Motion to Take Note
My Lords, it is a pleasure to open this debate on the Science and Technology Committee inquiry, Off-site Manufacture for Construction: Building for Change. I should begin with some important thank yous: to our committee clerk, Donna Davidson; to our policy analyst, Dr Daniel Rathbone; and to our committee assistant Cerise Burnett-Stuart. All of them, as always, worked hard throughout the inquiry. I should also like to thank, most sincerely, our specialist adviser, Mike Putnam. His experience and expertise were much appreciated. On behalf of the committee, I also thank Laing O’Rourke for arranging for some members of the committee to visit its facilities to view aspects of digital construction.
I thank all the committee members, not hesitatingly at all, for their diligence and support. I mention particularly the noble Lord, Lord Mair, who persuaded us to conduct this inquiry. I know he will speak at some length about several of the issues involved and on the key aspects of our inquiry, which allows me to make my contribution shorter. I will do so by summarising the key findings of the report, allowing others to speak in more detail. I thank all the noble Lords taking part in this debate today, and I am delighted to see that some non-members of the committee have put their names down to speak, including the noble Lord, Lord Stunell, who has vast experience in construction in this area.
I also thank the Minister, for personally attending to give oral evidence to the committee, and the subsequent government response. It is not a frequent occurrence that the Government find inquiry reports agreeable. I am pleased that the Government agreed with much that we recommended. My colleagues and I will therefore no doubt focus in the debate on those aspects where the Government were less in agreement. I hope the Minister will find appropriate and agreeable answers today.
The findings of our inquiry are covered in six chapters. We make 10 key recommendations and reach several conclusions. I will attempt to summarise some of these. In their response, the Government recognised the construction sector’s contribution to the economy and to employment. It contributes over £138 billion of gross value to the economy and employs over 3.1 million workers. However, despite its importance, the sector fails to match the productivity improvements seen in other sectors of the economy. Labour productivity, for instance, is nearly a fifth lower in the construction industry than in other sectors. We believe that, if implemented, our inquiry findings and recommendations will go some way to improving the performance of the construction sector.
The combined effects of the problems characterising the construction sector mean that it cannot meet the needs of housing and will struggle to meet the needs of infrastructure. Off-site manufacture for construction can help it meet those needs. Off-site manufacture has several tangible benefits, including better-quality buildings, fewer labourers, increased productivity, the opportunity to create more regional jobs and better building safety, to list but a few. Those all make a compelling case for the wider use of off-site manufacture for construction.
Despite those obvious benefits, the uptake of off-site manufacture is limited, and that will need to change. For change to occur, the regulatory, financial and commercial environments that currently operate in the sector need to be addressed, and action is needed not only from the sector but from the Government. I acknowledge that the Government have made a start, particularly in their publication of the construction sector deal, and this is a very important step forward. I hope that the Minister will agree that, for it to succeed, the Government and the Construction Leadership Council will need to work together, and a key component of that should be the development of a clear forward plan, including timelines and indicators of performance management. Can the Minister say when this might happen and who will lead on it?
I very much welcome the Government’s announcement of presumption in favour of off-site manufacture and their investment in digital design for building and manufacture. We look forward to plans for its implementation. Again, perhaps the Minister can say more about when this might be implemented.
To meet the current housing shortage, the Government have set ambitious targets for housebuilding and have announced investment in the construction sector deal. Can the Minister specify what conditions they will attach to this investment to drive the use of off-site manufacture for construction? The Government have several levers they can use to optimise this. Although we recognise that they are taking some action, in Chapter 6 we outline further steps that they can take, including developing and publishing a series of key performance indicators against which the success of “presumption in favour”, which the Government have now said they will commit to, can be assessed. What plans do they have to do this?
Much of the evidence we received suggested a construction sector that is fragmented and lacking in trust. This a reflection of current business models and traditional ways of managing finance and cash flow. The Construction Leadership Council has an important role in providing resources and leadership to overcome this. We welcome the Government’s commitment to changing the public sector procurement model to procure for whole-life value rather than up-front costs. This, together with presumption in favour of off-site manufacture, is an important signal to the industry. The Science and Technology Committee will follow future developments with interest and may well revisit the situation with a follow-up inquiry to track the Government’s record in fulfilling their commitments. In the meantime, I beg to move.
My Lords, I first declare an interest, as noted in the register: I am a property developer with several ongoing housebuilding projects.
I welcome the report from the Science and Technology Committee. Off-site manufacturing is likely to be more economic, efficient, safe and automatable than traditional ways of building houses. Indeed, it ought to be the obvious thing to do. So I compliment the noble Lord, Lord Patel, the chairman of the committee, and the noble Lord, Lord Mair, for guiding us to choose this as a subject for our committee.
I used to manufacture London black taxis and was once told that each taxi off the production line was different from the last. That was not a compliment. It is important to communicate clearly that factory-made construction does not mean identical houses. On a car production line, you can change the colour of the paint and a whole lot more. Cars built to thousands of different specifications can come off the same production line. It is the same with houses. The major differences are often in the finishes rather than the underlying structure.
Noble Lords may remember the 1962 song “Little Boxes” by Malvina Reynolds and may be extremely grateful that I choose not to sing it for them—unlike David Templeman, a Member of the Western Australia Parliament, who can be seen on YouTube singing a Christmas song to his colleagues in Parliament. I remind them that the song satirises the growth of suburbia, with houses, or little boxes, of different colours,
“all made out of ticky tacky”,
which all looked the same. Noble Lords remember it.
There is a similar perception—only exacerbated by the move to off-site construction—of new-build housing in the UK now. We know this to be false and must make a more positive case for the wide range of products, styles, finishes, colours and results of modern housebuilding. Many Japanese houses are now built in this way. In fact, they are built on the foundations of the houses they replace. The buyers can pick a house from a catalogue, to the specification they want, and the whole process does not take too long to complete.
While it is important to stress that off-site does not mean uniform, we should also recognise that buyers of new houses are often different from buyers of houses generally. Those buying new houses are usually younger, often couples, and a lot of the time are buying because they are starting a family. They are often moving from a rented flat to a new house—a typical and lovely story. The demand of different buyers is similar: they are looking for their first home, something affordable, suitable for starting a family and a little more pleasing than the flat from which they are moving. If the demand is similar, it is unsurprising that the supply is similar.
Some of the concerns and worries about this, as mentioned by my right honourable friend in the other place, Oliver Letwin, are a little confusing. It is like grumbling about all the products across Marks & Spencer shops being similar. Of course they are: they are directed at a target market. It is the same at Lidl or Aldi. Their product ranges are similar because they are trying to sell products to similar markets.
The government response to this report maps out how they are already working to achieve many of the recommendations in it. But while a lot of it is welcome, there are also some areas that I would no doubt find laudable were I able to fully understand them. The trouble with the Government’s response is that, while the English may be elegant, hidden in the language is the possibility that they will achieve absolutely nothing. No doubt we should be pleased that this form of construction is included in the industrial strategy and the sector deal, but if we come back in future and nothing has happened, my noble friend and his department can still claim that as a triumph.
In the meantime, some practical steps can be taken to help drive the use of and improvement in off-site manufacturing. Specifically, the Government themselves could actually start buying these materials for their own projects. For instance, we were given evidence that prison building projects, though they may be the leader here, could make even more use of off-site manufacturing, as could nurses’ accommodation. The Department for International Development could use the methods for building projects overseas, ensuring that the manufacturing process is done here, with a “Made in the UK” stamp. Committing to that would certainly mean we could benchmark success. Does the Minister agree that the Government themselves using off-site manufacturing much more widely by the end of this Parliament would mean we could judge his department as a success or a failure?
Financing is an important issue that the committee examined in some detail. Of course, cash-flow patterns for a factory are different from those for a housing site. Off-site construction parts from a factory are paid for when they leave the factory, just like a car— except that in the car industry, stocking finance is a well-established financial services product.
Such finance is not so easy to obtain in the housebuilding industry. No doubt it will be available in 20 years’ time, when off-site manufacturing is more routine. That point was made in the report. The issue at present with this process is that we are probably in the dip of the so-called valley of death of innovation, and we are waiting to move back up the curve to the point where it works as a successful business model. Other countries, such as Japan and Germany, have already come up past that dip. While we negotiate helpful sector deals, we should also caution against too much intervention, too much bureaucracy and too many complex funding streams and quangos to administer it all. We should instead keep government action as practical as possible, and look to examples overseas of how best to let the industry thrive.
As I have said throughout, I welcome the developments in and potential uses of off-site manufacturing, the committee’s report mapping out a path to adopting it, and the Government’s willingness to adopt the proposals of that report. But there is something that we have not addressed, which unfortunately renders a lot of the good intentions, and even the good actions, somewhat futile. That is our restrictive planning system—one of the main reasons why we do not build enough houses. That is the reason why off-site manufacturing is not allowed to take off as we would like.
The planning system at the moment discourages any building from happening. It also discourages the use of building techniques that would make off-site manufacturing the game-changer it could be. One of the great advantages of off-site manufacturing is its flexibility. For instance, it would theoretically be easy to alter plans in order to change from a 3-bedroom building to a 4-bedroom building in the pre-construction phase. But our planning system would never allow that flexibility. Even on a planning-approved site, that kind of change would require a whole host of negotiations—on education, road traffic and more.
We have to build 300,000 homes a year. We must meet that challenge, and one of the best ways to do that is through the roaring success of off-site manufacturing. Again, I welcome the committee’s hard work in mapping out how this can happen.
