Gordon Banks MP: problems need addressing.

Banks urges merchants to face the challenges ahead

Published:  21 November, 2011

SCOTLAND: Labour MP Gordon Banks addressed the National Buying Group's 270 partners at this year's NBG Conference, Exhibition and Awards held in Edinburgh last week and clarified his party's position on the urgency for reform in the constuction industry.

"I recognise the challenges that builders' merchants are facing and I find that useful in doing my job as a member of Parliament and trying to influence party and government policy. It has shown me how quickly plans and policies that took years and years to develop can be swept away and the impact of this change felt just as quickly,” he said.

“The construction industry requires funding to the sector and to potential customers in one form or another. This can be capital spending by government, job security allowing families the choice of moving home and the access of finance to construction related businesses at affordable rates – and the same for mortgages.”

Mr Banks pointed out that although the construction industry is of the private sector, it needs the public and private sector to survive. “I believe the Government policy of failing to invest in public sector infrastructure spending is a false economy. This failure is one of the most significant reasons why the major banks will not lend to businesses in the sector as the Government's own policy has undermined it. 

“Government needs to change its mindset to understand that without public sector investment the construction industry and in turn the UK will continue to falter.

The benefits of a booming construction industry to UK PLC are great.

“It would regenerate infrastructure, build new schools, form new communications, bring forward the skills agenda and provide much needed housing.

“All of these benefits mean one thing; more jobs in Britain – and more jobs in Britain means one thing; increases in revenue for the Treasury.” 

With youth unemployment expected to rise to one million, according to figures reported from the ONS, the UK needed a vibrant construction sector and with the Bank of England anticipated to reduce UK growth figures downwards to 1%, it also  needs a vibrant construction sector,”Mr Banks stated.

An obvious indicator of a country's economic wellbeing is to look to its construction industry; every business that grows needs this sector to do so, whether it's through the road and rail network for product distribution, whether it's through moving to a larger or better office, factory or warehouse or whether it's simply using modern communication methods – they all need merchants, he added.

“And, with Britain's construction industry shrinking, having lost 300 000 jobs to-date and with growth not forecast to return till 2014, the economic outlook is bleak.

"There has been a crisis in the UK housing market for decades now. Political parties of all colours are to blame for this situation but if we don't invest now a crisis will become a catastrophe.

“One of the major social housing problems was instigated by the Conservatives and compounded by Labour when in Government; namely the 'Right to Buy'.

“I fully understand the importance of renters wanting to become home owners and actually I don't think there's anything wrong with this at all and I want to encourage such aspiration.

“But, if housing stock is not replaced then the social housing shortage is compounded and this was the problem.

“The 'Right to Buy' left no provision for local authorities to reinvest capital receipts in their social housing programme and most local authorities, especially in Scotland, didn't seem to have a social housing building programme.

Despite changes in this policy in Scotland and Westminster, the legacy will be with us for decades to come.”

Mr Banks explained that further hope on social housing was offered by the current Scottish Government who pledged to build 6000 socially rented houses for every year of this current Parliament. “Unfortunately, this is now a pledge for 6000 ‘affordable houses’ which may sound like a small change, but it will have a big impact on the housing that local authorities and housing associations can provide to their local residents.”

One of the main ways Britain got out of the 1930s depression was the building of over 300 000 houses. The Centre for Economics and Business Research claims this housing boom helped to bring the UK economy back to growth after the Great Depression and created jobs for more than a million construction workers.

If housebuilding returned to similar levels by 2015, it would create 200 000 extra jobs in the sector.

“In the private sector where there are reasons for some modest hope with NHBC figures showing starts up a bit when comparing the third quarter this year with earlier months, there needs to a dose of reality,” he commented.

“With starts at 27 850, this is about half what they were in a three-month period in 2007 and those of you dealing with developers will notice that in many areas the small one off or low volume developer has disappeared and the major developers are in the main extremely cautious so they aren't left with stock if markets deteriorate further.

“The UK Government has also put forward the policy of the Green Deal which aims to make our existing housing stock and indeed our commercial buildings energy efficient. However, in order for new design and products to come forward – stability and profit are needed.

“If the Government is not willing to give the sector the helping hand it needs to start this process then the Green Deal will be in danger before it gets off the ground,” Mr Banks warned.

“When I go to meetings with the industry on this matter I continually hear criticism of government policy in seeming to think that B&Q is a good representative of the construction industry.

“Closely linked to private sector housing is the crisis of mortgage lending. The number of first time buyers in the UK in 2007 was 357 000.

“As a result of this, the British high street was boosted by around £2.1bn from these purchasers kitting out their new homes. This is a fairly straightforward way of stimulating the economy,” Mr Banks pointed out.

“Buying a house is the one action I know that generates such an investment in our High Streets. While I am not advocating a return to 125%, 110% or even 100% mortgages, it's useful to recognise that these lending packages were a product of the lenders, not the customers.

“In addition to mortgages, banks need to lend more to businesses; it is a viewpoint widely held by most business organisations throughout the UK, especially in respect to SMEs, many of who are active in the construction industry.

“But businesses in construction are being made to pay on two levels, one if they are a SME and one because they are in the construction sector because the Banks want to reduce their exposure here largely due to the lack of Government support to construction.”

'Project Merlin', with the big five banks signed up to lend more to business and indeed small businesses was, he admits, an impressive idea.

“I have businesses in my constituency who come to me telling of the Banks' withdrawing overdraft facilities with immediate effect only to return a few days later offering a term loan.

“Because the lending figures in Project Merlin are gross not net, we will never know how much of it are re-signed and re-cycled arrangements just to meet the headline figure and when this is coupled with the abject failure of the British Bankers Association - Business Growth Fund, all is not well,” Mr Banks stated.

It was recently announced the construction industry has shrunk by 0.6% in the third quarter of this year.The industry has seen large, medium and small businesses go the wall. The ripple effects of such failure, the loss of a customer, the loss of money and the individual jobs that go with each closure are the real personal tragedy for everyone involved, he said.

“If you evaluate a 22.6% increase in construction failures year-on-year to Q3 of this year – you don't need me to tell you there's a problem.

“In opposition the Labour Party is promoting a range of issues such as a temporary cut in VAT to 5%for home improvements, repairs and maintenance – something which Get Britain Building has been advocating and the bringing forward of shelved government plans for infrastructure improvements.

“The VAT cut would drive forward investment in our homes and at the same time reduce the impact of the black market builder who loses the VAT,” Mr Banks said.

The Government could do worse than listen to the calls from the industry that the products used in the Green Deal should be charged at 5% VAT – the same as the energy they are designed to save, he added.

“This investment in the sector would provide much needed skilled jobs and lasting growth and I would urge my Party and the Government to realise the value of local and regional infrastructure investment rather than solely single large project such as Cross Rail, the Olympics or HS2.

“Some may say that there is not enough money for investment projects like schools, hospitals or a massive housebuilding programme like the one I referred to earlier,  but I argue that there will be a higher price to pay if investment is not seen as a legitimate path to growth.”

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