Minimum Wage Hikes Behind Construction Sector Slump: FSB

The cost being placed on employers in a labour-intensive construction industry show why populist political ideology threatens jobs.

Markets sold Sterling on Tuesday, October 3 in reaction to the release of data compiled by IHS Markit and the CIPS that shows the UK’s construction sector has slipped into contraction.

The PMI fell to 48.1 in September, the first drop below the 50.0 no-change threshold in 13 months suggesting acrtivity in the sector is now in decline.

The immediate culprit has been predictably identified as Brexit uncertainty. While there certainly is blame to be laid at Brexit’s door, the real culprit is actually almost purely domestic we are told.

The Federation for Small Businesses say their findings show changes to tax reliefs, levies and employer obligations have caused costs for small firms in the construction sector to rise at a faster rate than in any other industry.

“These policy-linked costs have increased by 34% for construction firms compared to a cumulative CPI figure of 7.7% for the five years to 2016,” says Mike Cherry, FSB National Chairman.

Construction is a notoriously labour-intensive industry and the FSB say changes to minimum wage rates, pension auto-enrolment and increasing employer National Insurance Contributions have all had their part to play.

Minimum wage has risen to £7.50 an hour in April 2017 for those aged 25 and over from £7.20 in 2016 and £6.70 in 2015. 

The evidence suggests should more hikes come then jobs in the sector will come under pressure.

The Labour Party appear to be driving a populist agenda on wages, with party leader Jeremy Corbyn looking to raise the minimum wage to £10 an hour should he come to power.

The ruling Conservative Party, on the policy back-foot since the 2017 General Election, have shown they are increasingly willing to respond to the populist policy framework laid out by Labour.

But, as evidence from the construction industry shows, populist ideas tend to have negative consequences and it would be wrong for the Government to take their eye off job creation.

“We’ve heard those in power talk for years about the need to tackle the housing crisis. Yet they’ve simultaneously heaped additional costs on the very business owners who can help increase our supply of homes,” says Cherry.    

The FSB say confidence among small construction firms has plummeted over the last year.

“Businesses across the sector will be looking to the Communities Secretary’s speech later this week, as well as the Autumn Budget, for urgently needed lifelines in an uncertain climate characterised by year on year increases in operating costs,” says Cherry.