My Lords, I should declare an interest as chancellor of Cranfield University, which is involved in off-site construction, and as chairman of the Woodland Trust, of which you will hear more anon. The construction sector in the UK is a big thing, and will see an investment of £600 billion over the next decade, including £44 billion for housing. The sector has low productivity, and lags behind other major industrial sectors in this country in productivity improvement. It faces some major challenges: the dash for housing and a lack of skills, which will only get worse with Brexit—as, indeed, everything appears to do.
The construction sector is at a crossroads. As a member of the Science and Technology Committee, which worked on this report, I welcome the opportunity of this important debate. I thank my noble friend Lord Patel for his chairmanship, and the noble Lord, Lord Mair, for his impressive expertise, charmingly and modestly offered.
Off-site construction offers a major contribution to thinking about and delivering a revolution in the construction sector. Our report defines what we mean by off-site construction: I am sure all readers of it are now fully conversant with the difference between volumetric and panelised construction. Indeed, off-site construction is not a new phenomenon. Prefabricated buildings of many sorts have been around since the time of the original prefabs, and many self-build and individual-build houses have depended substantially on prefabricated elements.
We now have an opportunity not only for the UK to maintain its position at the forefront of off-site manufacturing globally, in the commercial and high-rise residential sectors, but to gain major benefits in the low-rise residential sector, where the UK currently lags behind. Our report outlined the benefits of off-site construction. A recent National House-Building Council report showed that the construction industry companies currently involved in off-site construction were most motivated by a number of factors: first, improved quality in what they could offer; secondly, efficiency and productivity; and, thirdly, accelerated delivery, with shorter end-to-end construction times and considerably shorter times on-site.
Labour and skill shortages were another driver. There is an aging workforce and the impending risks to the labour market of Brexit—and it appears that the Brexit labour market applies to Prime Ministers at the moment as well. Thirty-five per cent of construction workers in London currently come from outside the UK, with the majority of them being EU workers.
Let me highlight another two benefits that the companies involved did not particularly draw to our attention. The first is the reduction in construction waste. When I was chief executive of the Environment Agency, I was appalled that 30% of construction materials delivered on to conventional sites left as waste without ever being used. That was not a great contribution to productivity or the circular economy. The second benefit concerns health and safety. It is estimated that off-site construction could reduce work-related health and safety impacts by 80%.
The Government’s response to our report was pretty positive. It is encouraging to see how a range of investment and other measures are being put in place to help bring about this construction revolution. That seems to be envisaged in the construction sector deal and I urge the Construction Leadership Council, in leading that deal, to see this as a medium to long-term effort, not a quick fix.
The then co-chair of the Construction Leadership Council, Andrew Wolstenholme, gave evidence and was exceptionally visionary in this respect. He described the fundamental change in culture and approach that needs to be achieved in the sector and outlined a comprehensive road map for doing that. I have rarely been so impressed by the clarity of thought in how to achieve sustained change in a major sector and it bears re-reading by everyone involved in change programmes of any kind. I commend it to the Minister.
There have been previous spurts in the off-site construction market, the last of which stalled with the recession in 2008. Governments are not particularly good at keeping a consistent course over a number of years longer than the electoral cycle—though one can ponder at the moment on how long the electoral cycle is—so the role of the Construction Leadership Council is fundamental in keeping the implementation and change effort going until the job is done. Will the Minister comment on the need for sustained long-term leadership and ongoing support for the Construction Leadership Council?
The Government have some key roles, and I welcome the scale and range of initiatives and investments that they have outlined in their response to our report and subsequently. The Government have a unique opportunity in driving this through the presumption in favour of off-site construction, but they need, as the noble Lord, Lord Patel, said, to monitor that presumption, and compliance with it, and not to take no for an answer. Ultimately, I would like the scope of the presumption in favour of off-site construction to be expanded to all government departments and public authorities. Will the Minister comment on that too? The Government also need, through Homes England, to influence the procurement of off-site construction by housing associations and local authorities.
Of great importance are measures to ensure the pipeline of projects so that the security of supply can be assured and confidence promoted in the investment market and among planners. Management of the development of the market is important. The risk of success is that the market might overheat and outrun manufacturing capacity, resulting in disruption in delivery and extension of lead times. This would significantly adversely influence clients, architects, design engineers and contractors just at the time when we need them all to be enthusiastic adopters of off-site construction thinking.
On the labour and skills market challenge, I commend the work on apprenticeships and T-levels. Of particular importance will be the retraining of the existing workforce. The skills required are significantly different from those currently deployed, with scarce digital skills particularly important and, potentially, in the future, in short supply and great demand. I have discussed the construction workforce position with my 80 year-old brickie, who told me firmly that there will always be a requirement for his skills as long as brick-built houses still stand up. He is not thinking of retiring yet. However, the transition is not a simple one and a mix of new and traditional skills will be required for as long as our existing building stock endures.
Let me end with one last opportunity that off-site construction can offer. This was the point at which my interest declaration as chairman of the Woodland Trust becomes material. Part of the construction industry already recognises the value of wood in off-site construction. For example, Legal & General and Swan Housing Association have both invested in factories for off-site construction using cross-laminated timber. CLT can be used for a variety of housing projects, from terraced homes to apartment blocks. Wood as a building material has many virtues, including fine aesthetic qualities and its sustainable nature, but by far the biggest driver needs to be its role as a carbon store in combatting climate change.
In its most recent report, the International Panel on Climate Change has sombrely shown that we have only 12 years, if we are to keep the global average temperature rise to under 1.5 degrees. Society must move away from fossil fuels completely, but must also undo some of the damage already done. One of the ways of doing this on a large scale is to plant more trees. Planting a tree locks in carbon and reduces CO2 in the atmosphere. If that tree is then felled and processed 40, 60 or 70 years later and embodied in a building for a further 100 years, its carbon reduction impact is extended mightily.
The UK Committee on Climate Change called for a 9% increase in tree cover in this country. The Government gave a manifesto commitment to plant 11 million trees in the lifetime of this Parliament—though who knows what that will be. The climate change committee has clearly laid out that meeting that commitment would require planting 74 million trees a year, not 11 million trees over five years. I look forward to debating this with the Government as part of the forthcoming consultation on the England tree strategy. I commend the virtues of wood to the off-site construction market, both intrinsically as a material and for its undoubted contribution to climate change reduction. I hope our architects, designers, construction companies and housebuilders will “embrace their inner tree”, benefit from using more wood in off-site construction and help drive the planting of more trees. I hope the Minister will support my call.
My Lords, it is a great pleasure to take part in this debate and to follow the excellent speeches so far. I thank the noble Lord, Lord Patel, and the committee for producing an excellent report: it is wide-ranging, has a set of very balanced and sound recommendations and is founded on sound, solid analysis of the situation. We need to reflect on the fact that the construction industry is the most important and strategic of all the industries in this country. We sometimes talk about aerospace or the car industry being strategic, but the fact of the matter is you can buy cars or aeroplanes from somewhere else. You cannot buy new factories from somewhere else—or new houses or hospitals, for that matter. If the Government want to see a booming economy and solid, well-supported social services, it always comes back to something that has to be provided by the construction industry. That is reflected, to some extent at least, in the Government’s response to the report and their action in establishing the construction sector deal and strategy. I will come to that in a moment.
However, it is not just a question of maintaining an industry and improving it marginally; it is being given a much bigger job. Getting housing up to 300,000 units a year by 2020 is a formidable task, when we are struggling to reach 200,000. That involves a huge expansion of capacity. One could say the same about the health service, major infrastructure projects and a whole range of things. The report went to the Select Committee in the other place, which received details saying the industry would need to expand its capacity by 35% over the next 10 years. That is a huge challenge and, no doubt, the Government will want to engage with the industry in delivering it.
At the same time, there are 70,000 retirements each year from the workforce, and only about 30,000 to 40,000 people are being recruited into the industry from within the United Kingdom. Until now, that gap has been filled at all levels of the industry by the recruitment of workers from overseas—from architects, engineers and other professional workers to the skilled workers on-site. At the time the referendum was held, there were 200,000 EU 27 workers in the construction industry. It is a signal of the direction of travel that there are now, according to the ONS, only 156,000—in other words, a drop of 40,000 in that migrant pool of workers in the construction industry.
With the workload increasing and the labour force availability decreasing, there are clearly some major pressures and challenges. It could well be that off-site building, modern methods of construction—there are about five different ways of expressing it—can certainly contribute a great deal towards filling that gap.
However, there are other problems. It has already been mentioned that the report identifies a skills gap as well as a personpower or manpower gap. The problem is that, in a fragmented industry with a very large number of single-person or two- or three-person small-scale subcontractors, their capacity to provide training is somewhat limited. I think the report has let the Minister off quite gently on the ineffectiveness of the levy and on the current way in which apprenticeships are supported in the construction industry. I hope we can return to it in a more considered way on another occasion.
The Government’s response says that they have now approved 50 apprenticeship modules. That is intended to deliver 25,000 new apprentices into the construction industry by 2020. So 25,000 new apprentices are going in when the workforce is shrinking at 20,000 a year from retirements and another 20,000 a year from the reduction in EU migrants. It is not nearly enough. The Minister has approved 50 modules. How many more are stuck in the in tray, with the levy unspent, because it is just not possible for firms to get apprenticeships started?
