building britains future

7/27/2019 Building Britains Future

1/12

CBI ondt tteg

Bdg Bt teAn industrial strategy

for construction

The CBIs submission to theconstruction industrial strategy


2/12

An industrial strategy for construction developedby the sector and government has the potentialto unleash growth in the industry and drivetransformation. It will help secure the businessenvironment that enables construction to thriveby creating long-term operational certainty.

The CBIs 2012 report Playing our strongest hand Maximising

the UKs industrial opportunities set out the case for developing

industrial strategies in key growth sectors to rebalance the

economy towards investment and trade. The construction sector

is a key economic enabler creating and maintaining our built

environment. The sector has strong potential for growth because

of its job-creation capacity, extensive value chain and latent

capacity as a result of the recession.

As part of a suite of industrial strategies, the government will

launch the construction industrial strategy in summer 2013.

This should be the start of an evolving process of industry and

government working in partnership to deliver the strategy.This paper sets out the CBIs views on an industrial strategy

for construction and is based on extensive discussions with

the construction sector and the wider business community.

In the future the construction sector will be an enabler of

other industries, providing services that exceed expectations

by leveraging world-leading expertise. A strong domestic

manufacturing sector will be at the heart of an innovative

and responsive sector.

A shared vision for the future of the sector will need to be at

the centre of a successful industrial strategy for construction.

A strategy that delivers bold targeted action will ensure:

The construction sector is at the heart of the UKseconomic growth

Construction is an economic engine that meets and

stokes demand from key sectors

By harnessing sources of competitive advantage,

construction will be a world-leading industry by 2025.

Establishing a shared vision for construction in 2025


3/12

The construction sector is a key job creator and contributor to theUK economy, employing over 2 million people.1 It is a diversesector ranging from international companies to thousands of smallbusinesses offering services such as contracting, house building,consultancy and professional services, and includes manufacturersof construction products. The supply chain alone was worth124.6bn in 2010.2

Overall, construction accounted for 6.7% of GDPin 2012.3 But the effects of construction

activity are felt more widely than this figuresuggests spending on constructioncreates growth in the wider economy withevery 1 spent on construction generating2.84 of spending more widely.4

The ect w tke te t ecve the ece

The construction sector is a bellwether for the economy in the

UK and has been significantly affected by the recession due to

the resulting decline in demand from both the public and

private sectors. Construction output in 2012 was nearly 15%

below its pre-crisis peak in 2007.

During this period construction sector output fell most strongly

in private industrial activity (down 44.7%), private housing (down

34.5%) and private commercial activity (down 31.0%). Repair

and maintenance activity also fell by 9.6%. The only elementsof activity which saw growth over the same time period were

infrastructure (up 51.2%), public housing (up 19.3%), and other

public construction activity (up 19.3%).5 The categories of

construction which saw the biggest decline represented over

half of construction sector output in 2012 as shown in Exhibit 1.

Exhibit : Construction sector output in by sub-category

Source: Office National Statistics (ONS), Cebr Analysis

Repair andmaintenance.%

Private commercial.%

Private industrial.%

Public (excludinginfrastructure andhousing).%

Infrastructure.%

Private housing.%

Public housing.%

The UK construction sector is at the heart of economic growth


4/12

To support our submission the CBI commissioned independent

research on the future of the construction sector from the Centre

of Economic & Business Research (CEBR). Whilst confidence

is returning to some parts of the construction sector, CEBR

forecasting suggests that increases in construction output will be

slow for much of the next decade without targeted interventions.

Indeed, Exhibit 2 indicates that growth in the construction

industry may reflect modest but steady improvements in the

economy over the coming years, averaging 1.3% between 2014

and 2017. However, the data also shows that construction output

may not surpass 2007 levels until 2023 and construction sector

employment may not rise above 2007 levels until 2024 (2.3m).

The CEBRs analysis is broadly comparable with other forecasts.

The Construction Products Association (CPA) has forecast that

the pre-crisis peak will not be reached until 2021, while the

Construction Skills Network does not expect the peak to be

reached until 2022.6 However, any forecasting, particularly on

a long timescale, is only indicative in nature.

