Transcript Agenda - British Precast

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Construction in the UK economy
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The benefits of investment
London
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CBI, 28 October, 2009
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Colin Farmer, Partner, London
John Goddard, Partner, London
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Wroclaw
Construction in the UK economy
The challenge
 Develop a clear evidence base
 Demonstrate the impacts of the construction industry on the UK economy
 Quantify the benefits of investing in construction
 Make the economic arguments in practical business terms
Construction in the UK economy
Construction is vital to the overall UK economy
 10% of GDP (including professional services); 8.5% from construction alone
- and a driver of historical GDP growth
- also an important driver of growth for other sectors
 300,000 firms in the value chain
- including many small- and medium-sized family and local businesses
 3 million jobs: 8% of UK employment
- over 60% are lower-skilled labourers with relatively limited alternative employment
opportunities
 Important domestic production capacity and skills
Construction in the UK economy
Construction is a major contributor to UK GDP
(directly 8.5% in 2008, £124 billion)
UK GDP and construction output
(2008)
Percent
100
£1,443bn
£124bn
 £80 billion of direct valueadd (wages and profits)
Private industrial
Private infrastructure
90
 £44 billion of intermediate
consumption
New housing private
80
Private non-housing R&M
70
60
Private
Private housing R&M
50
Private commercial
40
Public infrastructure
30
New housing public
20
Public non-housing R&M
Public housing R&M
10
0
Construction 8.5%
GDP
Construction
Public works
Public
 UK government investment
has historically driven
30–40% of construction
output
 Construction also supports
high-value net-export
service sectors such as
engineering consultancy
and design, architectural
activities, and property
management
Construction in the UK economy
Government investment in construction is the most
beneficial use of stimulative public expenditure
in both the short- and longer-term
and any reduction in construction expenditure would have
significant immediate and enduring negative
consequences for the UK
Construction in the UK economy
The most beneficial use of stimulative public expenditure
1 Impact on economic activity
2 Contribution to employment
3 Benefits of investment
Construction in the UK economy
1
Impact on economic activity
Construction is one of the best ways of stimulating economic activity
-
not just in the construction sector, but across the economy as a
whole, including troubled manufacturing sectors
It also has one of the lowest levels of imports, so the stimulus
spending stays within the national economy
Construction is one of the best ways of stimulating economic activity
1
Construction has been a significant contributor to
historical UK output growth
 Construction contributed
c.10% of total UK GVA
growth between 1994 and
2007
Real change in UK GVA by sector
(1994-08)
Billions of 2007 pounds
1,300
1,250
 Much of the growth in
total UK GVA in recent
years can be attributed to
government, financial
services and real estate
sectors
1,200
1,150
1,100
1,050
One of the highest
sustainable contributors
to our long-term
economic growth
1,000
950
- the high growth in
2008
Manufacturing
Agriculture, forestry and fishing
Electricity, gas, oil & water
supply
Post and telecommunications
Sales, maintenance & repair of
motor vehicles
Transport
Hotels and restaurants
Recreational, cultural & sporting
activities
Other services
Mining & quarrying
Computer & related activities
Wholesale and retail trade
Construction
Real estate activities
Financial & insurance
Other business services
Government
0
1994
900
these other sectors is
unlikely to be
sustainable
 Over the same period,
manufacturing and
agriculture have been in
decline
1
Construction is one of the best ways of stimulating economic activity
Construction drives growth in other sectors due to its
heavy reliance on an extended and varied supply chain
Consumption of output from other sectors by
construction (2007 purchaser prices)
Percent
£28.7bn
 Investment in construction supports
a broad set of industries, including:
100
90
Other
80
Banking and finance
Structural clay products
Market research, management consultancy
Motor vehicle distribution, repair, fuel retail
Other business services
Other mining and quarrying
Structural metal products
Wood and wood products
70
60
50
40
Plastic products
Architectural activities and technical consultancy
30
Owning and dealing in real estate
20
Renting of machinery
10
Aggregates
0
2007
-
aggregates
-
plastic products
renting of machinery
real estate
architectural and technical
consultancy
wood products
metal products
mining and quarrying
1
Construction is one of the best ways of stimulating economic activity
Spending on construction is less likely to leak abroad than
other sectors
Imports by sector (intermediate consumption)
(2007)
Percent
30
 The construction industry
typically imports a very low
proportion of intermediate
consumption, much lower than
many other industries
-
25
20
Average for
all industries
15
in 2007 construction
imported less than 8% of
its supply, while UKmanufactured motor
vehicles imported nearly
28%
 The low proportion of imports
in the construction industry
means that for every pound
invested in construction, 92p
will be retained in the UK
10
5
0
Motor vehicles
Shipbuilding
UK manufactured
Healthcare
Education
Construction
1
Construction is one of the best ways of stimulating economic activity
