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My Lords, I join with other speakers, particularly those who were not on the committee, in congratulating the committee on its work. I think this is the second report in two months I have had to respond to from the committee run by the noble Lord, Lord Patel—it sometimes feels like the second report in two weeks, but there it is.
As always, I also congratulate the committee on the extraordinary expertise it brings to its work. Those who serve on it are engineers, or from the medical profession or business, but it also has, in my noble friend Lord Renfrew of Kaimsthorn, an archaeologist. Given that some people have suggested to me that some of the practices in the construction industry have not changed much since the pyramids, it is possibly appropriate that he is there. Those who are not on the committee brought yet further expertise, but for the two generalists who spoke in the debate—me and the noble Lord, Lord Stevenson, if I may speak for the noble Lord—listening to the contributions and hearing about what is on offer for this industry and what it should be able to achieve in due course has been very educative.
We welcome the committee’s focus on off-site manufacture for construction and the support it has given to these technologies. The report has come out more or less at the same time as the construction sector deal, soon after the publication of our industrial strategy. I will say a little more about that. When I joined the department I briefly had responsibility for construction. I had the opportunity to see for myself the impact of some of these technologies. For example, I heard about what they could do for Crossrail in building some of the underground at Liverpool Street and other sites, off site, and how these technologies can cut delivery time by half, from 67,000 to 27,000 man hours, delivering time, cost and productivity benefits. Also, major construction projects such as that in London deliver benefits to the regions. My understanding was that some of those stations were being built not in London but in the Midlands. Therefore, whenever people talk about infrastructure gains for London and all that cost going to London, they should remember that such construction techniques benefit other parts of the country.
We believe that technologies such as this should be rapidly commercialised and adopted by the sector. That is an objective the Government are fully committed to. It is at the heart of our strategy for the sector, as set out in the construction sector deal, and I will take this opportunity to set out the Government’s approach.
The construction sector is a vital part of the United Kingdom’s economy. It includes product manufacturing and associated professions, and had a turnover of some £370 billion in 2016. The noble Lord, Lord Stunell, had some doubts about our figures, but as I say, we are including product manufacturing and associated professions. I will certainly look at his figures, see how they compare with ours and whether we are comparing eggs with eggs. The sector accounts for around 9% of United Kingdom GDP. It also employs 3.1 million people—9% of the UK workforce.
The sector’s outputs underpin the UK economy through providing the buildings and infrastructure that firms use, as well as providing the homes, schools and hospitals that deliver a high quality of life for our people. It is a sector that can and should make a major contribution to economic growth and prosperity, but it obviously faces a number of challenges that are particularly pronounced. These include demographic change. The whole of society is changing, but it is even more marked in this industry: a third of the construction workforce is aged over 50, and those workers will not be replaced by those entering the workforce. As a great many noble Lords have underlined, as has the report, it also has to improve its productivity: McKinsey estimates its rate of improvement as being less than 50% of the whole economy’s. It is even further behind sectors such as manufacturing. We also have to look at training, but I will say a little more about that later.
To deliver the Government’s infrastructure investment plans and achieve that homebuilding aspiration of 300,000 new homes a year will require the construction sector to modernise and become more productive. We believe that the adoption of techniques such as off-site manufacturing is a key to this, as does the Construction Leadership Council and other industry leaders. In passing, let me say how much I welcome remarks such as those by the noble Baroness, Lady Young, and others about the Construction Leadership Council. We will continue to work closely with the council to deliver the sector deal. I note that the noble Lord, Lord Fox, said that he works closely with the noble Lord, Lord Stunell, but it did mean that the noble Lord, Lord Stunell, did exactly what he said. I repeat: we will continue to work closely with the council because we do not want to tell it what to do—we want to work closely with and collaborate with it. It is possible that the noble Lord, Lord Fox, wants to take a more Stalinist approach to these things, but I leave that to his discussions with his noble friend.