Reference has been made to the T-levels, but I notice that the figures are pretty meagre. Courses in the construction sector are planned to start in 2020, and the response boasts—I think I can use that word—that there will be 1,000 people taking them up. Well, that is an extra 1,000 apprentices added to the workforce in 2022. It is a drop in the ocean. The Select Committee report also mentions that the type of skills needed is expanding in the construction industry; the noble Baroness, Lady Young, made the point about digital skills.
There is no doubt at all that taking manufacture off-site and putting it under cover provides opportunities and possibilities which are difficult to provide in the traditional industrial model that we have in the construction industry. That is good. But the report says that, to do that, it is essential to have a consistent pipeline of investment and of building. The problem is that, although we have a National Infrastructure Commission and an infrastructure development authority, the reality is that, rather than a pipeline, we have some sort of tangled-up hosepipe. Every time somebody is ready to spray the water on the flowerbeds, someone else steps on the pipe and no water comes out. You look down the pipe to see what has happened to the water, then someone turns it back on again and you get sprayed. That is what the industry feels like as far as consistent investment goes. I hope the Government will be prepared to say something about how they will do some countercyclical investment, particularly in housing, to make sure that that consistent pipeline is there.
The report also mentions research and development. The figures are awful because the Government think the industry spends £370 billion a year. They have obviously captured more than the report, which refers to £138 billion a year. Whatever the number is, the figure the Government have produced for the amount of R&D tax credits given by HMRC is £45 million. For the smaller figure that represents 0.04% of turnover going into research and development. The Government’s comment in their response to the Select Committee is that this,
“is low compared to some other sectors”.
I have no idea which other sector could manage to get less than 0.04%, but maybe the Minister has some information. Quite clearly it should be 2% to 3%—it should be a significant number. That really will be important if we are to move to a new model off-site.
What is the machinery for delivering this and to knock down the barriers? The construction sector deal is a very good step forward. We have certainly welcomed it. We believe it is an essential way for the Government to interpose in this. The way to deliver it is through the Construction Leadership Council. That is how things are mediated between the Government and the industry. I think it is something of a phantom body. There is a lot of “will do” this and “will do” that, rather than “have done” this and “have done” that. What actual spend has there been to date on the strategy? We are a quarter of the way through the time period. How far are we through the spending period? The noble Baroness, Lady Young, talked about cycles and election cycles. The current election cycle could do with having a stabiliser fitted to it, but leaving that point aside we need to know and understand what the Government intend to be the rate at which the strategy will develop. When will that first annual report be published? As the Select Committee asked, when and what is the timeline for that?
Many other vital points appear in the report, but in my last couple of minutes I will raise important issues that could do with more emphasis. Only 9% of the construction industry workforce are women. Off-site provides a chance to reset the image of construction and the environment in which construction is carried out to be far more appealing to those who are not attracted to the industry. I hope the Government and the Construction Leadership Council will work together to change the perception and the reality.
I have to agree with the noble Baroness, Lady Young—it is not just about getting the quantity right; we have to get the quality right. Some 93% of new homes handed over to their new owners last year were reported as having defects. The fact is that existing standards are not complied with and they are too low. Sustainability and durability are not taken seriously by the current construction industry—put it up, walk away. We have to have a model that understands that it is a whole-life process, with whole-life costing and sustainability. I was pleased to see that there will be some evaluation projects for sustainable homes, paid for out of the strategy, but we should immediately move to put zero-carbon homes standards in place. I do not think that there is any excuse for putting it into the long grass any longer—just do it.
Overall, this is an excellent report. It highlights that a huge amount of work has to be done if we are to create a fit-for-purpose industry with the capacity and skills to build a long-term, sustainable environment and infrastructure to serve the whole country. I look forward to hearing that the Minister recognises that, without that, practically all the other policy aspirations the Government have, whether housing, health, education or economic growth, will not happen without a viable, strong construction industry.
My Lords, it has been a privilege to be a member of the Select Committee undertaking this inquiry under the expert chairmanship of my noble friend Lord Patel. I declare the following interests: I am head of the Centre for Smart Infrastructure and Construction—CSIC—at Cambridge University, and until a few weeks ago I was president of the Institution of Civil Engineers. I am also an adviser to the construction company Laing O’Rourke.
I draw attention to key words in the title of our Committee’s report Off-site manufacture for construction: Building for change. Building for change is so important and so badly needed. I shall first provide some background. The UK construction industry contributes more than £100 billion annually to the economy. It is vital to solving some of the pressing problems facing us. There is a lack of affordable housing. We have ageing infrastructure that needs replacing or increasing in capacity. However, the construction industry suffers from poor productivity. New technologies, such as off-site manufacture, could considerably improve the productivity of the construction industry. In November 2017 the Government announced the construction sector deal as part of their Industrial Strategy White Paper. This aims to transform the productivity of the sector, focusing on the building of houses, schools, hospitals and major transport projects.
A key innovation contained in the sector deal is the development and commercialisation of off-site manufacturing technologies, which have the potential to transform the construction industry. This is particularly significant for housing: to address the housing crisis at least 300,000 new homes are needed annually for the foreseeable future. Off-site manufacture can lead to lower costs and faster delivery, as well as increased quality. There are preconceptions about what has in the past been referred to as pre-fab construction; these need to be dispelled. As the noble Lord, Lord Borwick, said, off-site does not mean uniform, nor does it in any way mean shoddy—at least nowadays. Bringing a manufacturing mindset to the design and construction of infrastructure, especially buildings, offers huge opportunities for harnessing the benefits of standardisation and factory manufacture without hampering architectural ambition. There is a need for new thinking at all levels: from clients, through to architects and engineering design consultants, contractors and the supply chain.
Our inquiry explored whether off-site manufacturing of buildings and infrastructure, or the components thereof, could improve productivity in the construction sector. We examined the potential benefits and drawbacks of the wider uptake of off-site manufacture, as well as how government policy, particularly around public procurement, might need to change to facilitate it. We also considered what actions the construction sector could take to drive the further use of off-site techniques. We explored not only the unrealised opportunities for off-site manufacture in construction but, more importantly, the barriers to its uptake. At the outset of our inquiry we found it useful to clarify what is meant by off-site manufacture for construction. Broadly there are two main groups. In the first, components of a building are manufactured off site then brought together on site—such as columns, floor slabs and beams. This includes pre-cast concrete, which is applicable to high-rise buildings and other infrastructure. In the second, buildings can be manufactured volumetrically, or in modules: whole segments of the buildings are manufactured and assembled off site, then the completed modules are fitted together on site. This is especially relevant to housing.
Our inquiry concluded that there are clear and tangible benefits for construction from off-site manufacture which make a compelling case for its widespread use. These include: better quality buildings and infrastructure; enhanced client experience; fewer labourers and hence increased productivity; the creation of more regional jobs; improved health and safety for workers; improved sustainability of buildings and infrastructure; and reduced disruption to the local community during construction.
In July of this year, as we were finalising our report, the Government published the details of the construction sector deal. Our committee was pleased to see that off-site manufacturing was one of the deal’s three strategic areas of focus: digital, manufacture and performance. I shall refer to the importance of digital and performance later.
The evidence we received in our inquiry revealed a strong case for the use of off-site manufacture for construction, but its use today is by no means widespread. What are the barriers? Why has off-site manufacture not been more widely adopted? The principal barrier has been the fragmentation and lack of collaboration in the construction industry. This fragmentation makes it difficult for all parties—clients, designers and contractors—to be involved from the beginning of a project. Lack of trust, and therefore a lack of collaboration, and attitudes to risk are cultural within the whole sector. This often leads to disputes which are all too often part and parcel of the construction industry.
It was clear to our committee that the construction sector needs to build trust and partnerships so that companies can work together to improve the uptake of off-site manufacture. We welcomed initiatives such as the Construction Leadership Council and the Infrastructure Client Group’s Project 13.
Project 13, published by the Institution of Civil Engineers in May 2018, is an extremely important industry-led initiative. It will improve the way high-performing infrastructure is delivered and managed. It seeks to establish a new approach within the construction sector, based on enterprise, not on traditional transactional arrangements. The most significant changes in an enterprise structure, as opposed to a transactional structure, are that the owner is central and leads the enterprise, defining long-term value; contractors, suppliers and advisers have direct relationships with the owner; and an integrator actively engages and integrates all tiers of the market. Most importantly, in an enterprise model the key contractors, suppliers, owner, adviser and integrator all work as one team to optimise value. All parties—client, architect, engineering designer and contractors—must be involved from the beginning of a project, rather than, as so often at present, the contractors only being involved at a late stage when the project has already been pre-determined, fixed and designed, with all the risk being transferred to the contractors. A key element of a successful enterprise model is risk sharing as opposed to risk transfer.
Following these principles, our report recommends that designers, contractors and suppliers must all have early involvement in a project if off-site manufacture is to be successful. This requires a change in business models in the whole sector and among clients—both private and public sector—as well as far greater collaboration. There is a need for a client’s professional team or advisers to adopt a different approach, as outlined by the Infrastructure Client Group’s Project 13, to enable off-site manufacture. Our report welcomed moves in the construction sector deal to improve the sustainability of new business models such as this.
The Government and the wider public sector are by far the biggest clients of the construction sector. The Government therefore have a key role in encouraging and facilitating the uptake of off-site manufacture.
I welcome the Government’s response to our committee’s recommendation regarding new business models for the construction sector. It is encouraging that the Government are very supportive of the initiative taken by the Infrastructure Client Group in developing Project 13: a new approach to commissioning and delivering infrastructure and construction projects.
