§ 9.30 p.m.
§ Lord Dean of Beswick rose to ask Her Majesty's Government whether they will consider taking urgent steps to assist the reactivation of the building industry.
§ The noble Lord said: My Lords, I tabled the unstarred Question on the Order Paper to ask Her Majesty's Government whether they will consider taking urgent steps to assist in the reactivation of the building industry because I firmly believe that the industry itself is now in a critical condition. Unless steps are taken at this point in time to remedy this, the industry could, in my opinion, be damaged beyond recovery.
§ The latest figures published by responsible bodies such as the Building Employers' Confederation, the Institute of Maintenance and Building Management, the Federation of Master Builders and the Federation of Civil Engineering Contractors show a still seriously deteriorating situation, and this was highlighted by an article in the Guardian of Monday of this week which reinforced this view.
§ On the figures that are available, no facet of the building industry can be absolved from the decline that is taking place whether it is in the construction sector itself or in the supply industries. For example, what is, I understand, a very widely used commodity, cement, is well down in terms of production and finance and well down in terms of people employed in the industry.
§ The Minister who is to reply to the debate may recall that some weeks ago I questioned him on the situation in the building industry. He indicated that the industry was receiving or taking its share of the so-called economic recovery. None of the figures available to us today remotely supports that point of view. I ask him whether he cares to comment on that in his reply.
§ However, it is not solely because of the interests of the building industry or the question of the massive unemployment with which we are now dealing that I propose my course of action, but because the building industry, as an industry, is charged with the responsibility of building and maintaining the physical infrastructure that is necessary to maintain and advance our quality of life as a nation.
§ The latest evidence available from all sources shows that we are slipping down the league table rather dramatically compared with our European partners. Recent reports issued by such organisations as NEDO on behalf of Neddy, and the Policy Institute Studies, show an alarming deterioration in our infrastructure in a general sense. The report of the second body that I named calls for expenditure of £3½ billion a year over the next 10 years for new house building, the repair and maintenance of old housing and the repair and building of roads and other related facets of the infrastructure such as sewage works. The reports indicate the serious situation that we face in the future unless these problems are dealt with now and as a matter of urgency. I suggest that we ignore them at our peril.
282 If we accept that this course of action is necessary, perhaps I may give some details of the building industry. There are now approximately 1.5 million people employed in the building sector and related industries, with upwards of 400,000 building workers at present unemployed. As I understand it, it is the biggest single employer of labour in the country and is in a general sense one of the most highly labour-intensive industries that we have. The building industry has the prime capacity to translate investment into jobs more quickly than any other major industry.
§ Let us now look at what investment would mean in terms of employment. Figures that I have received from organisations representing the industry show that, if the £1.5 billion bandied about in certain circles as being the possible forthcoming cut in income tax was invested in the building industry, upwards of 170,000 jobs could be produced. That would have a significant effect on the appalling unemployment figures which I am sure every noble Lord wants to see reduced as quickly as possible. These figures are extracted from a report on the Cambridge Econometric Group Survey of 1981. My contention is that it would be preferable to spend this money now rather than see the deterioration of the country's infrastructure. Colossal amounts of money will otherwise have to be found at a later date to deal with this problem.
§ There is no guarantee, however, that if that sum of money was given in income tax reductions it would result in unemployment being reduced as the Chancellor and some other senior members of the Government suggest. Let us look at what happened in 1979, when the Chancellor reduced income tax by, I think it was, the equivalent of 3p in the pound. Unemployment in the United Kingdom was at that time running at 1,343,000. In June 1980, after one year of enjoying this 3p cut in income tax, the unemployment figure had risen to 1,659,700. By June 1982, three years after the incentive of income tax cuts equal in global terms to £1,288 billion, the unemployment figure had zoomed upwards to 2,769,000. Five years later, in June 1984, the unemployment figure had, for the first time that I think many of us can remember, topped 3 million and gone to 3,029,700. So there is no real evidence to sustain the argument in a general sense that if income tax was reduced it would show on the credit side in terms of employment.
§ I have tried to indicate the measures that should be taken to ensure the survival and prosperity of the building industry in the future, not just in the interests of the industry itself but in the interests of our nation as a whole. I am not making a political attack on the Government because I know that noble Lords on the other side who are to speak in the debate probably to a great extent support some of the points that are being made.
§ May I now turn to other measures which I think the Government should adopt to help the immediate situation? One of the aspects that is frightening the building industry at present—I think with obvious justification—is the possible imposition of VAT on 283 further types of building. I have the pleasure of belonging to an all-party group in the House. The noble Lord, Lord Broxbourne, is himself a member; and quite a lot of members are Members of another place. We meet periodically to discuss the problems of the building industry. There is a group of people called the Group of Eight, who, while they do not speak authentically, in total, for the building industry, are cast from a wide area within the industry. They include trade unionists. They speak in a general, directive sense on what the building industry wants. There is no question at all that they support the points that I am making. One of the things about which they are worried to death is the question of VAT.
§ Some noble Lords present may recall that when in the Budget last year the Chancellor imposed VAT on various aspects of building improvements, such as double glazing, I questioned the wisdom of the Chancellor in extending that tax to cover those particular items—a variety of home improvements including, as I have said, double glazing. Indications are now appearing that, since this imposition, bankruptcies and liquidations of small companies have substantially increased.
§ I suggest the following remedies to deal with the situation. May I give some figures to illustrate my point? In my opinion, we have at last to deal with the question of the lump (as it is called) or the cowboys of the building industry. The imposition of VAT on certain items has meant a bonus for this type of operative because they have no regard for the real needs of the industry and evade most of their responsibilities, such as the payment of income tax and related matters.
§ The global amount of money that was involved in home improvements last year was in the multiples of hundreds of millions of pounds. I think the sum was £500 million, which is a colossal sum. The fact that VAT is now imposed on this particular facet of the building industry has damaged it considerably. I should hope that as a matter of urgency the Government will reconsider the situation.
§ I see the noble Lord, Lord Broxbourne, in his place. I know that he has some definite views on the question of the extension of VAT generally and has taken up the matter with the Government which he supports. However, I understand that there is a question that the EEC are in the process of being involved in litigation which may force the Government of this country to impose that VAT. I trust with all the hope I can muster that the Government will resist to the absolute end the possibility that that will take place.