The advantages of off-site construction are many and have been rehearsed by several noble Lords. They include digital design processes that enable designs to be refined and new materials and products to be incorporated, and improving energy efficiency and building safety performance, as the noble Baroness, Lady Young, made clear. Health and safety is a problem on the average construction site and here is an opportunity to improve it. There is the chance to improve quality and have fewer defects through building components being produced in a controlled environment, rather than on site. Off-site construction is less labour-intensive and produces less waste, thereby improving productivity, as was made clear. There are benefits for training, as the noble Baroness, Lady Young, again made clear, as well as advantages for tree planting, which she emphasised. As for import substitution, I remind the noble Lord, Lord Stevenson, that tree planting is great, and we want to see more wood used, but it takes quite a long time before those trees come on stream. Still, there are many trees that we can make use of in this country.
The noble Lord, Lord Fox, brought up the safety of the buildings themselves. There are benefits that could be addressed, and we want to work towards that. I believe that the Government have already taken action to support that transition by working in partnership with industry through the flagship construction sector deal that we published in July 2018. As always with such a deal, as with the industrial strategy as a whole, it is all very well publishing it—it is all about how you deliver it. Noble Lords were right to stress that we want to be kept informed about progress. I can give an assurance to the noble Lord, Lord Stunell, that we will be publishing an annual report on progress. I presume that the next report will be published in July 2019: I give that assurance now and I hope we can stick to that target.
The noble Lord, Lord Stunell, wanted to know how much we are spending. There is joint investment of £420 million in the transforming construction programme, of which £170 million comes from government and the rest from industry, to drive the development and commercialisation of digital and manufacturing technologies in construction. A key investment from that programme will be £72 million in the core innovation hub, a consortium of the Centre for Digital Built Britain—which the noble Lord, Lord Mair, will know of—the Manufacturing Technology Centre and the Building Research Establishment. That £72 million has already gone out and a further £60 million will be available. I think the noble Lord, Lord Mair, welcomed that expenditure on research. A further £60 million will be available for R&D projects in business and research institutions. The first grants in that field will be announced in January next year.
The sector deal also sets out plans to ensure that those working in the industry are trained in the skills that they will need to support the transition to off-site manufacturing. On training, I can give an assurance that we will work closely with the sector to drive an increased investment in skills development, to adopt a more strategic and co-ordinated approach to recruitment and to equip workers with the skills they will need in the future. That will be achieved through a joint commitment to implement the reforms to the Construction Industry Training Board to make it more strategic and industry led and to enable the sector to make the best use of funding from the apprenticeship levy. The sector deal sets out an industry-led target of increasing the number of apprenticeship starts in the sector to 25,000 by 2020. It is currently at 21,000.
I move on to the question of presumption, particularly the presumption in favour, which was raised by many noble Lords. My noble friend Lord Borwick started off with a certain number of strictures about what the Government were going to do. I will certainly take note of that and pass on those comments, particularly in relation to planning, to colleagues in other departments. He was the first noble Lord to talk about procurement, the work of Government in procurement and the presumption that they would be in favour of using off-site construction. We are taking steps to improve cost effectiveness. As the noble Lord, Lord Mair, made clear, in the 2017 Budget the Government agreed that presumption in favour of off-site manufacturing with five departments: the departments for transport, health, education, justice and defence. I would hope, since I think they were mentioned by another noble Lord, that departments such as the Department for International Development will also take that on board, but that will be a matter for them. The important matter is that we have that presumption in favour.
The noble Lord, Lord Mair, asked what teeth there were in that presumption. My noble friend Lady Neville-Jones asked what this presumption meant and how we would ensure it could develop. The presumption means that the five departments will, at every business-case level, test whether the use of these techniques is an option. It also means that, by including off-site in the early stages of planning, the right environment will be created for off-site techniques to succeed. By doing this we will challenge the cultural bias towards traditional construction and send a strong signal to the supply chain that they need to build their capacity and capability.
The presumption is only one part of a wider range of long-term initiatives to increase innovation and productivity in the sector. To help deliver the presumption, the Infrastructure and Projects Authority has set up a cross-departmental working group which has started developing a library of standardised components, building the capability of procuring departments and leveraging the Government’s purchasing power by aggregating demand from multiple departments. I hope that that will make a difference but I can add that the Government have issued a call for evidence on the implementation of the presumption to use off-site manufacturing, which will enable all stakeholders to contribute to the development of the presumption. Other issues will be considered in the light of the responses that we receive.