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Introduction

The construction industry is both a large and diverse sector making a major contribution to economic activity. It is typically defined in terms of the stages of construction processes which are undertaken. These range from site preparation, including demolition, through general construction and repair of both residential and non-residential buildings and civil engineering works (including highways, roads, airfields, harbours, utility works, etc) and installations (electrical, plumbing, insulation, etc.) through to completion (including trades like plastering, on-site joinery and carpentry, flooring, painting and glazing). In practice, many large and medium sized construction firms may operate in several or even all the different levels in the industry. There are, however, a large and growing number of specialist firms who work mainly as sub-contractors in respect of new construction projects but often as main contractors for repair, maintenance and improvement work.

Employment

The construction industry is a significant employer in Lancashire. In 2005 the industry provided for over 33,000 employee jobs or 5.5% of all such jobs in the sub-region, a share somewhat higher than the 4.6% in Great Britain at large. In addition the industry provides opportunities for perhaps another 12,000 people working on their own account. Construction remains a male-dominated activity with men accounting for 87% of employee jobs whilst nearly 93% of all jobs (and 97% of male jobs) are full-time (Table 1).

Figure 1 Construction Industry Employment by District, 2005

Source ONS - Annual Business Inquiry, 2005

With large parts of the industry providing a local or at best sub-regional service, construction jobs are widely dispersed across the County though 36% of them in 2005 were based in the three Central Lancashire districts of South Ribble, Preston and Chorley where a number of larger contractors are located (Figure 1). The construction industry is also fundamentally a mobile one with both companies and employees working across local authority and sub-regional boundaries as they follow new projects but in 2005, within local districts the importance of the sector as a source of local jobs ranged from shares of nearly 12% in South Ribble and 8% in Wyre and Rossendale to less than 3.5% in Blackburn, Blackpool and Burnley.

Structurally, the construction industry is highly fragmented and statistically, the "average" company employs just 6 people. The majority of the 5,190 local construction business units are of small and medium-sized firms: 96% have less than 25 employees and most of these employ fewer than five people (Table 2). However, the larger establishments – those with 50 or more employees, though representing only 1.8% of the business stock, employ 38% of the workforce. Not all these construction business units are separately VAT-registered but at the start of 2006 some 4,515 construction firms were VAT-registered in Lancashire, representing 11.5% of all such registered business in the County, a similar proportion to that in the UK.

Figure 2 Construction Industry Employee Jobs as a Percentage of All Jobs, 2005

Source ONS - Annual Business Inquiry, 2005

Some of the companies operating in Lancashire are nationally based, working only temporarily in the County on major building or civil engineering contracts. However, examples of larger locally based employers include the AMEC Group, Barnfield Construction, Clement Dickens & Son, Eric Wright Construction, Enterprise plc, Herbert T. Forrest, Hurstwood Developments Ltd, the Livesey Group, Phil Rogerson Ltd, Reigill Group, Roger Eaves Building, R P Tyson Construction, Subterra, Bachy Soletranche, John Turner & Sons and John Reilly Civil Engineering.

The general distribution of employee jobs across the whole of the Lancashire sub-region by wards is illustrated in Figure 2. All wards contain some construction employee jobs. The distribution largely reflects the location of the employing company (i.e. its pay-point). However, because of the mobile nature of much construction activity, work flows across administrative areas and the company location is not necessarily the same as that of the employees working on a daily basis on particular construction projects.

Employment Trends

Long-term employment tendencies have naturally followed construction activity levels, which have been cyclical, but for much of the period after 1950 with an underlying downward trend linked to rising productivity and increased off-site manufacturing and pre-fabrication. A long-term tendency in Lancashire toward well below average capital expenditure across most sectors of economic activity also served to depress construction activity. Construction employment in the County remained fairly stable over early post-war years, expanding over the mid-1960s to a peak of over 30,000 jobs (Figure 3). Lesser peaks in the mid-1970s and early 1980s were associated with major infrastructure and building projects such as that promoted by new town development corporation activity in Skelmersdale and Central Lancashire, new motorway construction and the construction of the Heysham AGR nuclear plants. Over much of the 1980s and early 1990s, with fewer and fewer major public sector building and infrastructure contracts combined with reduced levels of private sector activity, construction employment levels dropped to less than 16,000.