§ There are other things that could be done. The Government could reduce the VAT band from £18,700. That would help immensely. There is also the question of the restoration of some of the public expenditure cuts. The public sector is probably the biggest user of the building industry. The last figure that I saw showed that about 20 per cent. of all the building that took place in the public sector was done by private people. I start from the point of view of supporting direct labour organisations. I have, 284 however, to make sure that such support is based upon those organisations performing competitively and successfully on behalf of the ratepayers they serve. But, as I have said, 20 per cent. of the global sum spent normally in terms of public expenditure finds its way into the private sector. One of the biggest sectors is the home improvement programme which could be accelerated through Government measures to give immediate relief to the building industry and the unemployment figures.
§ I do not wish to deal at great a length with the public side of the debate. I understand that my noble friend Lord Graham of Edmonton intends to deal with that facet. It is, however, a fact of life that, in terms of council house building, there is a tremendous need among all groups of people. The position of the homeless in multiple occupation has deteriorated alarmingly since I had the privilege of moving a Private Member's Bill in another place five or six years ago. The figures are now worse and not better. In the major cities, where the stress areas are to be found, Birmingham talks in terms of necessary expenditure in multiples of not millions of pounds but billions of pounds to repair and maintain the housing stock under its control. What one can say of Birmingham, one can also say of the London boroughs, of Manchester, of Leeds and of every conurbation.
§ At one time we thought that we were getting over the hump and that we had built enough family-type council houses to enable us to deploy our housing policies on a broader basis. We now find, in all the major stress areas, that housing waiting lists are escalating and not reducing. We also find increasing numbers of a new category of person, with little or no chance of purchasing in the market or renting in the private sector, now asking for accommodation. I refer, of course, to young single people. It is a fact of life now that young people tend, as soon as they can, to want to make their own way in society. In the majority of cases, from my experience, they do not want to sit on the laps of mum and dad until time immemorial because they think they are on a soft touch. There is great deal of independence emerging among young people.
§ There is no question that the house-building programme both in the private sector and certainly in the public sector is the worst within living memory since local authorities started building houses for the citizens of their areas to live in. It is time that the Government—I have to get a little political here—stopped talking in terms of their housing policy being a success because of the sale of council houses. Even that policy has lately been shown to be a charade. Noble Lords may recall that a short time ago I questioned the Minister on what was to happen to the £5 million that local authorities raised by their publicly owned assets such as council housing and various other things. This was because the amounts made available—about 40 per cent.—had been cut to 20 per cent.; they had been halved.
§ All these measure which have been taken tend to give the building industry, perhaps wrongly, but I think quite understandably, the impression that the Government do not care for it as an industry. I found 285 it rather sad to hear today from these people. I understand that the last time they met a Government Minister to discuss their case they had the privilege of meeting the Chancellor of the Exchequer. Today they used the term—it is not my term—that they were "fobbed off". They have now been offered an opportunity to meet the number two, Mr. Peter Rees, the Financial Secretary to the Treasury. This is not good enough. As I said at the beginning of my speech, we must have a viable, thriving and progressive building industry in the widest sense, for construction, roads, sewers, hospitals, maintenance, and other forms of public and private building. This is the barometer of a nation's health and its progression.
§ I said earlier that we are slipping down the league in Europe. There is no point in the Government saying that it is none of their business. It is the Government's business, irrespective of their political persuasion, to take a large amount of responsibility for the quality of life that the people of this country can expect, or certainly that our children can expect in the future. It is my contention, in asking this Question—I have tried to put some points cogently and objectively—that at present the Government are failing abysmally to do that. If they do not correct the situation as quickly as possible, reverse the processes and listen to the people representing the building industry, they will put the nation in peril.
§ 9.47 p.m.
§ Lord Broxbourne
My Lords, I welcome the initiative of the noble Lord in making possible this short but useful debate. I do not go along with absolutely everything he said, and I dissent from some of his strictures on the Government. Nevertheless, we have listened to an interesting and constructive speech. Like the noble Lord, I too, as he has been good enough to observe, have a long-time interest in the construction industry. It is not a technical interest of the kind that requires declaration in this House. The nearest I get to a financial interest in the construction industry is in the interpretation, in a professional capacity, of building and civil engineering contracts and the resolution of conflicts arising therefrom. I cannot flatter myself that among the favourite bedside reading of your Lordships is likely to be, Walker-Smith on the Standard Forms of Building Contracts, though, now that I think of it, it may be that it has certain soporific qualities which would make it a valuable addition to your Lordships' bedside reading.
Financial interest probably ranks as a contra for the purposes of this debate, since the greater the prosperity of the industry, the fewer the problems and conflicts, and vice versa. It is not my intention to add to the continuing saga of the long-running conflict between so-called "wets" and "drys", which is beginning to assume Homeric proportions; nor is it my intention to engage in the general argument about pump priming or the claimed rewards and apprehended risks of increased capital expenditure in the public sector. I recognise the heavy responsibility lying on Ministers in the present state of the national and world economy, and salute the determination and realism that they are bringing to their formidable task.
286 I accept that spending and borrowing are certainly not an Open Sesame to a greater prosperity and employment, and that it is necessary to show that such an approach is within our powers and resources in a keenly competitive world—a world in which we so absolutely depend on success. I accept that such policies have to past the test of economic viability as well as social desirability.
It must follow, therefore, that I accept, too, that the onus is on those who suggest such an approach in any specific case. Circumstances, and perhaps exceptional circumstances, must be established which discharge that onus in any particular case. It is to the task of discharging that onus in the case of the construction industry that I now briefly address your Lordships.
Three particular circumstances single out the construction industry for perhaps special consideration. First, there is the decline in recent years of the construction industry relative to the gross domestic product. Since 1973—which, it is true, was a peak year—construction output has fallen by 16 per cent., whereas GDP has increased by 13 per cent. for the same period. Looking to the future, it is estimated that new construction work will fall by £500 million in 1985–86, or 5 per cent.—or it could be more if construction industry prices rise in line with inflation. This, of course, indicates a fall in output for the construction industry at a time when GDP as a whole is expected to rise, albeit modestly.
