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Thu August 22 2019

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Budget 2017: Construction industry reaction

8 Mar 17 A rise in National Insurance Contributions for the self-employed was among the more significant measures in chancellor Philip Hammond's 2017 spring budget statement.

There has been plenty of reaction from construction industry organisations to the budget, much of it in response to the proposed introduction of ‘T levels’ as a technical alternative to A levels that had been previously announced by the prime minister.

Here are some of the other comments received.

Andrew Watters, tax partner at law firm Irwin Mitchell, sought to understand the changes to National Insurance Contributions (NIC). “The chancellor introduced proposed changes to tax rules on employment and self-employment in the context of the battle against tax avoidance.  He did not want to encourage incorporation of businesses which was driven by tax considerations.  Perhaps not trusting individuals to voluntarily shun legal structures which generate a lower rather than a higher tax bill, he is moving to change the tax rules.  One tax advantage is that, if you are an owner managed business, you have been able to receive money as a dividend rather than salary.  This advantage was increased in a previous budget which allowed the first £5,000 of dividend to be received free of tax.  This £5,000 exemption is now being reduced to £2,000.   However, that is not limited to director shareholders.  It applies to anyone who owns shares.  So the true effect is not to discourage incorporation, it is to generate higher tax receipts from dividends.

“In fact, a lot of people prefer to be self-employed rather than be an employee through a company.  One advantage of this has been that one pays lower NIC.  Apparently being self-employed is another means of tax avoidance and so the chancellor is moving to take away the lower rate of NIC on the self-employed.

“So incorporation is tax avoidance and being self-employed is tax avoidance and those involved in both deserve higher tax bills.  Or maybe the government just needs everyone to pay more tax?”

Richard Steer, chairman of Gleeds Worldwide, said: "This was a budget which included measures designed to paper over the cracks of our industry’s skills shortage, and while it is good to see this recognised as a priority issue, whether it will help with immediate shortages seems unlikely. The changes in NI and dividend allowances will not be welcomed by the plethora of self-employed tradespeople but new money announced for schools is to be welcomed. Overall, a budget shaped by Brexit worries - fiscally and politically conservative as was expected."

Will Waller, market intelligence lead at Arcadis, said: “Today’s budget is a function of the geopolitical ‘tight rope’ that Britain is about to walk for the next two years at least.  Buoyed by the UK’s short term economic outperformance, the Chancellor’s budget has set a self-assured and positive tone for the future, whilst at the same time making staid plans for the turbulence that many believe the UK will encounter. 

“But this budget was about more than just preparing for the upcoming negotiations – it played into building a positive vision for the globally competitive Britain, focussed on improving productivity and quality of life.  Investment in education and skills, consumer protection, PHD research, robotics and tech, devolved administrations, congestion and working families are all clearly aimed at making the UK a better and more competitive place to be for the longer term.  Lower forecast public borrowing, an intensified clampdown on tax evasion, previously planned reductions to corporate tax rates and robust economic growth forecasts will naturally underpin this.  The construction industry will inevitably be a beneficiary of a number of these initiatives.

“However, the biggest losers today are the self-employed.  The quid pro quo has come predominantly in the form of national insurance rises and loss of tax relief on dividend payments, which will leave the self-employed worst off.  For an industry like construction where 40% of the workforce are self-employed (15% across the whole economy), this could be disproportionately felt and comes at a time when other measures, such as April’s changes to the IR35 regulations governing some self-employed workers, could have significant impacts on labour market dynamics in the construction industry.

“Many are calling this budget a ‘damp squib’ and no doubt there will be some disappointment in certain quarters, but could it actually have been a more subtle overall proclamation? The UK has taken stock and is poised and ready to positively face imminent challenges on the global stage.”

Adrian Hames, UK head of infrastructure planning at WSP Parsons Brinckerhoff, said: “Productivity and prudence as expected. With uncertainty over Brexit we were never expecting a spending splurge but we did get some quick wins in technology and local transport improvements. However, we can’t afford to lose sight of infrastructure’s longer term importance in boosting productivity by connecting to new schools, to the digital economy and crucially to spurring the housing market in a period of increased uncertainty. The pressure has been put back on the industry to make this case in the housing and industrial strategy papers.”

“Whilst the introduction of T-levels is very much welcome for building upcoming major infrastructure projects with more young and skilled workers, these changes will take years to have an impact. The industry wants to get spades in the ground now. We have to be relentless in securing a stable pipeline of nationally significant projects that catalyse economic growth.”

Richard Laudy, head of infrastructure at law firm Pinsent Masons, said: “The government’s announcement regarding technical education reforms is to be welcomed, but it is a drop in the ocean and will not meet the skills crisis facing the UK infrastructure sector. The sector is still yet to recover fully from the 400,000 construction jobs lost in the recession and has an ageing workforce, 30% being over the age 50 and around 700,000 set to retire in the next 10 years.  And yet demand is only increasing. The UK needs to bring in an additional 36,000 workers every year to meet the demands created by our infrastructure programme. 

 “Government and industry should collaborate, map the skills required to deliver our infrastructure and prioritize them within any post-Brexit immigration system. So whilst the chancellor’s announcement is to be welcomed, the government needs to go further. ”

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Marcus Fagent, head of education at Arcadis (again), said:  “The budget announcement of an additional £500m per annum funding for the new ‘T levels’ represents an essential investment in developing technical skills in the UK. The aim is to grow the number of teaching hours received by the 600,000 post-16 students currently on technical courses by 50%. However, this will require significant capital investment on top of the additional £500m revenue investment.  Having had access to very limited capital funding over the last four years, further education colleges have been through a phase of rationalising their estates, amalgamating and reducing any unused space to maximise their operational efficiency. They now have limited spare space in which to expand. Schools have received no funding for space other than that needed to deliver the academic curriculum in recent years, as capital spending has been driven down by efficient space models and standardised design and specification.  By comparison in the Netherlands, where there is a better technical training provision, every Secondary school is built with an additional 650m2 of non-academic training space; an investment of more than £1.5m per school. 

