Taking the Direct Road to Recovery

Statistics don’t usually catch my eye, but this month one number certainly did.

That number was 867,000, which is how many construction workers have so far claimed and received grants under the UK Government’s Self Employment Income Support Scheme (SEISS). The value of all these grants adds up to £3.0bn.  

A quick comparison confirmed that these figures exceeded by some margin the 750,000 construction PAYE employees whom employers have furloughed over the same period and received grants for under the Coronavirus Job Retention Scheme – totalling £2.6bn.

“If you don’t employ, you don’t train, and academic researchers have correlated the historic decline in construction trade apprenticeships with the simultaneous growth in labour-only subcontracting and agency work”

This imbalance between employment and self-employment shouldn’t be surprising. Whilst self-employment accounts for just over 40% of the whole construction workforce, it tends to be more heavily concentrated among those working on site – constituting 90% or more of the operatives engaged on some large London commercial projects before the COVID-19 crisis, for example.

Breath-taking levels of self-employment such as this come at a cost, of course. If you don’t employ, you don’t train, and academic researchers have correlated the historic decline in construction trade apprenticeships with the simultaneous growth in labour-only subcontracting and agency work.

There are also broader social and economic costs. For the workers themselves, there is the forfeiting (willingly or otherwise) of paid holidays, sick pay, life-and-accident insurance and pension. Self-employed construction workers also tend to have more accidents and poorer occupational and mental health outcomes.

“Our collective economic and social wellbeing continues to suffer as a result of low take-up of new methods and technologies”

For wider UK society, the costs include shortfalls in tax revenues to fund health, social care, education, pensions, the police and defence. Closer to home, our collective economic and social wellbeing continues to suffer as a result of low take-up of new methods and technologies, stagnating construction productivity and a flawed building safety regime – all problems which the construction sector’s dysfunctional employment and training system has helped to create and perpetuate.

ECA has long been an advocate for reform of this system, based on our own industry’s appreciation of the value of a skilled site-based workforce and relative success in maintaining the quantity and quality of apprenticeship training.

Both in June last year (in the Future Skills report) and June this year (in the Industry Recovery Plan), ECA has been successful in persuading the Construction Leadership Council (CLC) to recognise direct employment and its importance to future performance improvement and sustainability.

In last month’s Recovery Plan especially, the CLC not only set out its aim to strengthen direct employment, but also acknowledged direct employment’s importance as ‘an enabler of apprenticeships, digital upskilling and competence’.

Of course, this does not mean that subcontracting and (genuine) self-employment don’t have an important role to play. Electrical contracting is an industry largely made up of subcontractors, after all – and for very good reasons.

“ECA has been successful in persuading the Construction Leadership Council (CLC) to recognise direct employment and its importance to future performance improvement and sustainability”

Rather, we contend that the tendency towards ever greater fragmentation of employment has been allowed to go too far, and with substantial negative effects, including those already outlined above.

Contrary to a widespread assumption, the current balance between employment and self-employment in the UK is not the natural or inevitable order of things. Until the mid-1970s, levels of construction self-employment were less than half what they are today. In France, the incidence of construction self-employment is one-third of that in the UK, and in Germany barely one-sixth.

In explaining these disparities, it is difficult to avoid the conclusion that, since the mid-1970s, incentivisation of self-employment, including false self-employment, through a permissive tax and social security system, has been a major factor. By embedding not just flexibility, but ‘flexibility on the cheap’, successive Chancellors of the Exchequer have imposed artificial distortions on the UK construction labour market, with damaging consequences for the sector, its workforce and wider society. Why invest in new methods and technology, for example, if it is easier (and cheaper) to stick with your old, labour-intensive delivery model, courtesy of the taxman?

“For the construction sector, direct employment presents both a challenge and an opportunity”

So, in the wake of COVID 19 and calls for industry ‘reset’ and ‘renewal’, what will happen next?

For reasons mostly unrelated to construction, the present Chancellor, Rishi Sunak, has already indicated a desire to equalise the tax and social security regimes for employment and self-employment. This could, if implemented, have a game-changing effect, especially if combined with previously promised legislative reforms to employment status.

But will such change ever be permitted to happen? Certainly, the array of vested interests likely to oppose such a change – the recruitment industry, lawyers, accountants, employment intermediaries, special interest lobby groups and others – looks as strong as ever.

For the construction sector, direct employment presents both a challenge and an opportunity. The challenge is the likelihood, once again, of resistance from a small but influential group of interests hostile or indifferent towards direct employment, regardless of all the evidence. The opportunity is for the industry – and above all the CLC itself – to learn the lessons from the past 40 years of ‘flexibility on the cheap’, stand behind its recent statements in support of direct employment, and become a champion of transformative change – both within the sector and to Government.

We believe there is only one road that can lead to a real renewal of construction’s employment and training system – and that is the direct road.

Andrew Eldred

Director of Employment and Skills, ECA