I turn to the second special circumstance. It is not necessarily good economics or prudent finance to curtail spending on maintaining the infrastructure. Preventive maintenance now undertaken will be cheaper than the major works which will be required after deterioration has set in. The problem was examined in the NEDO paper on investment in the infrastructure. The consequences of delayed maintenance and renewal were examined in this authoritative paper in respect of the main public sector activities—housing, hospitals, roads and schools.
The position was summarised in paragraph 26 of that paper, which I hope that your Lordships will permit me to read. It said:The reports show that in many areas the present criteria, systems and levels of resource allocation have led to backlogs of maintenance, repair and renewal because they do not allow spending decisions to be based on value for money. These backlogs are neither trivial nor cosmetic items, though of course deterioration on its own does not prove the need for further expenditure unless the outcome will provide value for money. The examples encountered include many which arise from delays in maintenance which so sharply increase necessary expenditures in subsequent periods that no rational discounting process can justify them. In many areas, present systems levels of resources allocation have led to failures to maintain the fabric of buildings and structures, to remedy structural faults, to renew worn out components and to remove obsolescent features".I think that that shows clearly and authoritatively that money denied now does not necessarily, or even normally, mean money saved in the long term, when greater works of repair and renewal have to be carried out at higher building costs.
I turn to the third special consideration. The construction industry can and does make a notable contribution to employment and to an increase in investment. Professor Ormerod, of the Henly Centre for Forecasting, demonstrated in a recent paper that a £1 billion increase in investment on construction each 287 year for five years would create between 70,000 and 100,000 extra jobs—the price of about half a per cent. increase in retail price inflation each year. You do not have to be very "wet" to think, on the face of it, that it makes some economic sense in addition to the great human gain in tempering, to that extent, the severity of unemployment.
I turn briefly to the tax aspect. The tax proposals of the industry are contained in the memorandum of the building and civil engineering organisations to the Chancellor of the Exchequer on his 1985 Budget. The proposals include VAT, capital allowances, mortgage interest relief, stamp duty and development land tax. I need not, therefore, dilate on these matters, and perhaps it is just as well. On tax matters, I walk like Agag, delicately, the wisdom of which approach was confirmed in my short period as a Treasury Minister. Nowadays at the mere mention of tax, I tend to call either for an accountant or an aspirin, or possibly both simultaneously.
Therefore, I say only this on VAT, to which the noble Lord, Lord Dean of Beswick, has so properly referred. The 1984 Budget extended the standard 15 per cent. rate to alteration work on buildings, and that was a major blow to the industry. It also caused apprehensions about the possibility of extending VAT to new building construction in this coming 1985 Budget. These apprehensions are no doubt the keener because of the contention of the Commission of the EEC, to which the noble Lord referred, that zero rating of construction as practised in this country is contrary to Article 28 of the Sixth VAT Directive.
VAT on new construction would be damaging not only to industry and employment but also to the citizen in his daily life. Perhaps my noble friend can inform us of Government thinking on the matter and how far they think they can resist the pressures from the Commission.
There is one other aspect of VAT to which I shall briefly refer, which was also mentioned by the noble Lord. The memorandum asks that the law be strengthened to curb the black economy, the so-called "cowboys", whose activities are lowering the standard of work, especially in the repair sector of housing. Again, I have a non-financial interest to declare here, being a former chairman of the National House Building Council. As your Lordships may know, the purpose and function of that council is to promote high standards in house-building by the prescription of standard specifications and keeping a register of builders pledged to adhere to them.
The social value of high standards in building should not and must not be confined to new works, which is the prime purpose of the council. High standards in repair and maintenance are also of great importance and socially desirable. I am very glad that builders, at a time of considerable economic concern and apprehension on their part, have nevertheless shown themselves active in promoting and seeking to promote high quality in building. I respectfully commend their suggestions to my right honourable friend the Chancellor of the Exchequer.
This is a short debate, but I am sure that it will be a worthwhile debate and I commend its content and its 288 conclusions to Ministers. I hope that such action as is possible and appropriate can be taken.
§ 10 p.m.
§ Lord Ezra
My Lords, the noble Lord, Lord Dean of Beswick, has introduced an important topic which merits longer time for debate. As both he and the noble Lord, Lord Broxbourne, indicated, the building industry has tended in these last few years to suffer a good deal more than the average sector in the economy. It is important to try to find out and determine why that has been the case. I believe that the reason lies largely in the fact that the building and construction industries not only serve the private sector but also serve the public sector in a large way, and it is the massive reduction in public sector capital investment which has led to the dire state in which the building industry of Britain now finds itself.
If we consider the volume of public sector capital investment in 1982, it was, in constant price terms, approximately a third of what it was in 1973. That is, in the period of 10 years there was a reduction of two-thirds. Public spending on housing in the early 1980s was half the level of the mid-1970s. One does not have to look beyond that factor to understand why the building industry is in such a critical situation.
Let us make no mistake about it, there is no current improvement in the outlook. I have here a copy of the Civil Engineering Workload Survey for the month of January 1985 issued by the Federation of Civil Engineering Contractors. They say:The prevailing mood among the respondents in all categories would appear to be one of pessimism, with few firms anticipating any tangible improvement in the short term".There is no indication that the situation is going to improve according to the order books of those in the industry.
At the same time, however, as the noble Lord, Lord Broxbourne, pointed out, the need is there. The recently published NEDO report made this clear. The noble Lord quoted from it. The figures are substantial. Merely to get maintenance, repair and renovation back into line, £2 billion is required for hospitals; £5 billion for housing in the public sector; £7 billion for housing in the private sector. Never was a need more clearly identified than that which has been identified in this report, prepared at the request of the NEDC, for substantial expenditure to get the fabric of Britain right.
And yet it is sad to reflect that, when one considers the measures that governments have taken in recent times, they all appear to move in the opposite direction. For example—and the noble Lord, Lord Dean of Beswick, referred to this—the large sums of money, totalling £5 billion, obtained from the sale of public housing have largely been frozen, and yet that is the very sum which the NEDO report indicates as being necessary to repair the houses in the public sector.