Construction is one of the most effective sectors to
stimulate economic activity
UK type I output multipliers by selected sectors
Railway transport
Health and veterinary services*
Construction
 The type I output multiplier is a
measure of the direct and
indirect effects associated with
an additional £1 spend on a
particular sector
 Construction has one of the
highest output multipliers among
sectors that are candidates for
government support. This makes
it one of the most effective ways
of stimulating the overall
economy
Agriculture
Motor vehicles
Shipbuilding and repair
Banking and finance
Social work activities*
Forestry
Education*
Public administration and defence*
2.09
Postal and courier services
1.0
1.2
1.4
1.6
1.8
Output Multiplier
2.0
2.2
 The wealth generated by this
activity induces further economic
activity (not captured in the type I
multiplier – a further 75p in the
case of construction)
1
Construction is one of the best ways of stimulating economic activity
£1 spent on construction output generates a total of £2.84
in total economic activity (i.e. GDP increase)
£1
£1
£1.09
£0.75
Investment
in
construction
Direct impact
Indirect
impact
Induced
impact
Direct impact
Wage income and
corporate profit
generated in the
construction sector, plus
spend on non-labour
inputs
Indirect impact
Supply chain impacts of
construction and their
knock on effects, i.e.,
increase in output and
income up and down the
supply chain
£2.84
Induced impact
Increase in household
income as a result of
increased employment /
income in construction
and other sectors leads
to increase in spending
and demand / output in
the overall economy
1
Construction is one of the best ways of stimulating economic activity
In addition, the Exchequer benefits from tax income and
benefit savings
Estimated returns to the Treasury
from investing £1 in construction
£
Direct effect
Income tax and NI
0.12
Benefits
0.23
Corporation tax
Stamp duty (not included)
0.01
0 - 0.02
Total direct tax and benefits savings
0.36
Total tax from indirect effects
0.12
Total tax from induced effects
0.08
Total tax income and benefits savings
to the Treasury
0.56
 Taking into account direct, indirect
and induced tax effects allows us to
estimate the net financial costs to
the Treasury from investing £1 on
construction:
-
13p in tax and NI directly
23p in reduced benefits
20p in tax from indirect and
induced economic activity
 These estimates assume that
increased demand in the economy
would reduce current
unemployment which is likely to be
the case at current levels of
depressed economic output
Construction is one of the best ways of stimulating economic activity
1
Construction has had the greatest increase in redundancy
rate in the UK since the start of the current recession
 Construction redundancies
were 28 per 1,000
employees in Q2
UK redundancies by sector
(1Q 2007-2Q 09)
Redundancy rate (per 100)
PPT change in
redundancy rate
(Q42007-Q209)
4
- 40% higher than in
manufacturing
- 50% higher than in
3
2
Construction
2.2
Manufacturing
1.2
Financial intermediation and
business services
1.2
Distribution, hotels and restaurants 0.5
Transport and communications
UK total
n/a
0.1
Public administration, education
and health
0.1
2Q 2009
1Q 2009
4Q 2008
3Q 2008
2Q 2008
1Q 2008
0
4Q 2007
1
financial intermediation
and business services
“… the country’s leading
source of redundancies
during the recession …”
Financial Times,
10 September 2009
1
Construction is one of the best ways of stimulating economic activity
Construction output is expected to fall significantly over
the next 2-3 years. Any reduction in public expenditure
would exacerbate this problem
Total construction output and gross public expenditure
(1985-12F)
Billions of pounds
140
CAGR%
CAGR%
(2002-08) (2008-12F)
Forecast
Total
120
6.7
Gross public expenditure
(plus private output)
100
80
(4.4)
(3.4)
Public output
- CPA current
expectation
6.4
(1.5)
Private
output
6.9
(6.1)
60
40
20
0
1985 88
91
94
97 2000 03
06
09F 12F
Construction in the UK economy
2
Contribution to employment
Construction is the best sector for stimulating employment
The employment that construction provides benefits lower skilled
and young workers who have relatively few alternative opportunities
Many regions are heavily dependent on construction jobs
2
Construction is the best sector for stimulating employment
Additional spending on construction can generate more
employment opportunities than other sectors that have
recently received significant government support
Total workforce by Gross Value Added by industry
(2008)
Employees / £100,000 GVA
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Very small sector
Hard to stimulate economic activity
Most effective stimulation
of employment
 Construction is more labour
intensive than other candidates
for government support
2.84
+40%
 The larger the number of
employees per value of output,
the more work opportunities are
generated for a given level of
output
+75%
- c. 40% higher than
manufacturing, given the
capital intensity of
manufacturing
Mining, electricity,
water and gas
900
Financial
intermediation and
business services
600
Manufacturing
Transport, storage &
communication
300
Construction
Agriculture, Forestry
& Fishing
Distribution, hotels,
catering
and repair of motor
vehicles
0
GVA
(billions
of pounds)
- c. 75% higher than business
services and finance,
reflecting higher salaries in
those sectors
2
Construction is the best sector for stimulating employment
Construction employs many lower-skilled workers who are
typically most vulnerable at times of recession
Construction workforce skill levels
(2009)
Percent
100
2.6m
Surveyors and architects
Civil engineers and technical staff
90
80
White collar management
and I.T.
