive of the FMB, said “A third of home owners are so anxious about the possibility of choosing a bad builder, they don’t commission any building work whatsoever. This means that the UK economy could be missing out on £10 billion of activity every year. Indeed, the FMB’s latest research shows that on average, your typical home owner would spend £40,000 on major home improvement projects over the next five years if they could be guaranteed a positive experience. If we were able to unlock this pent-up demand from fearful consumers, the benefit to jobs and growth would be enormous. Last year the UK experienced its slowest growth since 2012 with a rise in GDP of just 1.8 per cent. With Brexit just around the corner, it’s therefore vital that the Government pulls as many leavers as possible to turbo-charge the economy and protect it from any potential economic wobbles.”

“In the longer term, we need to end the cowboy builders’ reign of terror so we can give all home owners the confidence they need to invest their cash in building work. The Government should consider introducing some form of mandatory licensing system for domestic builders so that consumers know that all building firms have a base level of skill, competence and professionalism. Unlike in Australia and Canada, in this country anyone can be a builder and that’s why there is a significant minority of rogue traders out there giving the whole construction industry a bad name. We’re exploring mandatory licensing with industry and Government but in the meantime, our advice to home owners who are looking for a builder is to ask for a recommendation from family or friends. If they can’t help, consumers should approach a professional trade association like the Federation of Master Builders who can put them in touch with a vetted and inspected building firm.”

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Nearly 80% of builders and consumers support licensing construction

Almost 80% of builders and home owners are calling on the Government to introduce a licensing scheme for the UK construction industry to stamp out rogue traders once and for all, according to the Federation of Master Builders (FMB).

The FMB has published an independent research report by Pye Tait entitled ‘Licence to build: A pathway to licensing UK construction’, which details the benefits of introducing a licensing scheme for the whole construction industry and puts forward a proposal for how it could work.

Also, new consumer research undertaken by the FMB reveals the impact poor quality building firms are having on consumers and demonstrates that most home owners support the introduction of a mandatory licensing scheme. Key results from both pieces of research include:

  • 77% of small and medium-sized construction firms support the introduction of licensing to professionalise the industry, protect consumers and side line the cowboys
  • 78% of consumers also want to see a licensing scheme for construction introduced
  • Nearly 90% of home owners believe that the Government should criminalise rogue and incompetent builders
  • Over half of people (55%) who commission home improvement work have had a negative experience with their builder

Commenting on the research report, which was launched at a high profile event in the House of Lords on the afternoon of Monday 2nd July, Brian Berry, Chief Executive of the FMB, said “The vast majority of builders and home owners want to see the construction industry professionalised and it is time for the Government to act. It’s unacceptable that more than half of consumers have had a negative experience with their builder. However, we shouldn’t be surprised by this given that in the UK, it is perfectly legal for anyone to set up a building firm and start selling their services without any prior experience or qualifications. This cannot be right given the nature of the work and the potential health and safety risks when something goes wrong. In countries like Australia and Germany, building firms require a licence and we want to see the UK Government regulate our industry in a similar manner.”

“Aside from the obvious health and safety benefits, the advantages of a licensing scheme are manifold. Licensing would bar from the industry the very worst firms operating in the construction sector. Consumer protection would increase and with it, the appetite among home owners to undertake more construction work. We also believe that if we can improve the image of the industry through licensing, young people, parents and teachers will have a more favourable impression of our sector and therefore be more likely to pursue, or recommend, a career in construction. Over time, this would gradually help ease the construction skills shortage we currently face. For too long, the very worst construction firms, most of which undertake private domestic work, have been giving the whole sector a bad name. So that’s why this scheme should be of interest to the whole sector and not just small local builders.”

“In terms of how the scheme might work, it needn’t be too costly or bureaucratic. Our report draws on the experience of experts from across the construction industry and puts forward a clear proposal. We are suggesting that the scheme covers all paid-for construction work by firms of all sizes, not just those working in the domestic sector. Fees should be tiered and could start at as little as £150 every three to five years, with the largest contractors paying around £1,000 over the same period. In terms of how it’s governed, the licence should be administered by a single authority with a broad range of scheme providers sitting underneath. We are now keen to reach out to the whole construction sector to get their input on the proposal. If we can demonstrate broad support for this approach, we are optimistic that the Government will take it forward.”

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Urgent review of apprenticeship levy needed to reverse decline in apprenticeships

The 28% fall in apprenticeship starts between August 2017 and March 2018 compared with the same period the previous academic year suggests the Government needs to look again at the way the Apprenticeship Levy is working, according to the Federation of Master Builders (FMB).

Commenting on statistics published by the Department for Education (DfE), Brian Berry, Chief Executive of the FMB, said “The Government’s own statistics show a 28% plunge in apprenticeship starts over the current academic year so far. The Apprenticeship Levy was introduced in April 2017 to boost apprenticeship training across all business sectors but so far it seems to be having the opposite effect. Some reforms are obvious and need to be looked at more urgently now. The Government should allow large companies to pass more of their Levy vouchers down through their supply chains if the company itself is not in a position to train apprentices. Currently large firms are only permitted to pass 10% of their Levy funds down to their sub-contractors and others in their supply chain. There needs to be much greater flexibility than this. In the construction sector, larger firms often do not directly employ on-site tradespeople or directly train apprentices and so there is a real danger this industry and others will continue to fail to take advantage of the Apprenticeship Levy if we can’t change this.”

“These figures have been published shortly after the FMB’s latest research which shows that small construction firms are experiencing record highs in terms of skills shortages. In the long term, the only way we will be able to address the chronic skills crisis is by recruiting and training more new entrants. We know that 58% of builders are struggling to hire bricklayers and 55% are having difficulties finding carpenters and joiners. We need to iron out the flaws in the Apprenticeship Levy and reverse this decline in apprenticeships to give us the best chance of tackling these skills shortages.”

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