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The construction industry is vital in delivering our new infrastructure. If there is no construction industry, there is no new infrastructure. There is a huge threat to the future of the construction industry, especially the housing industry, in the UK. Private finance initiatives or public-private partnership contracts created a boost
to the construction sector, with schools and hospitals the length and breadth of the UK being improved or newly built. The importance of public spending in a recession therefore becomes even more crucial. With the Scottish Executive delaying the process in search of a new name for PPP or PFI, however, there will not be a continuous flow of contracts in Scotland. That will not only harm the industry but delay the modernisation of our public estate.
On a wider scale, we need the new buildings, roads, railways and stations to remain competitive. Infrastructure is the key consideration for businesses when they want to relocate. In Clackmannanshire in my constituency, towns such as Alloa have been opened up with the construction of the eastern approach road, the reopening of the railway link to Stirling, and the construction of the Clackmannanshire bridge. The last batch of Labours approved contracts are nearing completion, and Scottish construction companies are looking into the void in search of the next project, more in despair than hope. Government action is important in all areas of the UK, and spending from this Parliament is still strong. But we need clarity on the new projects being brought forward, and action is demanded in Scotland, not political posturing.
Although there is a huge responsibility on Government shoulders to bring forward infrastructure projects, responsibility also falls on the banks to lend at reasonable rates. That lending is required to allow developers to create the infrastructure that our economy will need to rebuild after the downturn, both to allow us to compete and to provide the housing and social environments that the country needs. Reasonable lending is not 7 per cent. above base rate, but that is becoming the norm. Lenders can make any deal competitive if they are all offering it, but that does not make it morally or financially right.
Of equal importance, funding is required for potential home buyers. We need to be much bolder in our action and force all the banks to lend again at reasonable rates to encourage spending. I urge Ministers to look again at recommendations to intervene in the mortgage market by guaranteeing £100 billion of mortgage-backed securities this year and next. Perhaps that will be part of the Chancellors Budget next month; my hon. Friend the Economic Secretary can take that back to the Chancellor as part of my shopping list from tonight.
I want to spend another minute or two on mortgages. First, on depositsor in sector speak, loan to valuenot long ago the financial sector was offering mortgages of 100, 110 and 120 per cent. of the value of properties. It is still possible today to get a 100 per cent. mortgage. Plainly, that was and is madness. Lest anyone think that I absolve the individuals from responsibility, I do not. Individuals who used such vehicles have a responsibility, but so does the financial sector. We did not ask the financial sector to create such products; it created them and offered them to individuals on the clear understanding that lenders were content that individuals could afford them.
In general, however, that madness has now gone full circle. Most products now demand a large deposit: 20, 25 or 30 per cent. Why? Could it be that the lenders really have individuals best interests at heart, and want to ensure that we can all cope with our repayments? I do not think so. If those were the banks true concerns, they would help by passing on the full falls in interest
rates that have been generated recently. I believe that they are protecting their own backs against possible further falls in house values. However, for the industry the solution is simple. We must return to widely available 90 per cent. mortgages if we are to have any hope of saving the industry.
We have all seen and, I hope, welcomed the recent commitments from Northern Rock, the Royal Bank of Scotland and, last week, Lloyds Banking Group to increasing their home lending this year and next, but it really is a case of Increase it from what?. Northern Rock is to increase lending by £14 billion over the next two years. RBS and Lloyds are to increase theirs by £9 billion and £6 billion respectively over the same period. That is a total of £29 billion over two years. Let me put that into perspective.
According to the Royal Institution of Chartered Surveyors, new home-buying inquiries are at their highest level since October 2006, yet the number of home purchase loans fell to 516,000 in 2008their lowest level since 1974down 49 per cent. on 2000. In January 2009, total mortgage lending was estimated at £12.4 billion for that month. It may be said that that is quite a sum, but it is 52 per cent. less than the figure for January 2008, which was about £25 billion. The commitment of £29 billion over two years is arguably needed over a single month.
Sadly, we have not yet seen any move in the sector to affordable loans demanding, say, 10 per cent. deposits filtering through to the consumer. Quite the contrary, indeed. There are 1,398 different mortgage deals available today, but two thirds of them demand a minimum 25 per cent. deposit, and the number demanding a 15 per cent. deposit has risen by nearly 8 per cent. in the last month alone. Deals demanding 10 per cent. deposits are becoming scarcer rather than more available: 101 deals are on offer, compared with 120 last month and nearly 1,200 a year ago. The deals that are available for 10 per cent. depositors carry a penalty. They have an average fixed rate of 6.31 per cent.whereas someone with a 40 per cent. deposit can secure an average rate of 4.84 per cent.and they are often subject to significant arrangement fees, which are very clever marketing tools not to sell a product. Let me pose a question to my hon. Friend the Minister. What can he do about a state-funded lender such as HBOS, which since the first quarter of this year will lend only 80 per cent. of the value of any new-build property?