Source: ONS, Cebr Analysis

-

-

-

Exhibit : Annual growth & forecasts in construction output, %

bt w be we pced t deve gwthConstruction companies are more optimistic about the future

of the sector given the current level of interest from government.Business leaders in the sector have been unanimous in their view

that there is far greater potential for growth and job creation with

targeted action and commitment from government to build and

renew our national infrastructure. Construction historically

rebounds strongly after a downturn as Exhibit 3 shows.

Exhibit :Comparisons of GVA (UK) and construction output (GB), %

Source: ONS, CBI analysis

GVA Construction work

-

-

-

-

.Q

.Q

.Q

.Q

.Q

.Q

.Q

.Q

.Q

.Q

.Q

.Q

.Q

.Q

.Q

.Q

.Q

.Q

.Q

.Q

.Q

.Q

.Q

.Q

.Q

.Q

.Q

.Q

.Q

.Q

.Q

.Q

.Q

.Q

.Q

.Q

.Q

.Q

.Q

.Q

.Q

.Q

.Q

.Q

.Q

.Q

.Q

.Q

In addition, the CEBR analysis indicates we are starting from

a strong base. Exhibit 4 looks at international comparisons for

construction output and GDP. Compared with the US and the

Eurozone as a whole, construction makes up a larger share of

GDP in the UK. Although construction output fell sharply in the

UK between 2007 and 2012, the decline in output seen was

smaller than in the US and the Eurozone.

Exhibit : Change in construction output and GDP - , %

- - - - - - -

Eastern and Central Europe

Germany

France

United Kingdom

United States

Eurozone

Italy

Spain

Source: ONS, Eurostat, US Bureau of Economic Analysis, Cebr analysis

% change in construction output -% change in total GDP -


5/12

d pd cee the eve vee tdeUK construction companies have a strong global reputation with

major international engineering, architecture and consultancycompanies topping the rankings of world league tables. Indeed,

the value of construction services exports has seen rapid growth

in recent years; between 2001 and 2011 the value of construction

exports rose from 0.2 billion to 1.7 billion.

The CEBR analysis suggests overseas trade will continue to be an

important area of growth for the sector but we need to maintain

our competitive edge. The Olympics helped to show the world our

construction sector at its best and created a strong platform to

increase exports in construction services. Exhibit 5 shows that

CEBR forecasts suggest that export activity in construction

services could increase to 4.4 billion by 2025.

Exhibit : Construction sector UK exports and forecasts ofconstruction services, billions

Source: ONS, Cebr Analysis

.

.

.

.

.

.

.

.

.

.

.

Opportunities for domestic and international growth are likely

to create even greater segmentation and fragmentation in the

industry over the coming years. By 2025 it is likely that small and

medium sized domestic companies will be operating alongside

a more limited number of international companies.

The UK will need to maintain its competitive edge in key growth

areas. For example, the UK is now recognised as a global leader

in the exploitation of Building Information Management (BIM)

technology and processes. But other countries are not far behind

and we will need to continue to evolve in the adaption of BIM.


6/12

Construction is an economic enginethat meets and stokes demand fromkey industrial sectors and markets athome and overseas. Demand in the nextdecade shows how the sector is a criticaleconomic enabler as the UK respondsto global trends.

Gb ted w hpe the be evet 2025

The 2011 CBI reportA Vision for Rebalancing the Economy

identified five key mega-trends that will shape the overall

business environment in the next decade. These mega-trends

will create opportunities for growth in construction:

The eed ew d bette tcte we will need

310bn investment to deliver the 2012 National Infrastructure

Plan, with about two-thirds needing to come from the private

sector. Construction will be at the heart of updating our

creaking infrastructure.Gwth eegg ket there will be an increase in

export opportunities, especially from new free trade agreements.

Construction businesses will export skills, knowledge and

products to emerging markets over the next decade.

Dgt exp transforming businesses and creating

national and international opportunities in mobile and digital

markets. Construction is already being transformed by the use

of technology such as BIM and this will be a key growth area.