The Government have also recognised the importance of funding research and development. The construction sector typically spends very little on R&D—the spend is much too low, as the noble Lord, Lord Stunell, has already noted, and lower than in any other sector. One of the welcome aims of the construction sector deal is to increase spending on R&D. Alongside the initial sector deal announcement, the Government announced a £170 million investment in the transforming construction programme, as part of the Industrial Strategy Challenge Fund. Innovate UK estimates that this government investment will leverage around £250 million of match funding from the industry through its contribution to funding R&D projects. We all welcome this important initiative.
Our committee recommended that a portion of Government funding for R&D in the construction sector should focus on detailed performance data for the lifetime of buildings and infrastructure. This will provide an important evidence base for improving future designs, thereby achieving significant economies. By measuring the performance we can establish the degree of overdesign of much of our infrastructure; only by doing so will real advances be made. The Government’s positive response to this recommendation confirmed their support for optimising whole-life performance of buildings and infrastructure, which is part of the transforming construction programme. This approach will also combine the rapid advances in the digital revolution with major developments in innovative sensor technologies, many of them made recently by the engineering department of the Cambridge Centre for Smart Infrastructure and Construction. These have already been deployed successfully on over 100 construction sites. Industry should aim to routinely equip new components manufactured in the factory with fibre-optic and wireless sensors. These will deliver vital digital data on the performance of infrastructure, during construction and throughout its life.
In summary, our inquiry found that there is a compelling case for off-site manufacture in construction. The Government’s overall response to our report and recommendations has been very positive, as stated by the noble Lord, Lord Patel. We highlighted that in the Autumn Budget of 2017, the Government announced the very welcome “presumption in favour” of off-site manufacture by 2019 across five departments responsible for the construction of buildings and infrastructure: the departments for transport, health, education, defence and the Ministry of Justice. Our committee strongly supported this direction of travel.
As stated by the noble Lord, Lord Patel, we recommended that the Government develop and publish a series of key performance indicators against which the success of the presumption in favour can be assessed. We also recommended that where the presumption in favour is set aside and a project goes ahead that does not use off-site manufacture, the Government should publish a statement explaining why it has not been used and justifying that decision. The Government’s response to these two recommendations appears to be somewhat lukewarm, although they did state their intention to review the position on an ongoing basis. In the light of the Government’s otherwise enthusiastic response to our report, will the Minister clarify how the presumption in favour will be given more teeth? This could have a very important influence on the uptake of off-site manufacture, a well-proven innovation that has enormous potential to transform the construction industry.
My Lords, as a member of your Lordships Select Committee on Science and Technology, I must begin by thanking the noble Lord, Lord Patel, for his skilful chairmanship. I also thank the committee’s officials and special adviser for their thorough and efficient work. I should also mention that it was the noble Lord, Lord Mair, who encouraged us to pursue this theme and write our report, so it is a pleasure to follow him this afternoon.
Certainly it is clear that the construction sector has not delivered the same level of productivity as other sectors of the economy in recent years. On average since 1997, labour productivity in the construction industry has consistently been around 21% lower than in the wider economy, and there are certainly indications that the Government may find it difficult to achieve their target of building 300,000 houses per year by 2020.
The focus of the committee’s report is on off-site manufacture for construction, which implies factory production for the components produced and offers the hope of a smaller on-site workforce for their installation and much less on-site wastage and disruption. It is fair to say that the committee was greatly impressed by the benefits off-site manufacture and felt that the claims of its advocates were in most cases well justified, but we had a much harder time trying to work out why the model is not more widely adopted.
The benefits accrue largely from economies of scale, where the factory-made components can be delivered to a range of sites. Skilful planning can introduce variety and avoid the impression of sameness and monotony that many of your Lordships will remember in the prefabs of the immediate post-war period. In general the Government have been alert to the merits of off-site manufacture and ambitious in their construction sector deal, whose objectives were announced in November 2017 in the Government’s Industrial Strategy White Paper. They included a 33% reduction in the costs of construction, a 50% reduction in the time taken from beginning to end of new build and a 50% reduction in greenhouse gas emissions in the environment. These same targets had been set out four years earlier in the Government’s Construction 2025 strategy. The Government indeed published their construction deal in July 2018 setting out three strategy areas to meet these objectives. They were digital techniques to be used in all phases of design, off-site manufacturing technologies and whole-life asset performance.
Our report was published on 19 July this year, and the Government’s response, which was in general welcoming, was promptly published on 14 September. There is no doubt that the Government are well aware of the merits of off-site manufacture and well disposed towards it, but there is a very real question as to whether that is enough. At present, as the report makes clear in paragraph 107, the up-front finance required to set up off-site manufacture appears greater than the finance required for conventional construction. The Government’s response is positive:
“Where gaps are identified, the Government will work with stakeholders to address these, to ensure that the industry has access to the finance that it needs to expand its off-site manufacture capacity”,
but is that enough? It is perhaps a shade vague.
It is clear that constructors and housebuilders which fall into the category of small and medium-sized enterprises—that is, they employ fewer than 250 persons —are not in a good position to employ off-site manufacture, usually being too small to do so on their own. It will take a considerable disruption in the low-rise residential construction sector in the United Kingdom to bring it to adopt off-site manufacture. Currently, we were told that in that respect the UK is,
“substantially behind Scandinavia, North America and Japan”.
However, we were told that such a disruption in the construction sector is,
“most likely to come from overseas, and perhaps from China”.
Those observations are covered in paragraphs 58 and 59. That is perhaps a shade disquieting.
As we have heard, in his November 2017 Budget, the Chancellor announced a presumption in favour of off-site construction across suitable capital programmes where it certainly represents value for money. The committee’s report lays considerable weight on that presumption and emphasises the need to ensure a consistent pipeline of projects. Without this, the industry will not have the confidence to invest substantially in off-site manufacture.
There is, of course, very much more that could be said. It is fair to say that the committee was unanimous about the merits of off-site manufacture for construction. The Government have been consistently forward-thinking in their construction sector deal, but they will need a consistent policy in procurement where public projects are concerned if the promised benefits are to be secured.
My Lords, I too congratulate my noble friend Lord Patel and his committee on a very thorough benchmarking report. The House will know of my interest as a practising chartered surveyor, which also involves the construction sector. I have also had the privilege of serving on an ad hoc parliamentary committee on government policy for the built environment, chaired by the noble Baroness, Lady O’Cathain. The House will also know of some of my activities in the All-Party Parliamentary Group for Excellence in the Built Environment, which, as the noble Lord, Lord Stunell, will know, have considerably informed my views on many of the things that have already been raised.
I draw on some 40 years’ involvement in various parts of the construction cycle but remain, I am afraid, very much at the muddy-boot level, although I begin to feel my age as I weekly shin up and down scaffolding on construction sites. I distinguish straightaway the existing bulk of traditional construction that forms our existing building stock and concentrate, as the committee does, on new build and where we go from here. I have witnessed, over my professional life, the growing use of component standardisation and off-site assembly, as the noble Lord, Lord Mair, so eloquently put it. I have also visited manufacturing facilities where entire floors of houses, which could be stacked on top of each other, were produced. I do not know how they moved them down the road, but that was another story.
Among the physical limitations of prefabrication is the size of components that can be conveniently transported to sites. However, in the realms of moving to robotics and 3D printing, who knows where we might be in a relatively short time in respect of distributed fabrication of components? The committee rightly referred to the limitations in current construction practices and the different approaches that would be needed, from design to completion, for procuring buildings with substantial off-site content. While many of them—hotels, some municipal buildings, schools, student accommodation and so on—are becoming, as we speak, early candidates for this type of work, the low-rise residential housing sector has been flagged up as a potential sticking point. This is mainly because changes in style, layout and space might place standardisation in the way of customisation, particularly, post-occupation adaption. I shall say more about that in a minute, although I believe that many of these points are perceptions rather than reality, and that, fundamentally, we are on to a good thing here and we should go with it.
There will always be a market for the one-off self-build of conventional construction. Needless to say, we have plenty of conventional construction already in place, but we will progressively get to a degree of standardisation of components, which can be arranged in multiple different ways to achieve a wide range of different designs and styles. I do not absolve current traditional methods of constructing dwellings from some significant criticisms of monotony and sameness. So let us not compare the bad bits too much. If we can get innovative design and exterior appearance into off-site construction, we will start to overcome some of the prejudices that sit against this particular form of creating buildings.
We must not forget that many of our best-loved residential street scenes are partly the result of standardisation of design and the way in which things have been put together. That has not prevented a degree of customisation by successive owners, who, as we know, love to tinker with their houses. We have retail superstores devoted to catering for their every need in that respect.
However, there are some key considerations to all this. First, a dwelling is not just a commodity; it is also a home on which occupiers may rightly wish to stamp their own mark as an expression of character and aspiration. Exhaustive design risks denying that, which has consequences for value and personal commitment to a very important investment asset—someone’s own home. We should not forget that. Where changes by owners take place, they can cause significant damage to the building’s performance. I think of the many cases I have come across over many years of puncturing of vapour barriers or cutting away structural elements to accommodate alterations.
Longevity of what we produce must be part of the deal. The fact that a new building might have a constructional life of 50 years instead of 200 is a criticism I have heard levied against modern construction. I think the noble Baroness, Lady Young, referred to that. We should regard that very critically, because savings made today on cost-cutting merely bring forward costs for tomorrow. I wonder whether there might not be a different way of making a cost comparison—for instance, by using something that was not money-based but an energy accounting method. Along the line, with our discounts and jam today versus jam tomorrow, we have led ourselves astray. Durability is vital, and buildings need to be constructed with future maintenance costs in mind. That to some extent governs the choice of components and materials.
