The Role of Government in Pump Priming Change

While changes to industry practices can help support investment in skills, government also has a clear role in ensuring that the skills system, supports a healthy construction sector. Action should include:

•  Making sure the funding priorities for FE and Apprenticeships align to industry needs and that courses are fit for purpose for a modernising industry. The current 'margin creation' process of trying to deliver courses for less than the SFA grant is acting against construction courses and needs to be addressed. It is hoped that the Apprenticeship Levy and employer routed funding will assist and actually have a positive impact on college behaviours.

•  Maximising the impact of re-training and re-skilling programmes, including by not artificially constraining the supply of older trainees through funding rules. There should be particular focus on declining industries (such as steelmaking) and ex armed forces, which would serve wider social objectives. Age-related restrictions or gearing on funding and training schemes should be abolished.

•  Driving effective dialogue with all levels of the sector on a new landscape for industry skills training. This should include input to the Area Review being undertaken by DfE & SFA via the Joint Area Review Delivery Unit. The Area Review needs to ultimately be influenced by better tools to align demand and supply of skills.

•  The development in conjunction with the private sector or via the CITB reform programme of open data based supply and demand skills and training alignment tools that are informed by total visibility of private and public sector workload and the type of current and future skills needed. This requires a new data platform, building on tools already used in the major infrastructure projects sector (including the work for the National Infrastructure Pipeline (NIP) for skills) linking ultimately to a low cost, brokerage solution.

•  A stable commitment to carbon reduction in new-build residential. This will influence the skills and methods of construction required to deliver energy efficiency standards and inherently promotes innovation.

•  Change Section 106 planning condition obligations at local authority level on employment and training so that they can cover a wider, more sustainable geographic area. Many Section 106 obligations are fulfilled through limited term Apprenticeship Training Agencies contracts without analysis of geographical demand and sustainable long-term employment.

•  Assess how CIS may be modified to further disincentivise 'false' self-employment, perhaps through a larger levy differential applied between directly employed labour and CIS sub-contractors, or through the expansion of direct employment in public sector delivery organisations and shared apprenticeship schemes.

In addition to those areas where government has a vital role to play in influencing the skills and education agenda there is a more strategic role that it can play in setting the right conditions for a construction sector National System of Innovation (NSI). Government has the ability to facilitate the right institutional arrangements and economic conditions to establish and make a success of the tripartite covenant referenced above, both as an enlightened client of the industry and through the application of intelligent pro-innovation policies. It is the conclusion of this review that there is untapped potential to use government initiatives to drive industry modernisation particularly in the housing sector where the industry's problems are most acute and which will have consequential benefits for social welfare, the economy and the construction industry.

By playing an active role, government will get a healthier instrument of economic and social policy, a stronger basis for an economic multiplier and a potential stronger export base. When it comes to building new homes, influencing the way we deliver, as well as the end numbers of units delivered, will create a longer-term sustainable house building industry and will have quantifiable benefits in terms of productivity, quality and cost efficiency.

The development of the National Infrastructure Delivery Plan has had a positive effect on confidence in investment in UK infrastructure. It has helped to stimulate innovation and the deployment of new technology. However, as described, housing remains particularly exposed to short-term cyclicality and is unhealthily reliant on traditional low tech skills.

Demand predictability is a key component in generating the confidence necessary to expand the UK's housebuilding capabilities. The importance of this has been heightened further in light of the uncertainty arising from the UK's recent decision to leave the EU.

Government now has an opportunity to act strategically by using its interventions in the housing sector as a means of promoting new business models and innovation. It is suggested that there are three main routes to achieving this:

•  encouraging institutional investment in the private rented sector (PRS) through the 'Build to Rent' model but specifically linked to influencing the use of innovation and pre-manufacture led construction.

•  working with Registered Providers to deliver and co-invest in a reinvigorated National Affordable Housing Programme (NAHP) more specifically linked to influencing the use of innovation and pre-manufacture led construction.

•  implementing a strategic level direct investment and / or building programme of pre-manufacture led homes directly commissioned by government / Local Government.

