Midlands’ skills shortages remain key challenge to infrastructure delivery

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Construction and infrastructure workload expectations for the Midlands continue to improve with the most positive outlook since the referendum, according to the latest Royal Institution of Chartered Surveyors (RICS) Construction Market Survey, Q1 2017.  The pace of growth has increased across all sub-sectors.

In Q1 2017 31% more respondents reported an increase in workloads, (up from +28% in Q4 2016). Activity expectations for the next 12 months also remain firmly.  Regionally 12 month expectations of profit margins also continued to improve despite reducing slightly at the national level. The shortage of skilled labour persists in UK infrastructure and construction and is again widely cited by contributors as a factor potentially impacting the performance of the industry.

Looking at the different sectors, 36% more respondents cited an increase in private housing output rather than a decrease.  The commercial sector saw the largest growth in workloads with 44% more respondents seeing a rise. Private Commercial outpaces other sectors in the region in Q1 2017 whereas in previous quarters, private housing was the driving force in Midlands’ construction sector. Nationally infrastructure workloads continue to grow steadily with the most significant increases in rail, road and energy categories. These sectors are also viewed as the most promising sectors in infrastructure for the next twelve months. Breaking this down, 60% of respondents felt that repair and maintenance work of existing structures is the most needed type of investment in their area whilst 40% felt investment in new projects was necessary.

As workloads increase, skill shortages, once again, are still sighted as a significant problem to the Midlands’ industry with 55% of respondents stating a shortage of skilled labour to be a key impediment to growth. This is slightly up from 51% in the last quarter. In recent reports, the proportion of respondents noting skill shortages to be the major barrier to growth had come down slightly but the latest results along with surveyors’ comments suggest labour shortage pressure across the UK construction sector is intensifying once more.

Alongside this, 71% of respondents reported insufficient availability of quantity surveyors, with skill shortages in this area becoming increasingly prominent since 2014.  At the national level the results also point to the quality of available workers (rather than simply the quantity) being the principle driver in skill shortages, with 67% of respondents taking this view. Looking at this further, 59% of contributors feel that improved education pathways and training would the most effective policy response to alleviate labour supply pressures, whilst 31% of contributors feel direct government subsidisation of training would be the most effective.

Meanwhile, financial constraints are still the most significant obstacle to growth with 70% of respondents citing this as an issue. Planning and regulation remains a significant impediment to growth with 57% of respondents citing this as an obstacle (up from 48% in Q4 2016).

Regionally all parts of the UK have observed an increase in pace of output growth in Q1, with the exception of Northern Ireland. The was due to the pace of growth slowing within the infrastructure, private industrials and public non-housing sectors. Output growth gathered the most pace in London and the South East where the net balance rose from +7% to +22%.

Geoff White, RICS Policy Manager, comments: “Clearly a good news/bad news report. The increase in workloads and expectations are very welcome. The government’s focus on and investment in infrastructure is showing through, however, as RICS has been pointing out for a number of years, a shortage of skilled labour, including quantity surveyors, will hold back development and growth. It stems from short sighted government policy over the past 10 years and puts more pressure on the future government to invest more and quickly in construction training and skills.

“The skills shortage has clear implications for the future of the Midlands where major plans are being developed to improve transport infrastructure through Midlands Connect. Better East-West connectivity is crucial to investment and economic growth plans, especially to build on High Speed Rail 2. It would be a disaster for any government’s plan to rebalance the UK economy if a shortage of skilled labour was allowed to hold things back. There have been some great improvements in the regions through the placing of the National High Speed Rail College in Birmingham as well as the setting up of skills hubs by LEPs but much more needs to be done. This is a vital issue for the entire Midlands that the new metro mayor should tackle urgently after the elections on 4th May.”

Speaking on the forthcoming General Election, Mr White continues: ““RICS highlights the issue in its soon-to-be-published General Election manifesto and calls for commitments from all parties. This is a major Brexit issue too. RICS estimates EU nationals account for 8% of the industry workforce which is almost 200,000 workers. With UK construction already facing a chronic skills shortage, it could threaten some of the country’s biggest infrastructure and construction projects, as well as their respective pipelines.”

Jeff Matsu, RICS Senior Economist, commented on the latest RICS survey data: “The mood music in the construction sector has improved in line with the better tone to macro data more generally. However, the survey does highlight some key challenges that need to be addressed if government’s ambitious plans for housing and infrastructure, in particular, are to be met. Access to finance, alongside planning and skill shortages, both quality and quantity, remain big obstacles to delivery and though some plans are in place to address these issues, it remains to be seen whether they are sufficient to make a meaningful impact.”