The All-Party Parliamentary Group for Excellence in the Built Environment, in its 2016 report, More Homes, Fewer Complaints, made a number of recommendations, of which better supervision of on-site works was one. Off-site construction might deal with some of these issues, but by no means all. I have a particular bugbear, which is premature component obsolescence, with its obvious implication for future downstream costs simply because the production run of whatever it was has ceased a long time since. I think of the recessed low-energy light syndrome, where the starter unit and the electronics do not outlast the first set of bulbs. That is a fundamental failure and we should not allow it.
Hypothecation of components to a particular manufacturer or product line also brings its own risk. What do you do later when you need to repair something or replace an element? Composite elements manufactured off site and then put together need to be repairable. That means having some system with capacity to create them. The more elaborate and all-encompassing the off-site component in terms of its engineering content, the more that matters. I shall give a particular example, if I may.
A couple of years ago, I was called to inspect a zero-energy home constructed of composite panels made of insulation material between a sandwich of some sort of particleboard. It had an external cement render in what appeared to be a single coat with no joins and looked very smart. You could not fault the design but, somewhere along the line, the outlet for the roof drainage leaked. Lo and behold, the leakage was directly above some of the composite panels; these proceeded to rot as part of their component—namely timber—was biodegradable. To get them out, special panels had to be ordered. This was done under a building warranty; had it been a few years later, there would have been no such warranty. This sort of thing brings our construction industry into a degree of disrepute.
I recall that, many years ago, something related to timber-framing caught the wrong side of the television press. Noble Lords will remember: it was a celebrated case in which timber-frame panels were stacked on site but not protected or prevented from getting damp or maltreated. This nearly brought down the company in question; it caused mortgage lenders to refuse to lend against modern timber-framed structures for several years thereafter and caused significant disruption to a perfectly good and legitimate method of construction. We need to make sure that we have future-proofed as many of these things as we can. On-site techniques will have to change, not least in handling. As I said, bad news affects perception in a much more potent way than the actual defect probably warrants. That is information for you, and it is getting worse.
I see the process of off-site construction as part of a journey. It will become an increasingly significant component of everything we do. I welcome the Government’s response to this. I should like to reinforce what has been said about fragmentation, contract and payment arrangements—all the other things raised by the Farmer report.
I make a plea: construction and engineering is not seen by young people as a career they might like to go for; we ought to reverse that situation—construction and engineering is a fabulous career path. I draw attention also to the fact that very few young women are attracted to this sector; that is another waste of resources.
I finish by repeating my congratulations to the noble Lord, Lord Patel, and his committee on an excellent job of work, and express my appreciation to the Government for their very positive response.
My Lords, some clear themes have already emerged from the discussion of this report in the remarks of noble Lords who have spoken, so I can be brief. Before adding a few thoughts, I will say how good it is to have Members of the House with personal experience of the construction industry participating in this debate. I thank our chairman, the noble Lord, Lord Patel, for the way in which he guided our deliberations. We also had excellent support from our clerks.
In our discussions, members of the committee had the sense that we were tackling something very immediate in its nature and in the issues that it presented, but also something with very long-range consequences. We are pleased that the response of the Government, who have a key role to play, has been gratifyingly positive. But, as with so many things in life, it is the implementation of the proposed strategy—in this case for a construction centre—that counts. Perhaps the Minister, in his reply, will tell us just how far things have got to date. We need to know that a beginning has been made on the sector deal.
One of the striking things about the construction industry, as other noble Lords have remarked, is that it is very big. It represents 8% of GDP and 10% of employment, and these are big figures. It is twice the size of the car industry, but its image, of course, is very different. I think noble Lords have commented on image, which is on the whole rather negative. Sometimes you can get an undeserved image, but I fear that in this case it has to be regarded as related at least to a large part of reality. The construction industry does have a reputation for late delivery, variable quality and low margins. That, on the other hand, hides some of its outstanding attributes. The quality of British architecture and engineering, and the much more positive record in the construction of large projects and high-rise buildings, tends to get obscured by this more general negative reputation.
Low-rise construction, on the other hand, and general building, is a different story. It is badly capitalised and characterised by lack of leadership, the workforce is in decline—as other noble Lords have mentioned—and there are more leaving the industry than entering it. That problem is undoubtedly already, I fear, being deepened by Brexit. It is an industry with an inadequate skills base, insufficient opportunities for training, a fragmented structure, slow and unreliable supply chains and a cyclical work pattern. All these things add up to that conclusion. In short, it is old-fashioned and underperforming. As other noble Lords remarked, it lacks appeal for young people to make a career in it. That is something we need, obviously, to change.
In such a situation, it is not surprising that the construction industry is not in a position to respond to the challenges of the housing crisis. This is not the place to discuss the housing crisis, which is a very big topic and which has built up over many decades and has several roots, including planning delays and other factors that certainly go well beyond the scope of the construction industry to deal with and remedy by itself. This has to be a national effort, involving the Government in a central role. The lagging rate of build that we are experiencing, which aggravates that crisis, is part of a fundamental problem. We are not going to achieve, or the Government are not going to achieve, the aim of 300,000 houses a year in the absence of major improvement. Without change in the profitability of the industry, its outlook will remain very mediocre. This dim outlook for both industry and customer need not be the case. We have the opportunity to make a major change, and that was what the committee focused on.
We paid an interesting visit to Laing O’Rourke’s manufacturing site. It gave us an idea of the industrial changes that could transform the industry and its prospects, including energy-efficient modules produced off site which could be assembled on site in different formations. The point has been made, and I think it is an important one, that off-site manufacture does not mean boring buildings. It can actually mean rather more attractive buildings, because the modules can be assembled in different ways and you can produce something that is less uniform than a lot of the construction that is done on site. It also provides the potential for significantly higher quality and build for the same price, more reliable delivery, less risk to the health and safety of the workforce, and much higher productivity overall. So it is a very good prospect.
However, the outcome can be achieved, as other noble Lords have remarked, only by a changed relationship between the client and the builder—in other words, a different business model. To operate fast on site, detailed planning has to take place at a much earlier stage of the contract. Much of the expenditure which would take place in the traditional model only at later stages, when you come to the fix, have to occur much earlier. Thus, significant flows of cash also need to take place at an earlier stage, with obvious implications for both client finance as well as the builders. That applies whether it is public or private sector activity. Certainly we need to move to a way in which, when we look at the whole question of costs, we are looking at value and whole-life costs as an important part of the cost implications.
The challenge lies in how we get from where we are now to where we need to be to achieve the goals that the Government have in mind. They want to see a 30% increase in the speed of construction, a 25% reduction in costs and an increase in energy efficiency. I am sure that we all endorse those goals, but they are very ambitious and imply a revolution in construction. It is a question not only of how we build but of important ancillary issues such as the provision of adequate finance to underpin the structural changes and a much more highly trained and productive workforce. That in turn implies the provision of training and apprenticeships, which is currently lacking. The point has been made by other noble Lords and it is of fundamental importance. We also need to see greater innovation both in the construction process and in design. Standardisation has also been mentioned as an important factor. Those are the kinds of things that bring talent into the industry, encourage women to participate, and change the face and the perceptions of the construction industry over time.
Much hangs on the ability of the joint government/industry Construction Leadership Council network to work successfully towards the reforms that we want to see, including the ancillary things that I have mentioned, as well as the availability of capital and mortgage finance, and the releasing of land from stifling planning procedures. This is a very broad canvas that one has to operate on to get the results that we would all like to see. Therefore, I hope that when my noble friend the Minister replies, he will say something about these contextual factors, which have the potential to enable the industry to move forward and whose absence will constitute blockages.
As has been said by other noble Lords, a number of central government departments that have significant building programmes have committed themselves to a presumption in favour of modern construction methods. It would be helpful if the Minister could tell us what this commitment is intended to mean in practice—how much weight “presumption” will bear, what tangible changes we can expect as a result of it and how its attainment will be monitored. Another noble Lord mentioned monitoring. That is how we can really assess whether anything is happening, and it would be very helpful if the Minister would commit to reporting to Parliament on progress.
If government departments act on the leverage that they have at their disposal, not only will that be in the immediate public interest but it will also, frankly, be in the long-term interests of the industry. When I talk about government, it is not just central government that has to be involved; local government is a big sponsor and purchaser of construction generally, and in particular of housing, and they have to be on the same wavelength. This needs to be an all-government effort.
Bringing the construction industry into the 21st century, if I can put it in that way, is a big, although not impossible, joint task. It requires us to get down to the last. It also requires—this is the sense of our recommendations and has been endorsed by what has been said in the House already—a partnership of trust and determination between government and industry across a wide range of issues, and, as other noble Lords have also said, that partnership needs to be able to survive changes of administration and personalities.
My Lords, I too compliment the noble Lord, Lord Patel, and the Science and Technology Select Committee on their report. It clearly describes the benefits of off-site manufacture and the degree to which it has been adopted by our construction industry. It goes on to make comprehensive and sensible recommendations about how we might make greater use of off-site manufacturing, all of which I strongly support.