These options are not mutually exclusive, but a choice can be made about which to emphasise. Several different combinations of measures are possible, but it is recommended that the ultimate aim should be to foster in the medium term the creation of a sustainable domestic pre-manufactured housing industry capable of delivering 50,000 homes per annum in addition to current 'traditional' new-build output of circa 160,000. It also needs to be complementary to current private for sale housebuilding rather than crowding it out which is why the above options immediately suggest tenure diversity. A further benefit of Build to Rent and the wider Private Rented Sector, social housing and direct government interventions is that these are acyclical or indeed can be timed to be counter-cyclical in their nature.

All three routes have some common requirements: land must be available and investment in manufacture led construction capacity must be supported (at national or local level) to enable capacity to grow in front of demand being 'turned on'. This will require direct government investment or the private sector having confidence in the demand pipeline which must be visible and certain enough for investment to be committed and sustainable. This in reality could be achieved via a government demand guarantee model.

The PRS route could be encouraged for instance by favourable land release by central and local government which would be conditional on using pre-manufactured solutions. In addition, tax incentives, such as a rebate on the recently introduced SDLT surcharge, could be offered to institutional investors and their development vehicles in PRS where new housing was being created with high levels of pre-manufactured value (PMV).

PRS-led innovation could also be stimulated by allocating a portion of a refreshed Build to Rent Fund prospectus with preferential financing terms to schemes which use pre-manufacturing. This could include covenant and security support or dispensation for lower capitalised pre-manufacturing businesses. This incentive could also be shared with long-term investors who dictate to developers that they require pre-manufactured product by offering preferential asset financing allocation as part of a modified Private Rented Housing Guarantee Scheme.

Working with Registered Providers to develop a programme of pre-manufactured social housing would also be an alternative or preferably, a complementary option to promoting Build to Rent. This review has noted examples where Registered Providers are already either individually or by aggregating demand, looking to adopt manufacture led techniques as part of their current plans and this must be viewed as a positive move which government could further support.

Finally, government could make firm decisions as part of its prospective programme of directly commissioned housing and allocate a significant proportion to pre-manufactured housing which it may choose to deliver independently of, or link, to the policy options stated above as a land donor.

It is also possible, on a wider basis, for planning policy to be brought to bear in incentivising innovation. In the same way that centrally issued supplementary planning guidance supports the National Planning Policy Framework (NPPF), government could consider how the promotion of high levels of customer choice, supported by a pre-manufactured solution, could be beneficially recognised in the application of local planning policy. Regional government can also mirror this approach independently through their own local plans and SPG's. Options might include exploring ways to replicate an approach to planning based on a Permission in Principle (PiP) system for pre-approved housing products with a standard typology, unit mix and sizing (similar to the NHBC 'type approval' approach to Building Control) This could be used for self-build / custom build, where clients purchase from a catalogue with automatic planning permission. There should also be consideration of relaxing planning led mix constraints to enable better standardisation and stacking of unit types, enabled by a more consistent mix of different types of units. Finally consideration should be given to how changing schemes from traditional to manufacture led designs that have an acceptable level of visual impact can be deemed to be 'minor' or 'non material' amendments in planning terms.

More generally, the housing sector would benefit from a greater visibility and confidence in levels of future demand for new public housing. To promote this government and industry should work with local and regional authorities (including Local Housing Companies) and Registered Providers to understand their plans to grow direct delivery output in housing and the timing of that relative to projected private market activity (i.e. to try to promote a counter-cyclical element of activity). This should capture both temporary and permanent housing and the potential for both traditional and off-site manufacture options. This forward planning can be directly and indirectly influenced by government as stated above through the phasing and allocation of HCA grant from the central or devolved National Affordable Homes Programme (NAHP) or through the introduction of intelligent, incentivised measures linked to regional devolution and perhaps elements of associated fiscal autonomy. In addition, plans for real estate development associated with the NIP and the plans of institutional investors in PRS should be drawn in to the picture as much as possible. The ultimate aim would be to create a credible and comprehensive picture of plans for residential development and levels of likely demand for skills and high PMV output in an easily accessible digital form that can de-risk investment in innovation and training.