Reference has been made to the VAT situation, which has certainly been an added impediment, and if it were extended would have dire consequences. The improvement grants have been cut by 50 per cent. That is a disincentive. A good deal of repair and maintenance were stimulated by the introduction of 289 these grants, but the cutting has got us back to the old stop-go situation. The public expenditure White Paper, in spite of all the representations made by interested parties, is in fact going to introduce over the next three years what is equivalent to a 15 per cent. cut in real terms in public expenditure.
So anybody who examines this situation cannot help but be extremely disturbed about it. We have one of the largest and most important industries in Britain having suffered for some years substantially more than other sectors largely due to the massive cutback in public sector investment. At the same time, the need for more investment in the public sector merely for repair, renewal and replacement has been clearly identified, but Government policies so far all seem to be moving in the opposite direction.
I should like to urge the noble Earl, Lord Avon, when he replies, to take all these factors into account. These are not debating points which are being made this evening. The views of the noble Lords who have spoken and my own views as expressed just now reflect those of very important organisations in the industry and outside it: the National Council of Building Material Producers, the Federation of Civil Engineering Contractors, the Building Employers' Federation, the National Home Improvement Council, the CBI, the TUC—and one could speak of many more organisations. Never has there been such a consensus on the need to reactivate the building industry as there is at the present time. I hope that the Government will listen very seriously to the very considered opinions now being put forward.
§ 10.7 p.m.
§ Lord McAlpine of West Green
My Lords, I must declare an interest as a shareholder in and a director of a construction company. When we speak of the construction industry, we are talking about jobs. Often the same people who call for capital expenditure to create jobs are those who, when it is proposed by the Government, oppose it. Let me give your Lordships a few examples. Almost everybody accepts that London's airport capacity needs to be expanded. It is a project that would generate directly and indirectly some tens of thousands of jobs. We have two substantial needs: the need for additional airport capacity, and the overwhelming need for jobs. Since the finance for the project is readily available, one would have thought that we were in sight of a substantial step forward.
What happens today? To be kind about the matter, we would describe it in this way. Interests around Heathrow oppose the additional airport capacity being located there and, apart from sheer self-interest, the argument put forward is that that would require the removal and relocation of a large sewage farm, it being most unfair that other parts of London would have to look after Hounslow sewage. So they would prefer the additional capacity to be located at Stansted. The only trouble is that interests around Stansted would prefer that it be located elsewhere; if not at Heathrow then, they hope, at Manchester, Birmingham or in Scotland. And so it goes on.
As we squabble, jobs wither on the ground. It would be a great misfortune if it were the only example of wasted opportunity, but it is not. The Sizewell inquiry 290 has gone on for more than two years, has cost some £25 million, has generated a pile of paper higher than Big Ben, and has not provided a single real job. It has been estimated that it would be cheaper to build a prototype reactor to check on its safety than to indulge in this inquiry, which some have aptly compared in both content and duration to "The Mousetrap". While the many pressure groups adopt their stances on the stage and we provide the willing audience, the unemployed wait in the wings listening in vain for their cue.
Just down the road there is yet another example to be found, in the City of London, of damaging delay and inordinate debate. The Government and the City institutions between them are currently undertaking one of the most radical reforms of our financial institutions since the war so that the City can continue to beat the growing competition from abroad and can continue to generate profit and jobs for this country as they have done for nearly 500 years.
Yet, at the very same time as the City institutions are planning for the 21st century, the draft local plan which has been put forward by the City planners looks back to the 19th century. Its proposals are designed to set the environmental rules for the City of London, and it commits nearly two-thirds of the heartland of the City to conservation and to the rather mixed collection of Victorian buildings which currently occupy most of the site. While many of the buildings in the City of London are very fine and deserve to be preserved, many others are little more than inferior speculative gestures which were not very good even when they were built and which are less good today.
The demand for sensible modern development is very strong from City institutions. The funds are there to do it, and the need for job-creating projects is overwhelming: yet once again we run into obstruction. Your Lordships may have heard of the Mansion House Square project, where it is proposed to spend £75 million, without requiring a single penny of taxpayers' money, on a capital project within the City which would create 7,000 new jobs over the course of time. It was first given planning permission in 1968, and yet it is still being debated today. Such delays make nonsense of our commitment to tackle unemployment.
We seem to be moving further and further away from a sensible balance on such matters. There have been four inquiries into the Archway scheme in North London, and still we have not made up our minds. There were countless delays over the M.25 motorway project, and there are today time-wasting and job-destroying delays on all too many major construction proposals. It is in Parliament that we have to balance the sometimes conflicting issues and interests which face us on such matters. I would say only this. If the creation of new jobs is of paramount importance (and I believe it is), then it is our duty to see that the pendulum swings away from constant debate and back towards continuous activity. Future generations will offer nothing but scorn if they find out that we had the resources to tackle unemployment but that we preferred to debate the issue instead.
§ 10.12 p.m.
§ Lord Graham of Edmonton
My Lords, of course I join with other noble Lords in thanking the noble 291 Lord, Lord Dean of Beswick, for his initiative; and we have a responsibility not only to ourselves, even though the hour is late, but to millions of people outside who look to Members in both Houses, Back-Benchers and Front-Benchers, constantly to ask the Government the right questions. The Minister who is to reply to the debate tonight is, I know, fair in these matters, and what I hope he will take away to his consultations with his ministerial colleagues and others is the knowledge that those who have spoken in this debate, short as it has been, all come to the House with a breadth of experience almost unparalleled in one way or another in such a short debate.
The noble Lord, Lord Dean, for more than 10 years in another place and here, has demonstrated his deep knowledge of all aspects of the building industry. I know very well, from experience in another place and also, before he got there, from experience in local government, that he speaks from the heart and from a very wide knowledge. He made a number of points which I shall refer to as I progress.
As always, I listened with appreciation and respect to the words of the noble Lord, Lord Broxbourne. "Preventive maintenance" is a phrase that he used and which quite clearly we all understand, but never more so than when we are talking of billions of pounds and millions of workers. He went on to say it is not much good not spending money now when it will have to be spent later. You do not save money later if you deny spending money now. The problem for the Minister (which I understand) is that he cannot do everything at once. But the burden of the remarks of the noble Lord, Lord Ezra, quite frankly, was that not only was the Minister not doing very much but that many of the things he was doing were detrimental to the interests of the industry.