Demographic change continuing growth in urban populations

will create demands on the built environment and an ageing

society will drive changing patterns of consumption. The number

of people over 65 will increase by 38% by 2025. This will addfurther pressure on demand for new homes, particularly for

attractive retirement housing. Our cities will need to invest in

infrastructure and services to respond to rising populations.

Eeg d cte chge 55bn investment in renewable

energy alone is needed over the next 10 years and the need

for a reduction in emissions is leading to increased focus on

energy efficiency in new and existing property. Construction

firms will be required to deliver this greater focus on energy-

efficient buildings.

Construction is an economic enabler for business

6.7Construction accountedfor 6.7% of GDP in 2012.


7/12

Eeg

The UK needs to build 110bn worth of new

power stations and generator facilities in the

coming decade in order to ensure we keep the

lights on and meet our carbon emission

targets. 9-150 tonnes of cement and 25-150

tonnes of steel are needed for each megawatt

of gas power, nuclear or offshore wind.

Increasing investment in renewable energy

sources will need the expertise and innovation

of the construction sector.

WteThe water industry will see rising demand from

industry and households and will need to

manage the impact of climate change and

water security. The sector will spend around

65bn by 2025 in upkeep and maintenance

of facilities infrastructure and reservoirs.

Hg

There will be increasing demands for new

homes from rising numbers of new households

with the biggest rises in demand coming from

single and older households. We are currentlybuilding less than half the homes we need

and this is set to continue with around 221,000

new households per year in England. Consumer

demand for energy efficient and technologically

smart homes will be standard by 2025. House

builders are likely to build between 1.7-2.5m

new homes by 2025.

Tpt

Investment in our rail network will exceed9.5bn by 2025. Major investment in our road

network will be needed as the UK economy is

already losing up to 8 billion each year from

congestion on the roads, which could

potentially rise to 22 billion by 2025. There

is currently a 10bn shortfall in funding for

highways projects. The key priorities for

clients in this sector are reducing their carbon

footprint and on-going innovation in design.

Dgt tcte

The UK is a world leader in digital infrastructure

and we will need large-scale investment by

2025 to maintain this competitive advantage.

Key demands over the next decade will come

from the roll out of 4G, upgrade to 5G and

on-going investment in broadband.

Cec ppet

Increasing business confidence will lead to

increasing demand in the commercial property

sector by 2025. However, spending will show

weak growth in the next few years with highvacancy rates at present. Whilst overall

demand will be modest in the short term,

the market is more segmented in reality with

strong demand in some areas. Trends in the

sector of creative urban-led design, innovation

in building management design and

sustainability will increase in prominence. As

we shift to a new normal for financing as a

result of structural changes in banking we will

also need to find new models to fund work on

some existing properties.

ConsTruCTioninDusTry in

2025

HousinG

TransPorT

EnErGy

CommErCialProPErTy

DiGiTalinfrasTruCTurE

WaTEr


8/12

d ctct w ee the uK epd

Construction provides world-class services enabling other businesses to

boom. The construction industry exists to meet the needs of clients and

the clients role from procurement to delivery is critical to the success of

a project. To inform our response to the development of an industrial

strategy for construction we mapped demand for construction activities

from key sectors and conducted a number of interviews to look at the

changing demands from clients.

The chart on the previous page summarises our findings about demand

from key sectors who will be investing over 300bn by 2025 in the built

environment. Across these entire sectors repair, maintenance and

improvement (RMI) spend will increase. Investing in the built environment

is a substantial and sometimes risky investment for any business.

Construction companies will need to gear up to this, maintain an increased

focused on low carbon design and be able to respond to the changing

business requirements of key sectors. Embedding innovation in our

approach to construction will be central to meeting the needs of key clients.

Through our in-depth interviews we found that the sector has a strong

reputation among clients. Key strengths that came out of our discussions

include meeting the needs of clients, responding to demand and a greater

focus on innovation and efficiency as a result of the recession.

