Finishes and Interiors Sector CEO, Iain McIlwee, has written to the chancellor ahead of budget supporting the CLC submission and seeking additional support to manage Reverse Charge VAT implementation and flexibility in Apprenticeship funding. The full text of the letter is available below.
I write on behalf of the Finishes and Interiors Sector, which accounts for around £10 billion of UK Construction work and over 200,000 workers. Our community do the refurbishment, fit-out and finishing work to buildings of all types (homes, hospitals, offices etc), constructing internal walls, ceilings and adding the fixtures – over the lifetime of a building, there is typically upwards of 30 re-fits. We support the work of the Construction Leadership Council (CLC) and have had input into and support the Budget submission already made by the CLC.
Since the New Year, pressure on our sector has become even more palpable as we adapt to the Reverse Charge VAT introduction, off-payroll working, changes to the CIS and new immigration policies. I have outlined below two critical areas where Treasury could help us to avoid insolvencies and encourage investment in new jobs.
Extension of the VAT Deferral Scheme
The Domestic Reverse Charge (DRC) creates an immediate working capital impact on many of our members who operate as sub-contractors. We are already working less productively in the wake of COVID, facing additional costs associated with logistics of Brexit and shortages of materials like timber and steel and are staring in the face of potentially severe labour shortages (which is driving up rates and will necessitate additional investment in training).
I am a the Financial Director of XX a construction business employing around 70 people through PAYE, CIS and which includes two young trainees. I write to express my concern that the government is pressing ahead with implementation of the Domestic Reverse Charge VAT for construction. Our turnover is around £5 million and we estimate the cash cost to the business will be around £156,250.
With many contracts stalled, working capital is tight and this kind of dent to our cash position will limit our ability to adapt, scale up and invest as the market recovers. We had hoped for a delay, but failing that, extending the VAT Deferral Scheme to support construction companies who may be struggling to pay as a result of the DRC would be a potential life safer. The process already exists with the COVID scheme (giving those that deferred in March to June 2020 even more time), but it is not open to new entrants. If we allowed construction companies to access deferral to get over the hump of cash flow problems this would undoubtedly limit the worst of the impact.
The Impact of Immigration Policy and English Apprentice Vouchers
The nature of our work and construction procurement practices, means many in our community undertake relatively large projects with relatively short lead times that involve the deployment of large numbers of people with a variety of trade skills that work in controlled sequence. As a result we have always relied on a flexible workforce (historically through the “cards”, latterly leaning on the labour only sub-contractor model). This enables firms to manage risk and individuals to optimise worktime by moving between projects and companies. The make-up of our workforce was, pre-COVID, over 40% EU worker. As a consequence of changes to the immigration system and the relative high dependence on EU work, our Annual Recruitment Target from the UK labour pool has virtually doubled this year. For every 5% of migrant workers that do not return post COVID or decide not to settle beyond the summer, the target doubles again. This necessitates a major overhaul of how we recruit and train.
We are working with CITB and engaged through the Construction Leadership Council in optimising the Plan for Jobs, as an organisation we have schemes in place to support unemployed workers into construction (pre-COVID, our BuildBack programme had delivered 440 unemployed people into sustained employment over a c2 year period), we are a Kickstart Gateway and we are working hard with employers and providers to build apprentice provision. Our Apprenticeship Standard is new (completed in 2019) and we are doing all we can (in a difficult environment for training) to help build demand and provision. Delivery requires capital investment in materials, tools and space as well as investment in trainers, assessors and materials. We would urge Treasury to consider ringfencing and relaxing the criteria for trading of English Apprentice Vouchers and, where businesses paying cannot utilise directly, vouchers are not just cascaded to support non-levy payers in the supply chain but, where this is not feasible or practical, redirected to investment in the training centres and resources needed to support the delivery of apprentices. In this way large businesses will be incentivised to get involved to help drive change, work with providers and develop those vital links between industry and skills provision. We need this engagement to support businesses and FE colleges in making the investment to run programmes that lead to jobs and to reward progression to employment rather than simply focus on completing courses.
These are vital times for our economy and the construction sector has done all we can to keep building through the pandemic, showing, at times amazing flexibility, inspiring innovation and humbling resilience. The suggestions above are vital keys to help us to unlock the power of this industry to help build our way to a better future, support the much needed investment in digitisation and net zero and ensure that the UK Construction sector is truly the world leader that we have the potential to be.
CEO, Finishes and Interiors Sector (FIS)
Find out more about the FIS Three Steps to Rebuilding Construction.