The noble Lord quite rightly pointed out that one of the problems arises because the major part of the work which is done by the construction industry is in the public sector. I know that for every £100 that Enfield Council spends on housing £85 is spent in the private sector, so that when you are denying the public sector you are actually crippling the private sector. We need to address ourselves to some of these points.
I want to use the arguments that have been given to me by a range of bodies, many of which have already been mentioned, but they are entitled as taxpayers, as employers, as employees and as good citizens to have their case put fairly and squarely. What I want the Minister to understand, as has been said, though not by the noble Lord, Lord McAlpine of West Green, whose interests and experience we respect, is that the construction industry is in decline. If the Minister will not dodge that issue and will agree with us that is it is in decline, and will not use statistics to try to prove that it is not in decline, he will have a great deal of sympathy from me.
The fact, which the people in the industry know and tell us, is that their industry is in decline. It is in decline because of the reason given by the noble Lord, Lord Ezra. If the decline in investment in the public sector was matched by a counter-increase in investment in the private sector, that would at least be one thing. But it is not being matched and there is a decline in 292 investment in the public sector and also in the private sector. Statistics have been used quite sparingly but we need to use some, and the stark fact to indicate the decline in the construction industry is the number of bankruptcies.
Bankruptcies rose from 832 firms in 1979—and your Lordships know why I select that dateline—to 1,180 in 1983. Company liquidations rose from 789 in 1979 to 1,776 in 1983. Those are the statistics of an industry under threat, in trouble and in decline. Housing investment has declined by 80 per cent. since 1979—a colossal reduction. We know that the needs still exist. There are 400,000 construction workers of one kind or another on the dole and we need investment in the range of things which were mentioned by the noble Lords, Lord Ezra, Lord Dean and Lord Broxbourne—housing, energy, conservation, roads, sewers, water supplies and the rest.
The advice that has been given to the Minister has not been given by political enemies. This comes from people who are looked upon collectively as friends of this Government—the National Economic Development Office, the Policy Studies Institute, the Confederation of British Industries and the Association of Chambers of Commerce. They are all using the same thrust of the argument. What we are saying to the Government is: if you do not care to listen to us, why do you not listen to your friends? They really want the Government to succeed as a Government.
What are we looking for? Statistics have been mentioned—£10 billion on the public sector and £25 billion on the private sector. The latter would bring up to a standard not dilapidated but deteriorating private housing. There is an enormous market which must be tackled.
May I at this point ask the Minister to give us a helpful answer—I will not say a sensible answer, because that would be insulting—concerning the Government's policy on capital receipts? It is very important. The noble Lords, Lord Dean and Lord Broxbourne, referred to it. The sum of £5 billion which has been aggregated by councils in response to Government policy of selling council houses, and which has always been promised for spending on refurbishing their housing programme, is now under threat. Whereas 40 per cent. was allowable for spending, the Government have announced that the figure will be cut to 20 per cent. The Minister should take on board the great worry and the rumour that the 40 per cent. may not only come down to 20 per cent. but disappear altogether. Can the Minister tell us whether or not there is any truth in the rumour that a moratorium on expending capital receipts is in the offing?
This afternoon I attended a packed meeting of GLC tenants, held in the Grand Committee Room. The Minister will hear a good deal more about this issue when we come to the Bill to abolish the metropolitan authorities. The 250 tenants at the meeting were absolutely outraged by the reneging by the Government on the commitment to underpin the authority of the GLC to bring up to a standard properties that were being transferred from the GLC to 293 the boroughs. With the abolition of the GLC there will be a great hiatus. From where will the money come to continue the programme? The scale of the problem—the number of properties—is absolutely daunting.
The Minister can talk in terms of priorities and programmes, but I am giving to him the views of the people. The noble Lords, Lord Dean, Lord Ezra and Lord Broxbourne, have relayed to us the voice of responsible people, the Group of Eight, who met, I believe, in this House today. They give to those who carry their message the stark reality of the problem facing the industry as a whole.
The Minister will know that the Institute of Housing has recently undertaken a survey of authorities. It has asked, "What is the consequence of the current policies of the Government in respect of your ability to carry out what you want in housing?" One of the main points that emerged from the survey was that spending plans have been cut back on average by between 30 per cent. and 35 per cent.—the highest is 50 per cent. These cuts are from returns from authorities in January 1985, and are a result not of an act of God, but of an act of Government policy. The most significant effect has been the proposed reduction in the percentage of capital receipts.
There is a great deal more that can be said about housing. New building for the elderly and the disabled is also badly hit, with a fall to under 7,000 starts likely for 1985, compared with 10,000 starts in 1984. When we are looking at statistics we are talking about a reduction in housing starts for the elderly; and in terms of improvement grants, which are so desperately needed primarily for the owner-occupier to bring his property up to standard, there has been a reduction from 200,000 in 1984 to 100,000 in 1985. The statistics I have were given by the noble Lord, Lord Ezra, and are very real and depressing. They refer to the amount of money that can usefully be spent on hospitals and housing, including private housing, and in a great many other ways.
Let me give the Minister some local information. The biggest employer of labour in Edmonton and Enfield is MK Electric. The noble Lord, Lord Broxhourne, from his experience will know that company. It employs 2,000 people in Edmonton; it is the largest single employer. It is a successful company. It is pre-eminent in the making and marketing of plugs, sockets and switches. The Minister for Consumer Affairs visited the company last September and celebrated the making of the 100 millionth safety plug. It is a successful company by any yardstick. Two-thirds of its products are sold on the home market and one-third is sold abroad. Since 1979 it has doubled its sales, and it has doubled its profits from £8.7 million to £17.3 million. As I say, the company has 2,000 employees, and it returns to its employees almost £750,000. By all the yardsticks that the Minister would use MK Electric should be a company to survive and expand. But it wrote to me recently after I had visited it, pointing out that the decline in the home market could very well deal a body blow—the same problem we are talking about in the construction industry. A strong home base for MK Electric and others is absolutely crucial.