When asked about the future, clients said they would like to see:

a planning system that works for businesses (see box opposite)greater collaboration across the industry, government agencies

and the supply chain

on-going improvements in innovation and efficiency

low carbon design and sustainability at the heart of how the

sector works and responds to the demands of clients

the UK being able to beat the increase in competition from

overseas companies where expertise in areas such as high-end

design and delivery is getting better.

Many of these areas have been the subject of extensive focus in the

construction industry. The 1994 Latham report focused on the key role

of the client and the importance of collaboration across a fragmented

supply chain through focusing on procurement reform.8 In 1998 Egan

sought to further drive efficiency improvements through committed

leadership, customer focus, cost and quality, integrated processes,

and commitment to people.9

A decade later progress on these areas has been substantial but is

still ongoing. In particular the industry is still characterised by a diverseand fragmented supply chain which acts as a barrier to delivering

improvements through collaboration and efficiency. Only an industrial

strategy for construction, focused on delivering carefully targeted action

in key areas of competitive advantage has the potential to deliver long

term reform.

Pg the teWhilst the planning system is not included in the scope of the

construction industrial strategy both construction firms and clients

agree that an effective planning system will be central to economic

growth in the UK. Too often essential shovel ready projects are

being delayed by planning red tape at a cost to the private sector.

When implemented poorly, our planning system increases office

rent, lowers retail productivity and lowers employment in small

independent retailers and this needs to change.7 Whilst recent

reforms to the planning system have been welcomed, we need a

decrease in time taken for planning permission and reduction in

costs to businesses in getting planning permission.


9/12

By harnessing sources of competitive advantage,construction will be a world-leading industry by2025. But industry and government will need tocollaborate and show leadership to secure a strongfuture. Our proposed KPIs will ensure that theindustrial strategy enables the sector to exploitsources of competitive advantage.

sce cpettve dvtge t tt thepg ed

UK construction businesses are at the forefront of sustainable

design and innovative technologies such as BIM, and as already

mentioned are increasingly exporting this expertise overseas.

Underpinning this we need to go further to secure a strong

domestic manufacturing sector.

A successful industrial strategy for construction will therefore

need to focus on developing key areas of competitive advantage

in the sector to meet the demands and expectations of clients in

2025. In doing this we can learn from other sector strategies such

as automotive and aerospace, where each has focused on a

limited number of areas that will make the most difference to the

development of the sector. For this reason we think an effective

industrial strategy for the construction sector should focus on

four specific areas as set out below.

In addition, an effective strategy must establish measurements

for success in these areas, so we have set out some KPIs below.

It is important to note that the KPIs will need to be kept relevant

and under review and our proposals are based on available

sources of information for benchmarking.

Securing a world-leading sector


10/12

Bece wd ede tbt d

w cb ctct, for example in the

delivery and lifetime performance of buildings

and infrastructure. The sector will help secure

a low carbon built environment through

contributing to a 50% reduction on carbon

emissions by 2025. Certainty through building

regulations and incentivising energy efficiency

in new and existing buildings will have a key

role to play in achieving this.

Ebeddg vt in the way firms work

and embracing new technologies. Whilst strong

progress has been made industry fragmentation

and a project-centric approach continue to

restrict innovation in construction. This should

be measured through a 20% increase in

spending on R&D by 2025.10 Government and

the sector should also conduct a feasibility

study into the potential of an innovation levyto transform the sectors approach to innovation.

Finally an intelligent and responsible use of

public procurement to create wider economic

value can help to drive forward innovation.

Cetg tg d eet pp ch that

utilises the strength of UK manufacturers. It is

estimated that products and services secured

from the construction supply chain typically

account for about 80% of the cost of the project.

Through stronger integration and a robust

domestic supply chain we can achieve greater

efficiencies and growth. This could be achieved,

as well as addressing the balance of the trade,

by sourcing 85% of building products and

materials used on UK sites by 2020 (by value).

This is currently around 75%.

