Urgent NI Executive restoration is critical to prospects and confidence of construction industry
03 January 2024 Business Environment
The latest CEF Construction Survey details a sector which sees the urgent restoration of devolved government as the best way of boosting prospects and confidence into 2024 and beyond. That restoration is also crucially important given the need for an incoming Executive to deal with a public sector capital budget that is forecast to fall some £300m in 2024/25 – presenting a huge challenge for Ministers wanting to deal with matters such as the infrastructure backlog and delivering the housing that our community needs.
The survey, which collected data from NI-headquartered firms which have a collective annual turnover of approximately £2.5bn, covers 2023 and reflects on many of the key challenges that contractors, civil engineers and homebuilders are facing currently.
The main findings included:
- 45% of respondents said their turnover had increased by at least 10% in 2023
- 60% said that their profit margins had either stayed the same or worsened; only 11% said profit margins were better in 2023 compared to 2022
- Over the last year, some 75% of firms were operating at full or almost full capacity
- On the industry’s skills challenge, the 3 main issues that were identified were:
o Specific skills shortages in construction trades
o Visibility of pipeline and market confidence to recruit new workers
o The perception of construction as an attractive career path
- Materials shortages are largely resolved: 94% said any issues were now manageable
- However inflationary issues do still remain: 27% said these were having a serious impact causing financial concern while 68% said the impact was moderate but manageable
- In the NI public sector market since the introduction of PAN 01/21 in August 2021 agreed between the CEF and the then Finance Minister and his Executive colleagues, at least £50 million has been paid out to firms on existing public sector contracts to help with inflationary pressures and materials delays
- When looking to the GB and RoI markets, 3 main reasons were given as to why they are more attractive for contractors:
o More secure pipeline
o Increased profit margins
o More opportunities for innovation
- Looking to the next 6 months, the key challenges identified are:
o Political uncertainty/no functioning Executive
o Lack of pipeline in Northern Ireland
o Access to skilled labour
o Inflation
Mark Spence, Chief Executive of the Construction Employers Federation, said of the results:
“While the pattern of increased turnover remains, the reality for many contractors is that such growth is resulting in ever tighter profit margins due to the accumulated and continued effects of the inflationary pressures of the last three years. This, accompanied by a heavily constrained pipeline of new work locally, has resulted in many members expressing significant concern as to the favourability of the market into the New Year.
“The continued lack of an NI Executive remains a key roadblock towards boosting the sector’s prospects and it is vital that the negotiations that were ongoing before Christmas are speedily revived and brought to a successful conclusion. However, it is also important that a return to devolved government is not just a re-run of what has gone before. Rather, it must mean a step-change in terms of delivery and, after many false dawns, result in a number of fundamental reforms which have long been set aside.
“In this context we are also today publishing
our response to the Department of Finance’s consultation on revenue raising in Northern Ireland. While it is welcome, the challenge from the construction sector’s perspective is that it focuses chiefly on revenue raising for the purposes of the day-to-day resource budget. This is important given the difficulties the resource budget faces; however, it is critical that an incoming NI Executive also considers how it would drastically grow its capital budget so to meet the needs of our community. This is vital as 2024/25 will see, on current plans, a reduction in the Executive’s capital from £2.1bn to £1.8bn - the same in cash terms as 2007/08, some 17 years ago.
“We have therefore proposed ten options in our response to protect and grow the capital budget. These are:
1) Deliver fundamental reforms to the funding and governance models of NI Water and the NI Housing Executive by means of the mutualisation of both.
2) Put in place multi-year capital budgets.
3) Achieve agreement with the Treasury regarding enhanced end-year flexibility for capital budgets.
4) Agree ringfenced capital funding with the Treasury for specific areas of investment.
5) Build on the Irish Government’s commitments in the New Decade, New Approach deal.
6) Utilise the full extent of the Executive’s RRI borrowing facility per annum.
7) Revitalise previous plans for local councils to co-fund/part-fund NI Executive projects using their own borrowing powers.
8) Reform the existing business case process for capital projects to accelerate decision making.
9) Reconsideration of road tolling.
10) Establish an independent Infrastructure Commission for NI to ensure better long-term decision making and planning.
“We believe that these proposals, if implemented, would go a substantial way to putting the capital budget on a sounder footing whilst also giving an incoming Executive the opportunity to deliver on many of the key projects and infrastructure plans which are likely to form part of any Programme for Government.
“From the construction industry’s perspective, their delivery would result in a timely confidence boost that can enable them, their staff and supply chains to work collaboratively with the Executive to ensure we collectively deal with the multitude of infrastructure challenges that we face”.