294 Of course, the company has had a massive investment programme of its own, but I want the Minister to listen very carefully to what I shall read and which reinforces the remarks made by my noble friend Lord Dean in respect of the Government's policy of lower taxation or lower unemployment. This is what the directors of MK told me:It is for this reason as much as anything else we are completely out of sympathy with the Chancellor's declaration of possible income tax cuts in this forthcoming Budget. We recognise that if we accept the recent statement we are now a nett manufacturing products' importer then much of the extra cash put into people's pockets will inevitably spread itself into consumer goods which are in the main supplied by foreign producers. So our tax cuts will only benefit at the end of the day our overseas competitors.We would strongly support that any monies the Chancellor may have be used to stimulate our own economy through tackling the improvements necessary in our national infrastructure. We feel it will generate business opportunities to a wide cross-section of companies who traditionally have supplied building materials of one sort or another to the construction industry".I ask the Minister, of course, not to comment or even to agree but to make sure that his right honourable friends at the highest levels are made aware that a good friend of the Government, let me say, as well as a good friend of the people of Edmonton, is saying to the Minister: "Please, in the Budget, do nothing to damage what is a success story".
Let me also explain what the Government's policy is in respect of local housing. I refer to a headline in the local newspaper, the Enfield Independent, which stated:Crisis deepens for homeless".Enfield council wants this Government to succeed. It is a Conservative controlled council. It applied for a HIP (housing investment programme) allocation of £18.5 million. The Enfield council is not profligate. It does not want to waste money. It wants authority to borrow that money to do what it believes is right by the people of Enfield: council tenants, the homeless, people who need housing for rent and to loan money to people for improvements, 100 per cent. mortgages, and so on. It asked for £18.5 million but what did it get? It received £5.6 million. "Ah", someone will say, "it can make that up with capital receipts". But it cannot because its capital receipts total has been damaged, too. So the Minister has those two local illustrations.
I simply reinforce the point made by my noble friend Lord Dean about the "cowboys" who are having a field day under the present raison d'être of the Government. Home impovements can account for £6 billion and at least £2 billion of that is paid for by cash. That, of course, as my noble friend Lord Dean rightly pointed out, can lead to all sorts of things. I am told by an organisation that £800 million is tax which is evaded—that is £800 million denied to the Chancellor, which means that you and I have to pay a bit more on our tax. The illegal moonlighting workforce, in my view, is getting away with murder.
My noble friend Lord Dean obviously prepares and researches his speech thoroughly, as I have done. My eye was caught by the Guardian on Monday—I know it is the favourite reading of Ministers these days—which had a headline reading:Millions need spending on 1960s flats".There is a picture of the cheerful smiling face of the 295 Member of Parliament for Manchester, Central, Bob Litherland, who in the article is talking in terms of the "deck-access" disaster type of building which is facing Manchester and other places. It is very well known, I am certain, to my noble friend Lord Dean. I have heard the Member for Manchester, Central, talk very many times about the enormous problem facing his people. It is not the Minister's fault that they were built, or they were planned, or they were allowed to deteriorate in the way they have. I am simply saying to the Minister that to put them right is part of the global problem to which people like Mr. Robert Litherland, and others who care, have to pay attention.
I want to conclude by putting to the Minister six ways in which I believe he and his colleagues can be enormously helpful. The construction industry needs more investment. There is a crying need to invest and arrest deterioration of our infrastructure. Infrastructure investment will reduce all industries' costs—that is, transport and communication costs. Investment will reduce deprivation and deal with some of the appalling standards. It will create much needed jobs and reduce unemployment and unemployment costs. And at least some of the money is there; £5 billion, to be exact.
Why do not the Government allow councils to spend it? In my view, this is a programme for expansion and construction. It is born out of a pragmatic assessment of what is needed and what can be done. It will help businesses like MK Electric. It will help the construction industry. It will help the homeless and those in housing need, like my former constituents. It will bring hope to millions. What is more, it is right. It is right for our people; it is right for our cities. Yes, and I believe it would be right for the Government. I urge the Government to get on with the job before it is too late.
§ 10.31 p.m.
§ The Parliamentary Under-Secretary of State, Department of the Environment (The Earl of Avon)
My Lords, I am pleased that the noble Lord, Lord Dean of Beswick, has raised this Question on the steps that Her Majesty's Government are taking to "assist the reactivation of the building industry". I appreciate the thoughtful and sincere way in which he expressed his arguments on a subject which I know concerns him deeply. We have indeed exchanged views upon this topic at Question Time over the past few months and I welcome this opportunity to answer in more depth some of the points that he has made.
The steps the Government are taking have already reactivated the building industry since the dates that the noble Lord, Lord Ezra, mentioned. I believe I can prove that they contributed to substantial growth. Indeed, the measures that the Government are taking, stemming from those taken in the 1981 Budget, have contributed overall to resurgence in the British economy.
In particular, my Lords, that Budget set out the Government's Medium Term Financial Strategy, with the objectives of controlling inflation and keeping a firm control of public spending and public borrowing. The Government take a firm view that this can be the only basis for securing sustained economic growth.
296 The noble Lord, Lord Dean, in his macro-economic review, made suggestive ideas. I am sure that, quite apart from the fact that I am not privy to what my right honourable friend the Chancellor of the Exchequer has in mind, he would not expect me to comment on them at the present moment, and perhaps I may say the same to my noble friend, Lord Broxbourne. The tax proposals of the building industry have been carefully considered through the Joint Taxation Committee. Again, I do not think he would expect me to comment any further at this moment.
It is an undeniable fact we have now had, for nearly four years, sustained economic growth at around 2½ per cent. to 3 per cent. a year. More recently we have had a strongly rising trend of private sector investment in much-needed buildings, plant and machinery. Last year total fixed investment in the economy ran at a record level of no less than £55 billion. That was a record in real terms, as well as in cash terms, and was no less than 7½ per cent. up on the level of the previous year. This year, 1985, we expect a further increase in real terms.