70
Construction managers
60
 Lower skilled workers (trades and
operatives) represent c. 63% of the UK
construction workforce
- 75% in Northern Ireland
- 72% in the North East
- across all regions, lower skilled
workers represent more than 55% of
the regional construction workforce
50
40
Trades, operatives and labourers
30
20
10
0
UK construction
workforce (2009)
 Construction participates in a number of
key initiatives to bring young people
into the workforce and to enhance skills,
training over 70,000 people through
apprenticeships in the period 2007-9
2
Construction is the best sector for stimulating employment
60% of the GB workforce is in areas where unemployment
is higher than average or would be in the absence of
construction
A
The economy is relatively strong and
unemployment is lower than average (40%)
B
Construction is responsible for above average
employment (15%)
C
Employment is below average, but construction
is over-delivering jobs compared to average (18%)
D
Construction is weak but the general economy
is weaker (17%)
E
Lack of construction demand is to blame for
above average unemployment (11%)
Key: (%) = Percent of economically active
population in GB (30m)
Construction in the UK economy
3
Benefits of investment
Construction is not only immediate economic production
It is also investment rather than consumption,
which provides significant long-term economic and social benefits
3
Construction is investment which provides long-term benefits
Investment in construction is a prerequisite for achieving
c.80% of the current emission reduction targets
Carbon equivalent abatement
required to meet 2018-22 carbon budget
MtCO2e
800
776
47%
700
 The Government is expecting new
buildings to play a key role in the
reduction of carbon emissions. It
has set Zero Carbon targets for
new buildings:
79% of the reduction
32%
173
37%
603
600
18%
52
19
500
22
13
5
492
400
300
200
2022 Net
Total*
Farming,
land and
waste
Workplaces
and jobs
Homes and
communities
Transport
Power and
heavy
industry
2008 Net
Total*
1990-2008
Change
0
1990
Total
100
-
2016 for all new homes and
schools
-
2018 for all public sector
buildings
-
2019 for all new buildings
 The Energy Performance of
Buildings Directive will also be
important in reducing the
emissions from workplaces and
jobs
3
Construction is investment which provides long-term benefits
Investment in construction generates long-term benefits
for the country – example: building new schools
Secondary School Educational Attainment
(2008)
Percent of pupils
 65% of children achieved 5 or more
GCSEs at grade C or higher
100
90
80
70
60
50
40
30
20
10
0
+1ppt
5+ A*- C
GCSE passes
 The benefit of new school buildings can
be estimated based on the average
lifetime earnings for different levels of
educational attainment and the number
of children who benefit by increased
attainment

National
Qualification
Level 2
<5 A*-C
GCSE passes
Benefit of
£600–1,300
Current performance
(in present
value terms)
Allowing for the impact of new facilities
to decline over their lifetime, only a 1ppt
increase in the proportion of children
achieving level 2 or higher, would result
in a return of £1.03–2.20 per £1 invested
3
Construction is investment which provides long-term benefits
£1 investment in construction of a new school costs only
£0.44 net to the Government for a total benefit of £3.87–5.04
Example: Investment in school construction (new build)
Impact
£1 expenditure
Government
investment in
school
construction
Treasury
impact
£1
Short-term
economic
impact
Increased
income tax, NI
and
corporation tax
receipts
Savings in
benefits
allowance
Increased
income tax, NI
and
corporation tax
receipt
Savings in
benefits
allowance
£0.13
£0.23
£0.20
£?
Indirect impact
Induced impact
Long- term
benefits
£
Increase in education sector
output
Increase in
educational
attainment
£
Net
cost
£0.44
£0.75
£1.03–2.20
Increase in lifetime
earnings
£?
Quality of life and
wider social and
economic benefits
£1.03–2.20
Other health and
regeneration benefits
£
Total impact
£2.84
Increase in UK construction output
(direct impact)
£1.09
Key:
ILLUSTRATIVE
Estimated present value of impact
£
Present value of impact excluded from the current analysis
£3.87–5.04
Construction in the UK economy
Government investment in construction is the most beneficial use of
stimulative public expenditure in both the short and longer term, and
any reduction in construction expenditure would have significant,
immediate and enduring negative consequences for the UK
1 Impact on economic activity
- Construction is one of the best ways of stimulating economic activity
2 Contribution to employment
- Construction is the best sector for stimulating employment
3 Benefits of investment
- Construction is investment which provides long-term benefits