Ninety per cent. mortgages will help the housing sector, but it does not stop there. When people buy new cars, what do they do? Nothing other than put fuel in them and drive them, which is what they did with their old cars. People who buy new houses spend additional money. Any high street retailer will confirm that a buoyant housing market, new or second-hand, fuels spending on the high street. New home owners buy carpets, fixtures and fittings, curtains, white goods, furniture and so on. It is the only industry of which I am aware that directly feeds spending in other sectors.
Here is an interesting figure. In 2007, there were 357,800 first-time buyers. The Halifax has produced data suggesting that the cost of furnishing and equipping a new property is around £6,000, which equates to about £2.14 billion of high street spending by first-time
buyers alone. That, to my mind, is quite a fiscal stimulus, but we need to get people into those homes to trigger such a stimulus.
As I said earlier, there is still a huge demand for housing, social and private. Nearly 500,000 people in Scotland are on local authority and housing association waiting lists for affordable homes, and with Scotland needing an extra 17,000 houses per year to meet rising demand, the mortgage situation is bound to have a serious impact. While I give the Government the benefit of the doubt when it comes to whether they grasp the importance of the home-buyers effect on the high street, the banks have moved from one extreme to the other.
Shared equity schemes are valuable and have a role to play, and the homebuy direct programme will, I hope, be of significant help, but such schemes depend on how the lender views the share. If a 30 per cent. state-funded and industry-funded shared equity scheme is available, it is no good if the lender demands a 25 per cent. deposit on the remaining 70 per cent.; that defeats the purpose. I acknowledge the steps taken to extend the Governments shared ownership programme and the £270 million being allocated through the Housing Corporationand the new clearing house with £200 million to allow developers to sell unsold stock for use as affordable housing is to be applauded when it delivers genuine results.
The industry itself has many shared equity schemes, and I am advised of one developer whose company held £1 million of shared equity. Obviously, there was a need to turn that into capital, but when the markets were approached, the best offer he got was £400,000. Why? Because the markets said it would be worth £1 million in 10 years time, but not today. The truly sad thing was that he was thinking about taking that offer.
I would like my hon. Friend the Minister to take away another point for the Chancellor. We could invest in building 100,000 new social rented homes over the next two years, with an investment of £6.4 billion, which could be a tool to offset some of the intransigence of the banks, provided that it is Government-driven.
I would like to talk briefly about training as well. The Government have a target to increase the number of apprenticeships in the UK, and similar plans were secured by Scottish Labour during the recent budget process in Holyrood. However, many of these apprenticeship targets are earmarked for the construction industry, and if we do not support the industry, there will be no point in having a construction and related trades apprenticeships scheme in an industry with no work.
Negotiating planning procedures and processes takes time, and it may be one or two years before planning permission is granted and construction workers are on site. This will be too late for many construction companies. I would therefore be grateful if the Minister would expand on when Departments will be issuing detailed plans of all construction projects that are being brought forward on a constituency-by-constituency basis. While these companies tighten their belts simply to survive, there is little spare capacity to develop new products such as more effective insulation techniques, which can help us to meet our climate change objectives.
There are real threats to other Government objectives, too. Without support for the housing industry, the Government can wave goodbye to any meaningful progress
on their target for zero-carbon housing in 2016. This initiative was not particularly welcomed with open arms by the industry in the first place, and there is still a struggle to achieve an appropriate definition, but if the Government do not step into the mortgage market with an underwriting guarantee or pressure to increase lending adequately, the lack of finance in the industry will make zero-carbon housing a dream, not an aspiration. It is not only the house builders that we need on board to meet these targets; we need the product manufacturers on board, too. These businesses need profit and investment to develop these products, and product development is currently not high on the list of priorities, but survival is.
What makes the housing and construction industry so vital and in need of support and of being moved up the list of endangered species? I have already talked about the benefits to the high street, but another advantage is related to imports. Only 15 per cent. of construction products are imported, and they make up only about 6 per cent. of the total turnover, so there would be a far better return for the UK economy than expenditure on a wider range of consumer goods.
I urge the Government to be bolder on VAT. They could reduce it to 5 per cent. on home extensions, repairs and maintenance. That would motivate home owners to invest, and provide real jobs in the industry. This was supported by UK MEPs of all major persuasions only last month. Individuals with private capital are simply not investing in the industry, and we need to change that.
The value of the housing and construction industry is massive. The skyline of this cityand, indeed, of this very buildingdisplays an array of structures that showcase the talents, creativity and passion of the UK construction industry past and present. However, as well as the aesthetic achievements of the industry, there is a background of stable and valuable employment, which I am proud to say has supported many families, including my own, for a great many years. If we want to prevent its collapse, we need continued strong action now.
Lindsay Roy (Glenrothes) (Lab): My hon. Friend the Member for Ochil and South Perthshire (Gordon Banks) has rightly highlighted the crisis in the construction industry. I want to focus on one aspect: planning. Consistently in my dealings with construction company representatives, I hear the strongly held view that some local authority planning departments are caught in a time warp and have not responded to the changing economic climate. Businesses often feel that there is a huge gulf between fine rhetoricwell-intentioned words of supportfrom local authorities and positive outcomes at grass-roots level. I am aware of several proposed developments that have secure funding and outline planning permission to take them forward, yet in these difficult economic times, when planning applications have drastically declined, inordinate delays are impeding implementation, with resulting job losses.
