黑洞社区

There is a Chinese proverb which states that it is unwise to accept a reward without merit. When the government promises to increase housebuilding to 1.5 million units in the course of this parliament, or offers 拢600m for enhanced basic training, then we should assume that a wider and more challenging agenda is in play.

Labour鈥檚 willingness to combine carrots and sticks was well illustrated by the recent planning reform working paper on the accelerated delivery of housing. Hidden among a number of sensible proposals for a faster rate of build was the controversial delayed homes penalty. Increasingly, the government appears comfortable mixing policies that simultaneously support and frustrate the efforts of key industries like housebuilding.

These changes are not compatible with construction鈥檚 existing business model. Trapped between two irreconcilable forces, how is the industry supposed to respond?

What is happening in planning will follow in labour markets. The welcome support for construction skills is closely aligned with other changes to employment and migration rules. Again, these changes are not compatible with construction鈥檚 existing business model. Trapped between two irreconcilable forces, how is the industry supposed to respond?

The proposed changes affect training, employment rights and access to low skilled migrant labour. They are complex and interact in surprising ways but add up to a multi-pointed challenge to construction鈥檚 fragmented employment model.

Changes to the industry鈥檚 skills and training model are the carrot and are broadly positive. Additional funding of 拢600m was announced before the Spring Statement. Most funding will be focused on level 2 skills, equivalent to GCSEs where need is greatest.

Short-course apprenticeships lasting nine months will encourage recruitment at lower skill grades given the rapid progression to full rates of pay. The shocking 50% drop-out rate for construction apprenticeships might fall.

Currently, given the industry slowdown, the main problem with the skills programme could be the availability of jobs for new recruits at level 2. Staffing the technical excellence colleges and skills bootcamps will not be easy either. However, the long-term challenge will be finding the organisations to invest in and employ trade skills.

Construction moved away from directly employing and training its workforce over 40 years ago. Today鈥檚 model is much more fragmented. We have 810,000 self-employed operatives, and most of the 700,000 people engaged through umbrella companies also work in construction.

Just as the investment in the workforce is needed to fund expansion in advance of workload, the industry鈥檚 employment model is about to be challenged like never before.

Turning to sticks, construction is particularly exposed to new employment legislation. The Employment Rights Bill aims to improve the quality of jobs, particularly for the lower skilled. Among its many provisions are day-one rights for unfair dismissal and parental leave, greater enforcement of statutory sick pay and improved rights for agency and gig workers. These include the regulation of umbrella companies.

Measures aimed at eliminating zero-hours contracts in retail and hospitality will affect well-established patterns of flexible, project-based employment

Construction鈥檚 problem is that its employment models do not fit. In particular, measures aimed at eliminating zero-hours contracts in retail and hospitality will affect well-established patterns of flexible, project-based employment.

After 12 weeks鈥� work, for example, employees 鈥� including those of umbrella companies 鈥� will be entitled to request a period of predictable work. Will an umbrella company be able to provide this guarantee if it does not control the work? Will the end-hirer have to take on more employment risk?

Viewed from outside the industry, a predictable work pattern looks like a reasonable request, but the umbrella company model evolved specifically to enable operatives to work across multiple short-term projects, while managing IR35 risk. It is unlikely that there will be a carve out, so firms need to plan to adapt, adding further cost and reducing flexibility.

The regulation of umbrella companies could spell trouble too. Abuses like unfair deductions do need to be rooted out. However, umbrella companies are not a permanent feature of the labour market and, if the business model is made less attractive and umbrella companies withdraw, then construction firms will need to pick up the slack. They need to start scenario planning for a day when reliance on agency labour and self-employment plays less of a role in managing business risk.

The final change concerns skills-based migration. If skills is a carrot and labour laws a stick, then these proposals could be the rug being pulled from under the industry鈥檚 feet.

Proposed changes are deliberately designed to eliminate distortions in labour markets, including construction鈥檚 long-established reliance on skilled migrant labour from eastern Europe and other markets. UK recruitment into construction has fallen as a result of this migration.

Under new rules proposed last month, skills-based migration will be available to degree-holders only. Industries which access the safety net of a 鈥渢emporary shortage list鈥� will need an industry-wide strategic training plan.

The proposals will take immediate effect, with many construction jobs already eliminated from the shortage occupation list. Seventy-five per cent of jobs in construction fall below the skills threshold and will have to be filled by a UK resident from now on.

Taken collectively, these measures mean that, just as the government needs construction to expand, the industry must plan to change its employment model, training more of its people and taking on more risk. The unintended consequence could be that construction becomes more like other industries, even as it becomes more exposed to a cyclical acceleration in housebuilding and climate change investment.

Any client or construction business which relies on agency labour and self-employed labour in its supply chain will be exposed to these changes

Construction鈥檚 problem is compounded by the fact that the sector is not a big enough problem for the government. Its migrant labour challenge is dwarfed by the social care sector and its exposure to skills in critical demand is low, ranked ninth according to the ONS, well below shortage levels affecting sectors such as education.

Construction will struggle to make a case to be different. The sector is referenced only twice in the migration white paper, even though it is one of the most exposed.

Firms are running out of options for how they employ their people. Any client or construction business which relies on agency labour and self-employed labour in its supply chain will be exposed to these changes. The prize is that the changes will improve skills, employ more UK citizens and improve job quality. The cost could be loss of flexibility,  exposing construction firms when the next downturn comes.

This is a huge change 鈥� and we are not talking enough about it. The industry must start facing up to labour pains. 

Simon Rawlinson is a partner at Arcadis