“The Government FE College Investment Strategy estimates that £1m of capital investment could create facilities for 75 new learners. On this basis, it would cost an additional £4bn to increase the number of Post 16 students on technical courses by 50%; a very similar figure to that needed to emulate the Dutch provision in schools. Creative minds will find solutions that reduce these costs but we estimate that the government may need to inject £500m of capital investment every year to match the planned revenue investment to make T-Levels deliverable.”

Brian Berry, chief executive of the Federation of Master Builders, said: “The chancellor clearly understands that the UK won’t address the productivity challenge unless we rethink our approach to technical and vocational education. T-Levels could be the answer if they genuinely rival A-Levels in the eyes of parents, teachers and young people. UK society as a whole has been guilty of putting too much emphasis on the academic route – this has made it more difficult for vital sectors like construction and house building to attract the talented people we need. In construction, we are suffering from a severe skills shortage and this is likely to worsen once we leave the EU and no longer have easy access to European labour. This £500m funding announced today for T-Levels is therefore a welcome and much-needed boost.

“Today’s budget was an all-round strong performance from the chancellor and he had good news to report right across the piece. However, increasing tax on the self-employed is not helpful. If we want to establish a resilient, Brexit-proof economy, we must encourage and support our current and future entrepreneurs in the construction industry and beyond. A jump in National Insurance Contributions from 1% to 10% next year could send the wrong message to those individuals who are considering going it alone. The self-employed are the backbone of our economy and the government should tread carefully here.”

Chartered Institute of Building associate director Eddie Tuttle said: “We welcome the £500m increase in funding for technical education, though it is unlikely this will help reduce existing pressing skills shortages. Achieving greater parity between academic and vocational education and providing ‘work-ready’ employees is particularly crucial in construction. The offer within these ‘T-levels’ of a high quality work placement is vital; alongside further education institutes and employers, we as a professional body look forward to working with the government to develop these qualifications.

“The importance of skilled trades and the construction industry need to be made clear: while other industries, such as manufacturing, have shed skilled workers, the construction industry maintains a third of all employment in this occupation group, and this is predicted to only grow further in the future. Skilled trades not only provide solid earnings in themselves, but provide many with an opportunity and a platform for progression within their career through to management and professional roles.”

Mark Farmer, CEO of Cast and author of the ‘Farmer Review’, said: “The chancellor’s proposed ‘T-levels’ will bring a renewed focus to areas of education that have long been neglected in British schools. Yet to be successful in modernising the UK construction sector and improving productivity, a 'construction' T-level must feature learning in both traditional site based techniques and emerging digital led pre-manufactured construction technologies. The T-level must also offer clear links to ongoing pathways for further work based training and specialisation aligned to industry's future requirements. Any course restructuring must ultimately be designed in conjunction with industry partners.

“An industry that does more in controlled environments such as factories, and makes use of digital technologies will also be much more successful at attracting a more diverse group of aspiring 16 year olds into construction and not leaving the industry with a residual of school leavers who often end up in construction as it is a last resort for them. This improvement in both the quality and numbers of new entrants is critically needed to secure the sector’s future, especially with Article 50 and an ageing workforce looming."

Aecom director John Hicks said: “Brexit clearly influenced many of the measures outlined by the chancellor today, which were peppered with announcements designed to offset any potential consequences of a hard exit from the EU.

“One such measure is the focus on technical education and the introduction of T-Levels to address the productivity gap between the UK and our international competitors. This may help to insure against potential difficulties in accessing skilled labour from within Europe in the future. The private sector will have a vital role to play in the successful development of these qualifications and ensuring they reflect industry need. Funding for 1,000 extra PhDs in STEM subjects are welcomed by Aecom and should help tackle the deficit of STEM skills in the market.

“New money to tackle traffic pinch-points in the North and Midlands is a step in the right direction, with the £690m competition to address urban congestion especially welcome as it puts power in the hands of local authorities who are better placed to invest capital of this kind. However, funds will only be available over time and its impact may be lost if the idea is not expedited once local institutions make the call.

“Additional money for schools maintenance reflects the growing need to deal with the UK’s decaying schools physical environment. Similarly, immediate funds to advance some NHS sustainability and transformation plans prior to the autumn statement should have some short-term impact. But close commentators of the NHS will note that the existing capital fund has been significantly raided to support revenue spending.

“Knowing that today’s spring budget will be the last, and that it falls a week or so before the prime minister is expected to trigger Article 50, expectations were not high. Nobody should, therefore, be too disappointed with a slightly less ambitious budget compared to recent years. An autumn statement will require more scrutiny.”

Melanie Leech, chief executive of the British Property Federation, said: “This was possibly one of the least eventful budgets in recent memory, and we are thankful for that. The government had nothing to prove after two months of white papers and strategies, and the real estate industry will welcome the stability the budget signals. We anticipated the government’s short-term relief for businesses hardest hit by the increases in business rates, but we urge the chancellor to understand the unfairness prevailing in the appeals system. The chancellor has two budgets this year and he should use his second in the autumn to also have a stock-take of some of the recent SDLT [stamp duty land tax] measures and whether they are having unintended consequences or inhibiting investment.”

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