The construction industry is sharing in that recovery and the measures which the Government have taken are providing, I believe, precisely that reactivation for which the noble Lord, Lord Dean of Beswick, has asked. Perhaps the noble Lord will bear with me while I give a figure or two. May I make it plain at the outset that all of these figures are in real, constant 1980 terms, and any allowance for inflation is eliminated? I am talking about real growth which the building and construction industry has achieved through the success of our policies.
In 1981, total output of the building and construction industry was just under £20 billion. In 1982, it was a quarter of a billion up on that. In 1983 it was £21 billion—a growth of 4 per cent. In 1984 we expect that it will have been little short of £22 billion—another 4 per cent. growth. May I point out to the House that not only is that a substantial and sustained level of growth; it is also above the level of growth in the economy as a whole? That demonstrates the success of our policies, particularly as they apply to the construction industry.
Moreover this growth applies to both new work and repair and maintenance. New work—new houses, shops, offices, factories, roads and sewers—has grown from £11.25 billion in 1981 to £12.2 billion in 1982, and to £12.7 billion in 1983. Repair and maintenance in 1982 was £8.1 billion, and in 1983, £8.4 billion—a growth of nearly 4 per cent.
The noble Lord, Lord Ezra, in his figures from 1973, I believe, said that output was just under £11 billion at constant 1980 prices; the 1983 figure was £7¼ billion. That, I believe, would be a reduction of about one third. I think I heard him using a different figure.
This growth which we are seeing now is being led by the private sector, particularly the industrial and commercial sectors. In 1982 the total output of the industry in these sectors was £7¾ billion; in 1983 it was £8.1 billion—a growth of 5 per cent. In the first three quarters of 1983, their total output was just over £6 billion; in the first three quarters of 1984 it was just over £6.4 billion—an increase of no less than 6.5 per cent.
297 That growth should continue. Total new orders for the construction industry in the first 11 months of 1984 were no less than £12.4 billion—half a billion up on the comparable period for 1983; a growth of 4.4 per cent. Again let me repeat that this is real growth, at constant prices. And still we see the same pattern—that the growth is being led by the private sector, and particularly by the private industrial and commercial sectors. Excluding housing, total new orders for other work by the public and private sector in the first 11 months of 1984 was £8.84 billion, almost 11 per cent. up on the comparable period for 1983. Private commercial orders in those 11 months showed a growth of 13 per cent; private industrial orders showed a growth of no less than 35 per cent.
I am sorry to weary the House with figures, but there is one final figure that I should like to give. The level of new industrial orders in the third quarter of 1984 was 61 per cent. above the level of orders in the comparable period of 1983. If that is not success, I wonder what is.
Like quite a few speakers in the House, including some elder statesmen in my party, noble Lords have pressed the case for more public expenditure on construction and particularly on the infrastructure. It was encouraging to hear the reasoned remarks of my noble friend Lord Broxbourne. I certainly agree with him that money spent now saves money in the long term. It is, of course, good husbandry, and I shall come back to that shortly.
It is part of the Government's medium-term financial strategy that they seek to establish and maintain firm guidelines for public expenditure. Too often in the past Governments have committed themselves to over-ambitious spending plans. In the event, those have led, inexorably, to higher borrowing, to higher taxes, and to higher inflation. But for the first time in many years, as a result of the success of this Government's economic policies, we can now see the prospect of continuing growth, with continuing firm control of inflation. There is an incalculable value in that greater stability to the private sector.
The Government believe fundamentally that it would be wrong to turn to higher public expenditure. There is no salvation to be found in that route. If public spending were the best way to secure prosperity and growth, then Britain ought to have become the most prosperous and the fastest growing nation in Europe. But the reverse is the case. Those countries which have managed to keep their public spending the most effectively under control are the ones that have fared the best.
Even so, the Government are providing a substantial programme of public expenditure on construction. These items are set out in the recently published Public Expenditure White Paper. Including grants and loans to housing associations and improvement grants, no less then £10¼ billion is to be spent by the Government on construction. That is just new construction. In addition, we calculate that perhaps another £5 billion is being spent each year through current expenditure on repair and maintenance.
Those are very substantial sums indeed by any standards, and they are providing many jobs in the industry. They represent a responsible use of 298 resources, against a macro-economic background and they also represent a responsible approach towards the nation's infrastructure. We recognise the great concern that has been expressed about the state of the nation's infrastructure. That was why, towards the end of 1983, the Government and the other partners in the National Economic Development Council asked the NEDO to produce a report on the subject. This was discussed by the council in January. It was agreed that departments would report back to the council within six months on their own programmes.
In addition, my honourable friend the Minister of State for Transport is to discuss the future roads programme with the CBI and the TUC; and other departments will be carrying out similar discussions on their programmes. I believe that it is common ground, both in this House, and between the Government and both sides of industry, that we should have fuller and more up-to-date information on the state of the nation's infrastructure. And, moreover, we should—where necessary—overhaul the procedures and criteria for deciding the priorities for spending on the infrastructure.
The programmes that the Government are providing for the care and maintenance of our infrastructure are substantial. A guiding principle behind our public expenditure plans has been that, where only the public sector can provide, we have protected or increased levels of spending. Cuts have only been where the private sector can take a fuller role—particularly in the field of housing. Thus on water, the planned investment levels for the water authorities in the Public Expenditure White Paper are £825 million in the coming financial year, £914 million the year after, and no less than £964 million in 1987–88. This will enable the authorities to maintain and improve services; they can secure further improvements in the quality of our estuaries and beaches, and they can make faster progress on the replacement, repair, and maintenance of sewers and water mains.
New road construction is a major Government priority. It makes good economic sense to improve and maintain the roads. There is some priority shifting here. They are shifting away from new motorway network, which is becoming substantially complete, to bypass schemes which aid local communities. The Government have been steadily increasing their capital investment in the trunk road programme in recent years, and investment is now some 30 per cent. higher in real terms—I repeat, in real terms—than at the end of the previous administration's tenure.
Over the next three years, British Rail are planning to spend some £1,477 million in revenue and capital investment, which includes £192 million on passenger terminal facilities. The gas industry will be investing in a range of substantial projects, for example, more than £1,450 million will be spent on the development of the Morecambe Bay gas field.