I was pleased and not surprised to find from the report that we are internationally competitive in the high-rise sector of construction and I was disappointed, but again not surprised, that we lag behind in the low-rise residential sector, although there are signs of improvement. Paragraph 58 quotes Ann Bentley of Rider Levett Bucknall as saying that in the low-rise residential sector we were,
“substantially behind Scandinavia, North America and Japan”.
That is my experience. This field of engineering is far from my own as I am a microelectronics engineer, but I have followed it with interest because of its potential for improving the quality, speed and cost of construction. I was not surprised that we were leaders in the high-rise sector, as in general we have a high reputation internationally for large construction projects. In the low-rise residential sector, our building techniques have seemed slow and old-fashioned compared with what I experienced in the USA many years ago.
I lived in the USA from 1965 until 1984. In 1974, I designed a weekend home in Jamestown, Rhode Island, using templates provided by a company specialising in what were called modular homes. I did not carry out a detailed architectural design, of course, but I was able to determine the size, shape and layout of the rooms, provided they were rectangular, and the height of the ceilings and whether they were sloping or horizontal, and could determine where the appliances and bathroom fittings were. A few weeks later, a large truck with a team of four or five construction workers arrived, and within two days the house appeared, complete with its roof. Within another couple of days, the windows, doors and roof shingles were in place. All the wall units, doors, windows, roof trusses and flooring had been precisely manufactured in a factory. Of course, the foundation had to be completed beforehand and the finishing of the house inside took a local builder several months. This was 44 years ago, and the house remains in good order and has required almost no maintenance. I was not a pioneer in doing this, as my friends in the US had told me even back then that this was the way to proceed if I did not want a fully custom-designed house. Modular homes had a reputation for being lower cost, stronger and of higher quality. So it appears we have been behind for quite a long time.
The lack of adoption of off-site manufacturing seems to be the result of the fragmentation of the UK construction industry, as mentioned by many speakers, and the separation of design and engineering. This separation has damaged all branches of engineering but is especially serious in the construction industry. It appears that oversight of the construction industry is spread over a number of government departments, including BEIS, the Department for Transport and the Treasury. The Building Research Establishment has reportedly characterised the number of public sector bodies with an interest in construction as “a completely fragmented mess”.
As outlined so clearly by the noble Lord, Lord Mair, there is hope that the new sector deal for manufacturing may help sort out this mess. Let us hope so. It may also ensure that the skills we need to innovate in the application of off-site manufacturing are available—this was also mentioned by many other speakers.
I emphasise that there are many other areas where off-site manufacturing is important and the safest and most environmentally friendly way to proceed. I am thinking in particular about small modular nuclear reactors—a pet subject of mine—which we have discussed a great deal over the last few years but on which the Government have regrettably been unable to make up their mind. It should be possible to build these reactors off-site, thereby ensuring quality and reducing cost. The Minister, answering an Oral Question on nuclear power from the noble Viscount, Lord Hanworth, mentioned on Monday that the nuclear sector deal outlines a new framework designed to encourage industry to bring viable small-reactor propositions to the marketplace. I ask the Minister whether there is a timetable for evaluating these propositions. The Government’s procrastination on this matter has already seriously eroded any lead we might have had with these reactors through Rolls-Royce’s experience with them in Trident submarines. It is important that we proceed as soon as we can to actually build an SMR and realise the benefit that they may be manufactured off-site.
My Lords, this has been an extensive debate and for that we should thank the support team that helped draw up the report, and the characteristic leadership of the noble Lord, Lord Mair, but I think we missed a trick. Clearly we should have co-opted the noble Earl, Lord Lytton, and my noble friend Lord Stunell on to the committee before we wrote the report. As their contributions have shown, they have a lot to add to the debate.
It may come as a surprise to your Lordships but I was trusted with the task of talking to the media when we launched this report. I had low expectations of interest, which was completely wrong—there was huge interest among the building media and trade. While I was giving those briefings, the noble Lord, Lord Mair, was hosting a reception at the Institution of Civil Engineers, and there was a fantastic turnout from across the industry. It is clear that there is a strong energy around this issue. And no wonder.
The sector deal says that we have to double capacity to meet the infrastructure and housing needs for the country and, as others have said, that we are already lagging behind in productivity. At the same time, we face a labour shortage, with an ageing population and people leaving the industry due to the Brexit drain. Clearly, energy is focused on this area because off-site manufacturing holds the prospect of increasing productivity, reducing or changing labour demands, improving the quality and efficiency of buildings, and removing some of the environmental impacts. So, all other things being equal, why are we not doing it? That is the question we are debating today.
There are barriers. As the chairman and the noble Lord, Lord Mair, said, the take-up is limited. At the heart of this are the commercial relationships within the industry itself. With architects, clients, designers, contractors, subcontractors, and subcontractors to the subcontractors, it is an extraordinarily fragmented industry, and one that has survived with that fragmented nature for a very long time. To change the way we build we have to change the culture of the industry. But this is an industry that has resisted cultural change better than most, and so it is no mean challenge. The noble Baroness, Lady Neville-Jones, pointed to one way that this might happen: money. If the prospect of profitability is dangled, perhaps it will encourage change.
As a number of noble Lords mentioned, there is a huge skills deficit, and it is only going to get worse. At the same time, the image of the industry remains one of dirt, muck, difficulty and very male. Through off-site manufacturing there is a great opportunity to create another, digital world for the future employees in this industry. That will attract people from different areas of the community, with different sorts of brains, and of course women and those from underrepresented communities. That will itself change the culture, because currently, its people are monocultural.
At the heart of this is the Government’s commitment to the presumption of off-site manufacturing through the sector deal, which we welcome. However, as was asked by the noble Lord, Lord Mair, and the noble Baroness, Lady Neville-Jones, what does that mean? We need to understand what it will mean in practice. Will the Government go along with the report and publish key performance indicators and score performance against those? What will happen if the presumption of using OSM is not met? How will the reasons for not manufacturing off site be reported? We recommended that the Government, through Homes England, should put pressure on housing associations and local authorities to also have that presumption. It would be helpful if the Minister could tell us a little more about that. There is an answer in the response but it seems relatively lukewarm.
There are a couple of other minor matters relating to the report. I will not comment on the small modular reactors, but the noble Lord, Lord Borwick, introduced the issue of planning, which was not covered. I beg to disagree with his wisdom. There are, of course, planning issues, but his argument would hold much more water if the main developers were not sitting on such huge land banks. That discredits that argument. If they were not more interested in building higher-priced houses close to green belts rather than on brownfield land, it might be more convincing. There is a perception, rightly or wrongly, that they control supply in order to control the price. So planning is an issue, but that argument does not work when we look at what the major housebuilders are actually doing.
That is why the Government—or at least, the public sector—as a housebuilder will be the driving force to deliver the 300,000 houses that the Government have set themselves as a target. That will not be achieved through private sector builders alone. The Government have a role but, as the noble Baroness, Lady Neville-Jones, rightly said, local authorities and housing associations will become extremely important. I hope that more local authorities will be driving the public sector housing agenda, and we need to know that the Government will be working with those organisations to promote that agenda. If the Minister would let us know what conversations Her Majesty’s Government are having with housing associations and local authorities on this issue, that would be enormously helpful.
I agree with the noble Lord, Lord Borwick, on the issue of cash and cash flow. The Government do, in part, respond to our point on that. They mention the British Business Bank, and say that they will work with it. Well, I work with my noble friend Lord Stunell, but he does not necessarily do what I want him to do. What does “work with” mean? What will the Government instruct, or ask, the British Business Bank to do, and how will they help to make sure that it does it?
Several speakers, not least the noble Lord, Lord Mair, and my noble friend Lord Stunell, talked about the quality of build and the through-life of buildings—the whole life approach. The noble Earl, Lord Lytton, also spoke about that. The whole life approach is central to the benefit that can be derived from off-site manufacture.
One issue that has not been raised is the response to the Hackitt review. As well as the environmental performance, the safety performance of multioccupied housing is central to the Hackitt recommendations. Part of the idea is to treat a multioccupancy building as a system, which can happen when it is handed over to the tenants and the owners only if it is built as a system in the first place. Building a building as a system is much easier using the sort of techniques that we talk about in the report. Not only can environmental performance be enhanced, but the safety performance of buildings can be assured through this approach. The delivery of what I think we all agree is a beneficial way of doing things is at the heart of this, and it involves many different actors. It involves government, and it is important for government not just to say the words but to demonstrate, through how it measures and how it enforces some of its measurement, what is going on.
It is important for the industry to work together, and the role of the leadership council has been mentioned several times. It would be helpful to hear from the Minister how the Government, who are part of the leadership council, will support that council. It has a big job to do here, and this is not its only job; it has a number of other things to do. I have worked in leadership councils for other industries, and it is a tough job to bring any industry together—but to bring this one together is even tougher. What are the Government going to do to help the leadership council deliver what it needs to deliver? Relationships will have to change, and they will do that only if people want to change. How are the Government going to help people to want to change?
My Lords, I declare an interest: my wife is a senior lawyer whose specialism is in construction. We have been so busy in the past few weeks that I have not had a chance to discuss with her anything in this report, so anything I say is entirely my fault and she must not be blamed for it.
I thank the noble Lord, Lord Patel, for introducing the report, which he did in his usual style and picked up the key points. The committee has obviously worked extremely hard. It has been a harmonious and interesting group and its members have been able to turn that enthusiasm and interest into good-quality speeches today. A number of them have been able to add to and embellish their contributions by bringing in their specialist subjects. I had forgotten about the local interest of the noble Lord, Lord Broers, in nuclear power and I cannot wait for the forthcoming Question. I shall have to follow my noble friend Lady Young and look harder for my inner tree the next time I am under stress in relation to these issues.
