Data: Regional investment

Data 216,800

Regional investment can be a tool for levelling up

Building construction capability in the regions will help with levelling up and create a more resilient industry, says Kris Hudson

After the recent local elections where metro mayors dominated the headlines, the government has promised a new levelling up white paper this summer to replace its mothballed one on devolution. When it lands, it is expected to articulate muchtrailed plans to raise up regions beyond the South East by boosting investment.

Construction has a pivotal role to play in this levelling up process, as the government has chosen the built environment as one of the main investment areas for its new policy programme. Yet after years of solid output growth, the shock of the pandemic and the UK’s exit from the EU have taken a toll.

The Office of National Statistics (ONS) shows overall output is not far off reaching recovery, with Q1 2021 only down -1.7% compared with on prepandemic levels. But this is propped up by repair and maintenance, increasing by 6.4%, while the more significant metric of new work is -5.9% below its pre-pandemic peak. The challenge is getting back to these higher levels of new work output, strengthening the sector’s position and ability to support the government’s investment drive.

But where is most in need? While rhetoric focuses on North versus South, or South East versus South West, the latest quarterly construction output figures from the ONS hint at how disparate and complex the situation is.

Despite the variability of postpandemic, non-seasonally adjusted regional output data, there is evidence to suggest that growth doesn’t always stick neatly to North and South labels. For Q1 2021 versus Q1 2020, Yorkshire & Humber saw growth of 11.5%, while its neighbour the North East fell -17.2%. Similarly, the South West saw growth while the South East contracted.

‘Levelling up’ is often used to mean narrowing the gap between London and elsewhere – and a gap isn’t in dispute, with output in Yorkshire & Humber still 39.4% below London. Yet the picture is diverse. For instance, within the North, the spread of output ranges significantly from £1,233m in the North East to £4,544m in the North West.

Policy would do well to address such intra-regional disparity – preferably with an integrated and targeted approach that stops areas being left behind. Supply chain growth must also match spending commitments. Left unaddressed, constraints on labour, skills and materials can contribute to cost-push inflationary pressures and hamper recovery as it takes a foothold. Whereas building capability and capacity in the regions will both help to deliver on levelling up and to create a more resilient and robust industry.

Kris Hudson is an economist and associate director at Turner & Townsend.

News in numbers 450

Percentage cost increase of a 40ft (12m) shipping container from Asia to northern Europe from summer 2020 to spring 2021, according to the Construction Products Association.

6.5

Percentage by which infrastructure output in Q1 2021 exceeds pre-pandemic levels – the only major subsector of new work output back above pre-covid levels, according to the ONS. Construction workers required by 2025 in the UK according to a new Construction Skills Network forecast, published by the CITB

UK construction output volume, seasonally adjusted, by work type

45,000

40,000

35,000

30,000

25,000

20,000

15,000

10,000

5,000

0

Output (£m) All new work All repair and maintenance All work

2001 Q1 2003 Q3 2006 Q1 2008 Q3 2011 Q1 2013 Q3 2016 Q1 2018 Q3 2021 Q1

UK construction output growth, non-seasonally adjusted, by region

Q1 2021 versus Q1 2020 percentage change

Yorkshire & Humber Wales

East of England South West London

Scotland

South East

North West

West Midlands East Midlands North East

-20 -15 -10 -5 0 5 10 15

SOURCE: OFFICE FOR NATIONAL STATISTICS

81

Percentage of construction firms the Civil Engineering Contractors Association says have experienced material cost increases in May 2021 compared to May 2020.

1

Ranking of the UK in the Institute for Fiscal studies’ Q4 2020 report showing the most regionally unequal countries.