Figure 3 Construction Industry Employee Jobs, Lancashire, 1950-2005

Source Ministry of Labour/ONS - ERII Employment Records

Since the last trough of 16,000 employees in 1993, there has been some significant recovery with employment levels increasing across all the component sectors of the industry (Table 3). Indeed, the scale of employment growth in the industry since this date is probably unprecedented with a net gain of over 17,000 jobs (+107%) to 2005. A small part of this increase may have been due to improved statistical recording of construction jobs but the bulk is attributable to genuine gains. Growth derived both from a substantial increase in local construction activity and also through the success of a number of locally based companies in winning major regional and national contracts. Employee number in the latest year (2005) fell back slightly, suggesting some pause in this expansion.

Figure 4 Change in VAT-Registered Construction Businesses, 1994-2006

Source Small Business Service - VAT Registrations and De-registrations

Whilst the pattern of construction industry employment growth was one of a sharp acceleration from 1993, the number of VAT-registered construction businesses in Lancashire fell in the first part of the last decade but have risen sharply since 1997 (Figure 4). The stock of such businesses in 2006 (at 4,515) was some 780 or a fifth higher than in 1997, more-or-less on a par with the UK at large. Generally, the start-up rate for new construction businesses in Lancashire has been slightly lower than nationally but the local sector has enjoyed a rather higher business survival rate.

Production Trends

In Lancashire in 2004 construction was a £3.5bn per annum turnover industry, generating close to £1.4 billion in gross value added, or approximately 7% of the sub-region's total GVA (Figure 5). Construction activity has generally been on an upward path over recent years and the pace of growth locally in both turnover and GVA has comfortably exceeded that of the nation at large, just has it has done in the case of employment growth. Encouragingly, net capital expenditure has also increased strongly and on a per head basis is now on a par with the UK.

General Characteristics

The UK construction industry is one of the strongest in the world, with output ranked in the global top ten. With turnover in 2005 of about £170bn and GVA of £64bn it provides about 6.5% of the UK's gross domestic product and employs 1.4 million people. Whilst the industry undertakes little direct export activity, many UK companies operate very successfully internationally.

Figure 5 Construction Industry Production Trends, Lancashire, 1998-2004

Note Estimated construction industry production trends 1998-2004 at local authority level can be found in the Data Download Centre.

Source Annual Business Inquiry

Construction is generally a very conservative and fairly labour intensive industry but the pace of technological change and the use of novel materials and techniques is increasing rapidly and research and development, training and quality management are held as key factors in the future development of the industry. However, the need to repair, maintain and alter the existing built environment means that the industry needs to retain a competence in older technologies as well. Its activities thus comprise a wide mix from traditional labour intensive site-based crafts to sophisticated industrial technologies, though increasingly the latter is being met by specialist who manufacture and install major components and sub-assemblies on a sub-contract basis. As construction projects become increasingly complex there is a growing trend towards multi-disciplinary working and a need for transferable skills.

This diversity is reflected in the range of company types operating in the construction sector which include:

• Main contractors – often larger multi-disciplinary companies offering a client an integrated design and build service from design, right through the construction process to the completed project.
• Small contractors active in building and/or civil engineering work in a local market or a specific market sector, e.g. house building. They may work as a major contractor using sub-contractors and self-employed craftsmen. Many of these are family firms.
• Specialist contractors, ranging from piling contractors to painters and decorators, mainly in the installation and completion trades, who may operate over a wide geographical market.
• Self-employed craftsmen who may be registered as small firms and work with family members or casual help.
• Opportunistic start-ups by individuals, or partnerships, who are made redundant or seek more independence than working for a larger firm, or craftsmen expanding their range of activities.

Construction activity is largely investment led and in the short-term is sensitive to interest rates, levels of public expenditure on capital projects and the business cycle generally. Over the longer term population and economic growth primarily determine construction activity. In turn, the activities of construction have strong multiplier or knock-on effects elsewhere in the economy: it has been estimated that for every £100 spent on construction, a further £50-£100 are spent in other areas. Over recent years the industry has enjoyed a period of very strong growth particularly in response to major government infrastructure investment programmes, including private finance initiatives, in health, education and transport, whilst a chronic under-supply of housing in many parts of the UK has sustain demand within the house-building sector. This construction boom now appears to have peaked but the continuing amounts of construction work expected in the sub-region over the next few years are still likely to present a significant opportunity to boost the indigenous industry.

For further details, please contact:
Peter Kivell
Tel 01772 534157
Email Peter.Kivell@lancashire.gov.uk