Joking apart, this is an interesting report of which the House can be proud. It is an example of the kind of activity that goes on—day in, day out—in your Lordships’ House but rarely sees the light of day in the way we all want it to do. The report is obviously based on substantial evidence collection. Anybody who is anybody in the construction world seems to have appeared—either in person or in writing—in front of the committee. It is clear that it has hit a particular moment in the thinking, debate and discussion in the public sphere around this area, which has encouraged the Government to give their support. I have done a number of committee reports over the years but I do not think I have read a government response that has been as broadly supportive of what the committee has reported, even though, as the noble Lord said, it does not go quite as far as you think it is going. The words are warm but the actions do not quite match up to where the committee would want.
Construction is an interesting area because, as a number of noble Lords have said, it is a key sector of the economy. It is often used by Chancellors of the Exchequer as a way of signalling whether the economy is going forward or is in a contracting phase. It has a direct relationship to employment so it is important in its own right. As others have said, it has a long value chain right across the country so, in a sense, by looking at construction you are also looking at the way in which Britain operates.
It is good that construction has been selected to be a key part of the industrial strategy. It has all the right hallmarks in volume, size and how it operates. However, it suffers in many ways, although that is not its own fault because it is at the cusp of what might happen to many sectors of our economy during the fourth industrial revolution. Will it benefit from the digital revolution or is it going to suffer? Is it going to use the digital revolution to create innovations in productivity and change the way it works? Is it going to rethink its approach to investment cycles? Other noble Lords have mentioned these points.
Construction is also interesting because it reflects much of what we call the British disease in what we do—appalling productivity despite hard work and long hours; short-term investment cycles; no big strong companies being built out of family companies and developing into publicly quoted companies; terrible R&D; and underskilling throughout. As has been mentioned, it is not a diverse environment; it is not investing in itself; and profit-taking is far too obvious and far too often. The relative number of SMEs, particularly at the bottom of the chain, is too great for the overall system and that leads to problems in innovation. It is a problem area at a macro level. I have mentioned diversity but we must not forget the recent blacklisting saga. It is not carbon neutral and it does not have an effective way of communicating to government about what it does—or, at least, until recently, there were no authoritative voices.
However, there are pluses. Despite considerable efforts by the department and by the Government more generally, the Construction Industry Training Board is a model of the kind of things that can go on in British industry and it should be praised for having survived and doing good work. Interestingly, the department for the construction industry—I hope the Minister will confirm this when he comes to respond—was one of the few to have a tsar for a number of years. This started the department thinking about what was necessary to create the particular recommendations we have seen today.
There are some good things, but there are quite a lot of bad things. The good news is that the report deals very clearly with a lot of issues that needed to be addressed and in a way that should provide a template for future results. I only have a few points on the main report, as people have talked so well about the individual recommendations. For reasons relating to my general argument, I would like to pause for a second on the safety issue, which was raised by a number of people.
This industry cannot be proud of its work on safety in the past, but it has improved and what has been proposed here—this change of culture and operations—may bring a better safety record. That is interesting because, as we have learned in recent weeks and months, health and safety is a British example of approaching problems of public interest that have not been susceptible to a top-down approach. The precautionary principle which infuses all our health and safety work—with the regulator placing more emphasis on analysing the harms and working with the industry to build a sustainable, resilient solution—is the way forward on many of our regulatory issues. This has been done well here and I hope it does not lose out as a result of the change in culture and practice we have been talking about. We should never forget the dangers omnipresent in construction activity.
On the supply side, the report does a good job by raising the issue of how the new technologies, approach and arrangements will work in terms of consumer satisfaction, and wants the Government to move further in what they are doing here. Mortgages are the obvious part of that, but insurance is also an issue. The report generated a response from the Government about the Farmer group, which reports to the Housing Minister in another department, but which is also part of the workstreams affected by the Minister’s response. I hope he will be able to say more about that. The whole question about developing housing will not work unless there is finance to support those who wish to move. The group started in December 2017, so it has had a year. Perhaps the Minister can give us an update on where that is going when he comes to respond, because it seems absolutely crucial.
In the same vein, the housing shortage issue—which the report picks up well in paragraph 55—can be resolved only if the Government think about the finance required for development more generally. The £3 billion homebuilding fund is obviously a way forward, but it is a sort of elephant in the room, because the number is so extraordinarily large and the methods by which it will be achieved are so difficult to understand. I hope the department will not give up on this. Again, the Minister cannot speak to this departmental responsibility, but I hope he will take the message from the report back to his colleagues in government. The presumption in favour and the idea that all this will pull together to create the right road will not work unless financing is provided at the appropriate time to feed the machine when it gets going.
There are several good recommendations in paragraphs 80 and 81 onwards, and later in the report, about the skills revolution required, how the leadership of the Construction Leadership Council should be approached, the good work done in apprenticeship standards and the move towards T-levels, and the hope this will also read across to digital skills. As others have said, this is fine, but we have been here before. Good advice and ideas from industries often do not see the light of day because they flow into the different departments providing support, such as the Department for Education, and then never seem to happen. I hope the Minister can say more about where we are with that, and how we will get some purchase with it.
Relating to the apprenticeship scheme, a number of people mentioned the problem of the particularity of the industry. This is not unique to construction; the same problem appears in other industries which have lots of small companies and very few big companies, because the money taken from the larger companies does not naturally flow within the sector. The Government will need to think quite hard about this when they respond. The history of the Construction Industry Training Board, as I understand it, has been one of trying to work with the industry as it found it to create the sort of skills and training courses that worked for that industry. Simply bolting on a pan-industry apprenticeship scheme may not be the right solution here. As in the audio-visual industry—where there are very few apprentices because they are not the particular need of that industry—the Government need to be smarter on their feet and better able to respond to the way in which the industry is signalling it wants the money that has been taken out to be paid back in training. The same issue is raised here.
There is much in the report about the need for better industry co-ordination, and the response from industry has already been quite good. The need for measurable targets, for a systematic approach to looking at that and for the publication of results is crucial. I hope there will be more on that. There are good, soft words, but no real direction as to where it is going, and how the Government might use the measurement of these important indicators.
On the second side of that same coin of industry co-ordination, how on earth are we going to educate clients to be better users of the industry in its new formulation? I am sure that everyone in this House has been a client at some stage in a large project in a business capacity, and has realised how difficult it is to try and get the communication, dialogue and debate that will result in a good product. Part of that is because we, as ordinary individuals, come into this so rarely. Because we are not trained for it, we do not have the skills and exercise. This has particular bite in relation to the Government, who are a huge procurer of buildings and spend enormous sums of money every year. Up until recently, the skill set required to run and manage a big project was never present, and rarely bought in. Of course, any learning that did take place was lost because people move quickly on to other jobs and practices. I am glad to hear from senior colleagues in the Civil Service that there have been some very substantial changes in the quality of skills in people brought into the Civil Service to do this work properly. I would be grateful if the Minister could reflect on that when he responds, because it is a necessary condition.
The last thing I want to cover concerns productivity. The issues here have again been well analysed in the report, and—in terms of what it is—the government response is good. But it does not yet provide the answer to the productivity puzzle that we are trying to solve. As the noble Lord, Lord Mair, said, it may be a question of trying to ensure that waste is reduced; that better value-for-money measures are put in place; and that skills and training are raised. But there needs to be another piece of work done by the Government to try and indicate how they see the productivity puzzle being resolved, and to make sure that all concerned buy into it in a way which will be effective.
My concluding feeling about this report, although it is not an area in which I am in any sense an expert, is that there is enough here to give real hope that we have within our grasp a solution to some of the problems we have been confronting in the construction industry. The Government’s adoption of a presumption in favour of off-site building is a terrific step forward, but it needs to be really pushed and supported. The Government have a role here; they have to look very seriously at the issues that have been raised, and I hope we will get some words from the Minister on that when he comes to respond.
Finally, as the noble Lord, Lord Fox, said, that is most of the story but not all of it. There are other issues that we need to think about if this will be successful—perhaps another committee, perhaps the Government need to go back to this when doing their return. The planning constraints issue is not resolved by the exchange between the noble Lord, Lord Fox, and others. There is an issue about import substitution; why do we have to import so many of the materials used in construction? Why can we not provide better skill sets, better investment and a better approach to try and make things here? The materials which we are using are part of that whole narrative. If they all need to be brought in from outside—even before Brexit—this would be a terrific chance to do more ourselves.
My Lords, I join with other speakers, particularly those who were not on the committee, in congratulating the committee on its work. I think this is the second report in two months I have had to respond to from the committee run by the noble Lord, Lord Patel—it sometimes feels like the second report in two weeks, but there it is.
As always, I also congratulate the committee on the extraordinary expertise it brings to its work. Those who serve on it are engineers, or from the medical profession or business, but it also has, in my noble friend Lord Renfrew of Kaimsthorn, an archaeologist. Given that some people have suggested to me that some of the practices in the construction industry have not changed much since the pyramids, it is possibly appropriate that he is there. Those who are not on the committee brought yet further expertise, but for the two generalists who spoke in the debate—me and the noble Lord, Lord Stevenson, if I may speak for the noble Lord—listening to the contributions and hearing about what is on offer for this industry and what it should be able to achieve in due course has been very educative.
