SMEs need more than energy fix to survive tough winter, leaders warn

A strong focus on improving the energy efficiency of UK homes is vital to shield SMEs from the effects of increasing material and energy costs, construction leaders have argued.

Yesterday, Liz Truss announced help for businesses against rising energy costs by pledging a six-month scheme to cap prices for both gas and electricity.

The UK’s newly appointed prime minister will also introduce a longer two-year cap for domestic users as part of her new Energy Price Guarantee, which would see a typical household pay no more than £2,500 a year.

While welcoming these steps, construction trade bodies have called on the government to go further with decisive action to improve the energy efficiency of UK homes – arguing short-term help with energy costs would not be enough for the industry and smaller contractors.

Instead, they argue a long-term strategy around the efficiency of buildings in the UK is needed to push down energy usage and encourage consumers to make improvements to their homes. This, they explain, would also help to create a pipeline of work for struggling firms this winter.

Official data published by the Office for National Statistics (ONS) earlier this week showed that prices for ‘all work’ in construction increased by 24.1 per cent in the year to July 2022, compared with the equivalent period a year earlier.

Gravel, sand, clays and kaolin saw the biggest price increases during the 12-month period, collectively rising by 63 per cent, while concrete-reinforcing prices increased by 38 per cent.

The higher costs, coupled with rising energy prices, has put many consumers off home improvements, trade bodies warned. This view was supported by separate construction output figures for August, which showed that activity slowed for a second consecutive month.

Brian Berry, chief executive of the Federation of Master Builders (FMB), warned that small building firms were “in for a tough time over the coming months” because of the rising material costs.

He explained that a strong energy-efficiency programme could help support SMEs—which are acutely feeling the effects of the turbulent economic environment—and should be in addition to any government assistance around energy costs.

Berry said: “Costs are soaring, with 98 per cent of FMB members experiencing increased material costs, and consumers are cutting back as a result.

“While government intervention to help struggling homeowners with energy bills is vital, it is a short-term strategy.

“Long term, we must improve the energy efficiency of the UK’s leaky homes, which will help slash energy bills and create a pipeline of work for small builders.”

He added that cutting the rate of VAT on repair, maintenance and improvement work would also help smaller businesses. “This would allow builders to pass on the savings to cash-strapped consumers,” he said.

Simon McWhirter, the UK Green Building Council’s director of communications, policy and places, agreed that consumers and businesses alike could be helped by a UK-wide initiative to boost home energy efficiency.

He said: “We need to replace gas boilers with heat pumps, install solar panels, improve insulation, and other measures across the country. In fact, with prices so high, a national programme of home and business upgrades could now be cost-neutral within a handful of years and save households and businesses many hundreds of pounds year on year.

The ONS figures for the year to July also showed that 16.5 per cent of construction firms reported that turnover had decreased. Just a little over 10 per cent said it had increased.

Construction Products Association economics director Noble Francis argued that smaller firms would be hit the hardest by any issues with energy this winter. But he was optimistic that the measures introduced by the government could help to shield SMEs.

He said: “As always, the worst impacts of the material price rises are on smaller contractors, especially those on fixed-price contracts signed 12 months ago.

“What may help will be the government’s help on energy prices for households, which helps to sustain private sector demand.

“[The] government’s six-month help on energy costs for businesses may help construction-product manufacturing costs going forward over the autumn and winter period.”

Like others, Stephen Marcos Jones, CEO of the Association for Consultancy and Engineering, said a longer-term plan for construction was needed to help firms “navigate choppy waters” in the coming months.

He said: “[This sector needs] confirmation of a strong construction and infrastructure pipeline, a more holistic and sustained approach to regional and levelling up funding and a recommitment to Net Zero with the additional investment required to meet the 2050 target.”

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