The government strategy to pump £330 billion into an economy that is beginning to gasp for the oxygen of cash is in question following some further clarification from the Treasury and the Bank of England. Adrian JG Marsh asks; Is what ever it takes, going to be enough?
Government ministers keep repeating the phrase ‘We’ll do what ever it takes’, however, businesses of all sizes are starting to grapple with the enormity of the sudden fall in workload. The big question now is what will it take to protect the nations physical and economic health?
Major contractors welcomed the news of the Chancellor’s funding package but there are now questions over whether it will be enough to keep the construction supply chain operating. To access loans firms will need to demonstrate that they make a material contribution to the UK economy and had a sound financial position prior to the crisis. The scheme is designed to help businesses across a range of sectors to pay wages and suppliers, even while experiencing severe disruption to cashflows.
Business rates holidays will help those with premises, and the support for individuals in difficulties with mortgages and the postponement of IR35 changes is very welcome. But the fears are that medium and small contractors will not qualify for loans and, even if they did want to borrow money to keep them going, some specialists have no idea when they would be able to pay back the debt that they would incur.
The reality is a loan of this nature provides no reason to keep staff employed. In the short term the government may need to seriously consider reverse taxation. The HMRC already knows the wage bill of all companies that pay their workers through the PAYE system, so reversing the flow would be reasonably easy.
However, construction has a flexible workforce and its model is built on labour only subcontractors and the freelance self employed. And we haven’t even discussed the impact of school closures, social distancing and self isolation. Where do you start if you need to help this group?
There are reports of developers preparing to stop contracts, mothball them, and not proceeding with fit-out works. Clearly clients are starting to implement strategies to recession-proof their businesses and protect cash.
House builders have taken a hit on the stock market and the signs are that sales are starting to slow. It is no surprise to hear majors, including Berkeley, Crest Nicholson and McCarthy & Stone, postponing dividend payments in order to hang onto much needed cash. Sites came to a halt during the financial crisis of the late noughties so we can expect the same to happen again.
With travel restrictions there will be fewer tourists and students, if any at all, so less demand for hotels and student accommodation will tumble. Many restaurants and leisure outlets are closing down, so new work is unlikely to go ahead in these sectors. Retailers are already on their knees and this once lucrative sector is in decline. But Supermarket sales are booming…!
The specialist construction supply chain needs clear strong leadership. Sadly the government has almost ignored construction for the last decade. Housing and construction ministers have come and gone with the wind, so it is no surprise that at the centre of government they don’t understand the way that construction, which represents around 10% of the economy and employs 3.5 million people, operates.
Accepting that public health and safety are paramount, now is the time to introduce a big dose of Keynesian economics and commit to investing in infrastructure and housing. We know there are lead times for works but the nature of contracting is that work fluctuates.
For construction employers to retain staff and keep alive, the sector needs confidence and real forward workload opportunities. If the private sector won’t invest and create forward workload, then it’s time for the public sector to step in, invest in new build and encourage the public to invest in repairs and maintenance, and so fill the void.
Adrian JG Marsh
Editor – Spector magazine