We welcome the committee’s focus on off-site manufacture for construction and the support it has given to these technologies. The report has come out more or less at the same time as the construction sector deal, soon after the publication of our industrial strategy. I will say a little more about that. When I joined the department I briefly had responsibility for construction. I had the opportunity to see for myself the impact of some of these technologies. For example, I heard about what they could do for Crossrail in building some of the underground at Liverpool Street and other sites, off site, and how these technologies can cut delivery time by half, from 67,000 to 27,000 man hours, delivering time, cost and productivity benefits. Also, major construction projects such as that in London deliver benefits to the regions. My understanding was that some of those stations were being built not in London but in the Midlands. Therefore, whenever people talk about infrastructure gains for London and all that cost going to London, they should remember that such construction techniques benefit other parts of the country.
We believe that technologies such as this should be rapidly commercialised and adopted by the sector. That is an objective the Government are fully committed to. It is at the heart of our strategy for the sector, as set out in the construction sector deal, and I will take this opportunity to set out the Government’s approach.
The construction sector is a vital part of the United Kingdom’s economy. It includes product manufacturing and associated professions, and had a turnover of some £370 billion in 2016. The noble Lord, Lord Stunell, had some doubts about our figures, but as I say, we are including product manufacturing and associated professions. I will certainly look at his figures, see how they compare with ours and whether we are comparing eggs with eggs. The sector accounts for around 9% of United Kingdom GDP. It also employs 3.1 million people—9% of the UK workforce.
The sector’s outputs underpin the UK economy through providing the buildings and infrastructure that firms use, as well as providing the homes, schools and hospitals that deliver a high quality of life for our people. It is a sector that can and should make a major contribution to economic growth and prosperity, but it obviously faces a number of challenges that are particularly pronounced. These include demographic change. The whole of society is changing, but it is even more marked in this industry: a third of the construction workforce is aged over 50, and those workers will not be replaced by those entering the workforce. As a great many noble Lords have underlined, as has the report, it also has to improve its productivity: McKinsey estimates its rate of improvement as being less than 50% of the whole economy’s. It is even further behind sectors such as manufacturing. We also have to look at training, but I will say a little more about that later.
To deliver the Government’s infrastructure investment plans and achieve that homebuilding aspiration of 300,000 new homes a year will require the construction sector to modernise and become more productive. We believe that the adoption of techniques such as off-site manufacturing is a key to this, as does the Construction Leadership Council and other industry leaders. In passing, let me say how much I welcome remarks such as those by the noble Baroness, Lady Young, and others about the Construction Leadership Council. We will continue to work closely with the council to deliver the sector deal. I note that the noble Lord, Lord Fox, said that he works closely with the noble Lord, Lord Stunell, but it did mean that the noble Lord, Lord Stunell, did exactly what he said. I repeat: we will continue to work closely with the council because we do not want to tell it what to do—we want to work closely with and collaborate with it. It is possible that the noble Lord, Lord Fox, wants to take a more Stalinist approach to these things, but I leave that to his discussions with his noble friend.
The advantages of off-site construction are many and have been rehearsed by several noble Lords. They include digital design processes that enable designs to be refined and new materials and products to be incorporated, and improving energy efficiency and building safety performance, as the noble Baroness, Lady Young, made clear. Health and safety is a problem on the average construction site and here is an opportunity to improve it. There is the chance to improve quality and have fewer defects through building components being produced in a controlled environment, rather than on site. Off-site construction is less labour-intensive and produces less waste, thereby improving productivity, as was made clear. There are benefits for training, as the noble Baroness, Lady Young, again made clear, as well as advantages for tree planting, which she emphasised. As for import substitution, I remind the noble Lord, Lord Stevenson, that tree planting is great, and we want to see more wood used, but it takes quite a long time before those trees come on stream. Still, there are many trees that we can make use of in this country.
The noble Lord, Lord Fox, brought up the safety of the buildings themselves. There are benefits that could be addressed, and we want to work towards that. I believe that the Government have already taken action to support that transition by working in partnership with industry through the flagship construction sector deal that we published in July 2018. As always with such a deal, as with the industrial strategy as a whole, it is all very well publishing it—it is all about how you deliver it. Noble Lords were right to stress that we want to be kept informed about progress. I can give an assurance to the noble Lord, Lord Stunell, that we will be publishing an annual report on progress. I presume that the next report will be published in July 2019: I give that assurance now and I hope we can stick to that target.
The noble Lord, Lord Stunell, wanted to know how much we are spending. There is joint investment of £420 million in the transforming construction programme, of which £170 million comes from government and the rest from industry, to drive the development and commercialisation of digital and manufacturing technologies in construction. A key investment from that programme will be £72 million in the core innovation hub, a consortium of the Centre for Digital Built Britain—which the noble Lord, Lord Mair, will know of—the Manufacturing Technology Centre and the Building Research Establishment. That £72 million has already gone out and a further £60 million will be available. I think the noble Lord, Lord Mair, welcomed that expenditure on research. A further £60 million will be available for R&D projects in business and research institutions. The first grants in that field will be announced in January next year.
The sector deal also sets out plans to ensure that those working in the industry are trained in the skills that they will need to support the transition to off-site manufacturing. On training, I can give an assurance that we will work closely with the sector to drive an increased investment in skills development, to adopt a more strategic and co-ordinated approach to recruitment and to equip workers with the skills they will need in the future. That will be achieved through a joint commitment to implement the reforms to the Construction Industry Training Board to make it more strategic and industry led and to enable the sector to make the best use of funding from the apprenticeship levy. The sector deal sets out an industry-led target of increasing the number of apprenticeship starts in the sector to 25,000 by 2020. It is currently at 21,000.
I move on to the question of presumption, particularly the presumption in favour, which was raised by many noble Lords. My noble friend Lord Borwick started off with a certain number of strictures about what the Government were going to do. I will certainly take note of that and pass on those comments, particularly in relation to planning, to colleagues in other departments. He was the first noble Lord to talk about procurement, the work of Government in procurement and the presumption that they would be in favour of using off-site construction. We are taking steps to improve cost effectiveness. As the noble Lord, Lord Mair, made clear, in the 2017 Budget the Government agreed that presumption in favour of off-site manufacturing with five departments: the departments for transport, health, education, justice and defence. I would hope, since I think they were mentioned by another noble Lord, that departments such as the Department for International Development will also take that on board, but that will be a matter for them. The important matter is that we have that presumption in favour.
The noble Lord, Lord Mair, asked what teeth there were in that presumption. My noble friend Lady Neville-Jones asked what this presumption meant and how we would ensure it could develop. The presumption means that the five departments will, at every business-case level, test whether the use of these techniques is an option. It also means that, by including off-site in the early stages of planning, the right environment will be created for off-site techniques to succeed. By doing this we will challenge the cultural bias towards traditional construction and send a strong signal to the supply chain that they need to build their capacity and capability.
The presumption is only one part of a wider range of long-term initiatives to increase innovation and productivity in the sector. To help deliver the presumption, the Infrastructure and Projects Authority has set up a cross-departmental working group which has started developing a library of standardised components, building the capability of procuring departments and leveraging the Government’s purchasing power by aggregating demand from multiple departments. I hope that that will make a difference but I can add that the Government have issued a call for evidence on the implementation of the presumption to use off-site manufacturing, which will enable all stakeholders to contribute to the development of the presumption. Other issues will be considered in the light of the responses that we receive.
In the example that my noble friend has just given, in any competition where there is more than one potential supplier and one of them offers a much higher degree of commitment to off-site manufacturing, will the Government choose that contract even if it is more expensive—not outrageously more expensive, but potentially more expensive than something more traditional?
I am not going to give any guarantee, if that example was in a competition, but I will certainly pass it on to colleagues as a matter to consider in such an eventuality. I was trying to stress what the presumption was, what it meant and how we will make use of it.
I also give an assurance to the noble Lord, Lord Fox, that we will continue to work with local authorities and housing associations to ensure that they take these matters on board. I hope that he will be content with the words I use about “working with” and consider that that is the right way to go about it.
I thank all noble Lords who have taken part in this debate. If I may make a pun, it has been genuinely constructive. I think I am the first one to make that pun, which rather surprises me given the 12 speakers, but there it was. It has been constructive, but I hope that the Government have also given sufficient assurances that we wish to be constructive in this. We believe that our commitment to the technologies in this field is one that we can be proud of.
My Lords, I thank the Minister for his response, as I thank the noble Lords who spoke from the Front Benches opposite. I know that the noble Lord, Lord Fox, took both sides: as a committee member and as a Front-Bench speaker. I thank all noble Lords who took part, particularly those who are not on the committee. Their expertise was obvious. Science and Technology Committee reports often end up being debated by just the committee so it is nice to see that, on this report and the report hitherto, the debate has been joined by other Members of the House.
I come to the response from the Minister. Yes, he gave us a lot of reassurances. That is good. He also indicated one or two other developments that are occurring. That is also good to know. Some of us might have felt that we were probably looking for real and tangible commitments from the Government, rather than reassurances. However, I am encouraged that the report to be published in a year’s time will address all the issues that were highlighted, and I am glad that the Minister at least felt that the debate and the report were constructive in taking forward the issues of off-site construction and the presumption in favour, which was one of our key recommendations. It is good to know that the five government departments will now have to take this forward but I hope we will hear from the Government more commitment to driving this agenda forward if that does not happen, and how that will be done. I thank the Minister, but if he could give further reassurance on a more real commitment in a letter we would welcome it. Again, I thank the Minister and all noble Lords for the debate.