Mention has also been made of local authority capital spending. There are some misunderstandings about this. In particular, we heard further talk of the measures taken by my right honourable friend the Secretary of State in controlling local authority capital expenditure. Both noble Lords have mentioned this subject in their speeches.
299 It has been argued that local authority capital spending can take place without affecting economic recovery. It is said that this can take place when it is simply a local authority spending its own resources from capital receipts. This argument ignores a financial reality. Authorities do not just put money in the bank, to sit idle, waiting to be turned into capital spending. If capital receipts are not spent immediately, they are used usually to reduce borrowing. Consequently, in that year, public borrowing is reduced. But when the receipts come to be replaced—when the authority draws upon those as notional assets—they must be replaced by borrowing. If I have a mortgage—and I am fortunate enough not to have one—and I sell my house and repay that mortgage, when I came to buy another house I would not just be able to say: "Oh I have my receipts, and I think them enough"; I would have to borrow again.
A local authority is in the same position. English local authorities have debts of some £30 billion. Without accumulated receipts, they would, of course, be higher. The Government are in no sense depriving authorities of their receipts. We are simply requiring their use to be spread over a longer term to reduce the economic impact. I see that the noble Lord, Lord Dean, has a Question down again on the £5 billion figure. I look forward to answering it for him.
§ Lord Graham of Edmonton
My Lords, I wonder whether the noble Earl will answer the question that I asked tonight. Apart from the argument that certainly exists as to the raison dêtre for the effect of spending capital receipts, the Minister must know that all councils have worked on the premise that they could spend 40 per cent. of their capital receipts in any one year. That has now been reduced, or is in the process of being reduced, to 20 per cent. There is a very strong suspicion that it is in the mind of the Government that it will be reduced even further—from 40 per cent. to 20 per cent. to nil; that is, a moratorium. Can the Minister help the construction industry and local councils by stating categorically that there is no intention so to do?
§ The Earl of Avon
My Lords, no, I could not possibly give that categorical cry that the noble Lord has asked for. Nor, of course, can I actually say that they will be permitted to be reduced from 40 per cent. to 20 per cent. But that is what the Government have proposed. The noble Lord will forgive me, but I cannot possibly go further than that, or, rather, I could go a little further and say that I am certainly sure, at the moment, that there are no thoughts whatever of reducing it below 20 per cent.
§ The Earl of Avon
My Lords, if I may come back to what noble Lords have said about VAT, I think that one noble Lord referred to VAT on alterations and extensions. I can perhaps say at the outset that the Budget did not in any way affect a liability of the construction industry and its clients to pay VAT on repairs and maintenance. Such work was subject to VAT at the standard rate before last year's Budget, and nothing has changed, therefore.
300 As to the extension of VAT to alterations and extensions, that was part of the Government's overall policy of shifting, wherever possible, from direct to indirect taxation. Noble Lords referred to the extension encouraging the black economy and the cowboy to the detriment of legitimate traders. I am sure that they have read the speech made by my honourable friend the Minister of State at the Treasury on Friday 25th January in another place. That dealt fully with this matter. I hope that noble Lords will be reassured by the assurance contained in that speech of the seriousness with which the Government treat this problem and by the references to the extra resources which the Inland Revenue is devoting to detecting moonlighters and cowboys. I would add my voice to that of the Minister of State and assure the noble Lord that this is a problem that the Government take very seriously.
§ Lord Dean of Beswick
My Lords, before the noble Earl leaves the question of VAT, part of the argument about the cowboy is that he evades VAT. But the main argument is that it has driven some of the industries related to the building industry, such as double glazing, almost to the wall. Small companies are going out of business by the dozen. I see the noble Earl's colleague wagging his head but obviously he has not seen the figures.
§ The Earl of Avon
My Lords, I have a note to come back to the noble Lord, Lord Dean of Beswick, on the subject of insulation, to which he also referred. In my old life at the Department of Energy, we had to negotiate quite a lot with the Department of the Environment's energy efficiency office. We were always pleased with the response that we received from the Department of the Environment. I can say that now that I have moved over.
The European Community and VAT was mentioned. We do not accept the views of the European Community. We are satisfied that our current zero rating is in line with our obligations under the Treaty of Rome. We shall make any changes to VAT in our own time for our own reasons.
I have dwelt largely on the economic aspect of the success of our policies. I should like to close by selecting one of those topics which, I know, is everyone's most pressing concern—that is, jobs in the industry. The construction industry is at the moment a success story of the Government's policies in encouraging initiative and enterprise.
I do not question the figures about employment given by the noble Lord, Lord Dean, but I should like to stress the change within the industry. We believe that in 1979 there were some 344,000 self-employed in the industry. We think that in 1983 that rose to 430,000. The number of companies active in the industry has also grown substantially. In 1979 there were barely 100,000 firms. In 1982 there were 144,000, and in 1983 there were 160,000. The number of small firms—that is, firms employing between one and seven people—has almost doubled, from around 79,000 to around 143,000. While I am not trying to defend the bankruptcy figures and the liquidation figures which have been produced, against that background of a changing market one can perhaps understand them a little better.
301 I was most intrigued by my noble friend Lord McAlpine of West Green. During his very brief remarks I thought that if we all followed his path we might tomorrow have quite a few more jobs on the market. The theme of the noble Lord, Lord Chapple, in his maiden speech the other day was very much the same: let us stop talking and get on with it.
The noble Lord, Lord Dean of Beswick, made a little capital out of who was seeing the Group of Eight. My right honourable friend the Secretary of State is meeting them, and he will be accompanied by the Chief Secretary. I hope that is a good answer.
I should like to stress to noble Lords—I do not know whether or not they know—that in the meantime I have myself been going round the building industry and visiting various people. I have met the Builders' Employers' Confederation and the building materials producers and I have attended the Economic Development Council Committee of Civil Engineering. They have made many representations to me, which should not surprise noble Lords opposite.
I think I have said enough. I believe that represents what we are doing—a great new initiative of industry and enterprise. There is a reactivation of the construction industry, which I hope is along the lines that the noble Lord, Lord Dean, requested. In terms of output, industry and enterprise the Government's policies are succeeding in bringing about what the noble Lord desires.
§ House adjourned at seven minutes before eleven o'clock.