Eg tht wd-c expete ted,

tcted d expted. UK construction

companies have the potential to greatly increase

levels of overseas trade in areas of key strengths

such as engineering, architecture and low

carbon construction. Progress should be

monitored through year on year growth targets

with a goal of tripling the level of UK exports of

construction services by 2025. The sector and

government will need to undertake further

research to be clear on exact areas of expertise

to nurture.

d pet evet tht ebe theect t thve

Underlying a successful strategy there is a need for an operational environmentwhich helps secure private sector growth. Most of all the sector needs to be

supported by long-term certainty in regulation creating the environment to give

businesses the confidence needed to invest in innovation.

There are also some embedded structural issues in the sector and operational

environment which will need to be addressed to create the environment for the

sector to thrive, such as skills, access to finance and the image of the sector.

The UK is facing a skills gap and this is a concern coming out of other sector

industrial strategies. The CBIs 2012 survey found that 61% of firms say school

and college leavers have not developed the self-management skills they need

for work while at school and are not confident of meeting their need for higher-

skilled employees. This is why in ourFirst Steps report, the CBI has called for

an overhaul of the school system to deliver for the country as a whole.

In construction, there are already acute skills shortages and this is set to

worsen, increasing costs and undermining sector transformation. A recent

Charted Institute of Building survey of construction managers found 82%

believe a skill shortage exists in the sector. The most pressing skills gap is

in trade and technical skills (particularly in plumbing, electrical and gas

specialisms), followed by leadership and construction management skills

and off-site manufacturing (specifically in precision construction).11 The sector

will need to develop a self-sustaining skills offer to address the skills gap.

Access to finance is also a concern, especially for SMEs. SMEs are key to

growth in the construction industry, particularly with their strength in RMI

which will be key to delivering carbon reduction. But with constrained

lending many commercially viable construction companies report that they

are not able to access finance at competitive rates. A recent survey from theFederation of Master Builders found that over 40% of construction SMEs in

the last two years found it harder to access credit facilities and that credit

was more expensive. The CBIs 2012 report Financing for Growth called for

a one-stop-shop for business finance initiatives ensuring that businesses

with viable lending propositions do not slip through the net.

Finally, the industry and government will need to work on building a positive

image of the industry to build a stronger reputation amongst consumers and

to become a career of choice.

With this in mind we suggest the industrial strategy for construction should focus on the following areas and

measure success using these KPIs:


11/12

References1 House of Commons Construction Industry

Economic Policy & Statistics Briefing Paper,

August 2012

2 CEBR, The Future of UK Construction

A report for the Confederation of British

Industry, April 2013

3 ONS, Blue Book, 2012

4 LEK Consulting, Construction in the UK

Economy, 2010

5 CEBR, The Future of UK Construction

A report for the Confederation of British


6 Construction Products Association,

Construction Industry Forecasts Winter

2012/13 edition

6 Construction Skills Network, Blueprint

for Construction 2013-2017.

7 Cheshire et al, Links Between Planning and

Economic Performance: Evidence Note For

LSE Growth Commission LSE, 2012

8 Sir Michael Latham, Constructing the Team,July 1994

9 Sir John Egan, Rethinking Construction,

November 1998

10 Spend on R&D is a limited measure of

innovation but data is readily available.

11 Charted Institute of Building, A report

exploring skills in the UK Construction



12/12

For further information, contact:

Lucy ThornycroftHead of Construction and Manufacturing, CBI

Centre Point, 103 New Oxford StreetLondon WC1A 1DU

T: +44 (0)20 7395 8060E: [email protected]

Chris CassleyPolicy Adviser, CBI

Centre Point, 103 New Oxford StreetLondon WC1A 1DU

T: +44 (0)20 7395 8191E: [email protected]

www.cb.g.k

Product code: 10017

June 2013

Copyright CBI 2013

The content may not be copied,

distributed, reported or dealt

with in whole or in part without

prior consent of the CBI.

CBI

Our mission is to promote the conditions in which

businesses of all sizes and sectors in the UK cancompete and prosper for the benefit of all.

To achieve this, we campaign in the UK, the EU and

internationally for a competitive business landscape.

Twitter: @CBItweets

building britains future

Documents