Investing for the future
When asked about the factors that would be driving investment decision making over the next 12 months, more than three quarters of respondents cited skills and training as being of importance.
2023 areas of investment
This reflects our findings last year which highlighted the continuing skills gap in the industry as being a significant barrier to growth, and a substantive current and future risk.
The issue is showing no signs of immediate resolution, with ONS figures showing construction job vacancies hit 50,000, their highest ever level, in Q3 2022, before reducing slightly to 45,000 by the end of the year.
With many workers in the industry nearing retirement age, this gap is becoming ever more urgent. The Construction Skills Network projects that an extra 225,000 workers will be required by 2027, even accounting for a recessionary period in 2023.
Training the next generation and new entrants to the market will be a key part of addressing this challenge. So will upskilling in digital skills as the industry, like so many others, radically transforms amid accelerating technological advancement.
Adoption of technology and modern methods of construction.
Of the technologies currently being deployed by our survey respondents, off-site construction is the most prevalent.
Current use of technological solutions
The continued roll out of off-site, as well as modular and other modern methods of construction will be vital to both speeding up the delivery of much needed homes, as well as improving efficiencies in an industry where margins are often razor thin. At the same time, increasing use of ‘factory’ production lines for construction will over the longer term begin to help address the skills gap with fewer people being required on sites.
Homes England has noted the potential of MMC, including in terms of increasing productivity, but also highlighted the overall lack of take up and production capacity in its 2018-2023 strategic plan. Stimulus is required and this has included a benchmark of 25% of new homes delivered by Homes England strategic partners being MMC-led.
Homes England’s six year research programme into MMC is ongoing. In the meantime, the Department for Levelling Up, Homes and Communities has commissioned the British Standards Institution to create a new set of UK-wide standards to improve quality and encourage MMC adoption.
Funding transformational investments
There are a number of incentives and allowances to encourage business to invest in technological advancements, not least including capital allowances. The government introduced the new ‘Super Deduction’ in 2021 in an effort to spur on economic activity after the pandemic, with businesses able to claim 130% relief on investments made in eligible plant and machinery, along with a 50% first-year allowance has also been introduced for special rate expenditure. The super deduction was withdrawn for expenditure incurred on or after 1 April 2023, though it has been replaced with full capital expensing for investments in eligible plant and machinery made before 31 March 2026. The 50% first year allowance will continue to be available until 31 March 2026.
Use of government tax incentives to help fund investments in technology or climate change initiatives
The temporary £1 million Annual Investment Allowance rate was made permanent in the October 2022 mini budget as of April 2023, while the Research & Development Expenditure Credit will increase from 13% to 20%.
However, the R&D credit scheme for SMEs has been made less favourable, in a reported attempt to crack down on tax fraud. The SME additional deduction will decrease from 130% to 86% and the SME credit rate will decrease from 14.5% to 10% from April 2023.
Businesses are also able to claim Enhanced Capital Allowances for investments in energy efficiency and green technologies.
While our survey respondents cited skills and training as the area of most importance for investment decision making overall, carbon reduction and climate change were mentioned most frequently as either being of critical importance to the future of their business or more important than other business issues.
We would expect the tax system to continue to evolve in line with this, and the UK’s broader net zero ambition, to encourage faster and deeper take up of sustainable practices and clean energy solutions.
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