Concerns have been raised consistently about the following: a lack of strategic interventions when there is an impasse at local planning level, with discretionary powers not being used; a ponderous and inflexible planning process, with inherent delays at a time when speedy decisions are required to sustain jobs; a widespread perception, if not reality, of restrictive practices and
unnecessary barriers; and continuing perceptions that some planning departments are reactive and defensive, rather than proactive and receptive.
In essence, there is strong feeling among sections of our communities that some planning systems are not fit for purpose, and there needs to be greater flexibility and urgency to accelerate projects to sustain vital jobs in this industry. All partners involved in supporting the construction industry need to work closely together to sustain and create jobs. In particular, I urge that political differences at national, devolved and local authority level must be set aside in the wider interests of infrastructure and housing projects, and that those need to be brought forward as quickly as possible.
In Scotland over the past two years, despite Scottish Government promises of matching previous programmes brick for brick, not a new brick has been laid by the Scottish Futures Trust. Ideological differences must be abandoned for the sake of our work force and our communities. Across all levels of government, we must take whatever action is needed to assist us through these very difficult and challenging times, and if planning systems need to change, so be it. Does the Minister agree that doing nothing about such planning matters is not an option?
The Parliamentary Under-Secretary of State for Business, Enterprise and Regulatory Reform (Ian Pearson): I congratulate my hon. Friend the Member for Ochil and South Perthshire (Gordon Banks) on securing this debate on a subject that we both agree is important. First, may I say that one of the biggest single acts that the Government can perform to help the construction industry and reinvigorate the housing market is to restore confidence and stability in the financial markets and to support the economy by increasing lending? That is why the actions that we took in October on the recapitalisation of the banks, those we announced in January on the asset protection scheme, whereby we provided guarantees to the Royal Bank of Scotland group, and todays announcement on Lloyds are providing real support to the banking system to ensure continuance of lending in the economy.
My hon. Friend raises the important point about the availability of mortgages, and I agree that it is key to restoring the housing market. As he rightly points out, the underlying demand for housing is there, but one of the biggest problems is the availability of finance. That is why the Government recently announced that Northern Rock will increase mortgage lending by up to £14 billion over the next two years, and why we have seen the other announcements that he mentioned. The new lending will be made available on commercial terms to ensure that it represents good value for money for the taxpayer, and Northern Rock will return to the mortgage market after an absence. The Government have made it clear that we want to see a mortgage market that functions well, where lenders lend responsibly and borrowers have access to a wide range of mortgages that they can afford to repay: a return to responsible lending and responsible borrowing. He will be aware that we are monitoring bank lending very closely, with data being collated by the monitoring panel that we have established. I share his ambition to see more 90 per cent. loan-to-value mortgages being offered. He is right to say that a big
readjustment has taken place over the past six months in that respect. There are 90 per cent. LTV mortgages available at the moment from a number of lenders, as he rightly points out, but particularly for first-time house buyers we need to consider whether we can do more to help them at the appropriate time of their choosing to get their foot on the housing ladder.
We also have to think about whether we want to do more to stimulate the private rented sector of the UK economy, too. It is clear that there is, and that there will continue to be, a strong demand for new homes in this country. My hon. Friend is right, too, to point out the benefits for the UK high street of the purchases that come when people move into new homes.
The construction industry is vital to the UK economy. In 2006, it accounted for nearly 9 per cent. of gross value added worth more than £100 billion. The importance of construction to the Government and society goes beyond its economic contribution. Construction is vital for the provision of good-quality public services and it plays a role in the delivery of more than half the 30 public service agreements set out in the 2007 comprehensive spending review. The sector is large, with recent employment levels exceeding 2 million people, and it contains some 284,000 firms. Although small and medium-sized companies predominate, the sector ranges from large international contractors to the self-employed jobbing builder and decorator.
As a Government, we appreciate the fact that good quality housing is a basic human need and we are fully committed to it. By 2010, 95 per cent. of all social housing will meet the decent homes standard for housing that meets basic minimum quality standards. Furthermore, the Government acknowledge that there is a significant gap between the supply and the rising demand for new homes. For decades, the housing market has failed to keep up with our ageing and growing population. That has led to significant problems of affordability, particularly, as I have mentioned, for those seeking to buy their first home.
First-time home buyers are key to the housing market. That is why we have set out an ambitious target to deliver 240,000 additional homes a year by 2016. In recent years, the housing market had responded to that challenge with the delivery of 207,500 additional homes in 2007-08. However, we recognise the reality of the recession and how it has hit the housing market badly. The capital constraints on private sector developers have been significant and the economic conditions facing the housing sector are far worse than those facing any other sub-sector in the construction industry.
We recognise the need to take action and, as my hon. Friend will be aware, we are bringing forward public expenditure. Some £775 million was earmarked in the pre-Budget report to be spent on housing and regeneration investment. Some £250 million will be spent on the decent homes programmes to fund improvements in energy efficiency in 25,000 social homes. Some £150 million will be spent on new social rented homes, in addition to the £400 million to be spent on 5,500 new social homes that was announced last September.
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