Financial Crisis and Advice to Members

As we approach the end of 2011 we get closer to the collapse of the European financial system. As we stated in our blog on 7th November 2011 the Euro is fatally flawed. Sometime early in 2012 one or more of the countries using the Euro will default and this will be the start of a collapse that will have far reaching consequences.

The Prime Minister, David Cameron, was right to veto the proposed new treaty and his standing and credibility in the eyes of the more intelligent public was greatly enhanced. The other leaders of Europe are making a huge mistake in their attempt to preserve the Euro and the Eurozone. Many of the struggling "Club-Med" countries will not be able to convince their electorate to accept the severe austerity measures necessary to remain in the Eurozone and many of the countries involved will not be able to pay the interest on their debt. Most of the leaders would not dare to tell their electorate the facts and the level of austerity that will be imposed on them in the near future. The proposed fiscal rules will remove most budgetary powers from the national and democratically elected governments. The majority of people in Europe are being deceived by their leaders into thinking that the Eurozone is viable. Fiscal union of such diverse peoples that make up the EU simply will not work.

How will the problems of the Eurozone affect the construction industry in the UK? The Government has indicated that it will try to stimulate the economy by embarking on a number of infrastructure projects. This may help the larger contractors but is unlikely to create work for small and medium size builders who rely on smaller projects for domestic and commercial clients. The domestic market will be depressed for some time due to the number of people being made redundant in both the private and public sector and the general reluctance to embark on anything but essential repair work. The lack of confidence in future prospects of continuing employment and the potential collapse of some financial institutions will not change in the short term.

The problems for the well established and totally legitimate builders are exacerbated by the costs of VAT and contributions to the Construction Industry Training Board. Time and time again we hear of Members being undercut by builders that offer to carry out work without the addition of 20% VAT. Sometimes builders require payment in cash, other times they take a cheque and cash it in one of the many high street agencies offering "loans to payday" or the clearing of cheques and payment in cash for a percentage fee. The Government is being very shortsighted in continuing with its policy of requiring 20% VAT to be applied to repairs, extensions and maintenance work to both private and commercial properties. A reduction to 5% would answer many problems and would almost certainly increase the amount collected by HM Revenue and Customs.

The builders who are seeking cash payments for their work and not charging VAT are also not making any contribution to the CITB. The CITB itself is well past its sell by date and the whole question of craft training and youth unemployment needs the urgent attention of the Government. If young people were given the opportunity of building craft training from the age of 15 in technical colleges they would be employable at 18. This is a matter that should be addressed by the Department for Education. The CITB have an abysmal track record in the training of core building crafts: carpenters, joiners, bricklayers, plasterers, painters and decorators. The shortage of these particular trades has attracted large numbers of well trained and competent craftsmen to come to the UK from other European countries to fill the gap. The problem for this country is that most of the money that they earn is taken out of the UK and not spent here.

Small and medium size builders and subcontractors should pay particular attention to profitability and "cash flow" and not be tempted into "suicide" bidding for work to keep busy. Members should take particular care in checking the creditworthiness of all potential clients before entering into a contract or agreement to carry out work. If there is the slightest doubt, ask for a deposit to cover the first weeks labour and materials costs and then seek payment every week to cover the following weeks costs. Any time payment is not forthcoming or if a cheque is not honoured - stop work.

Our advice is not to fall into the trap of borrowing from the bank. Their interest rates are extortionate and they will want personal guarantees and possibly even a charge on your property. It is very important that you provide a written quotation detailing the work required and obtain a written instruction from the client. Your quotation should include the payment terms. It is also important that you price all work carefully and include a reasonable profit margin. It might seem hard but if you are short of work and do not see the situation changing in the near future you should make staff redundant sooner rather than later. Being prudent now will leave you in a stronger position when the economy improves later next year.

Finally, don't blame the current Government; they are making us pay for the previous Government's folly of spending more than they received in taxation. Hopefully the present Government will not waver in its undertaking to cut costs and waste, and start looking after the hardworking tax payers of this country.

We would be pleased to receive comments on this blog or any other matters from Members or other readers.

We hope that all or our members and their staff and families have a very Happy Christmas and a successful and prosperous 2012.

4 comment(s) for “Financial Crisis and Advice to Members”

  1. A Member Says:

    I fall into that category of the trade frequently referred to as the ‘cowboy builder’, I am neither VAT registered nor contributing to the CITB. I am however respected for my work and have been in business for over 30 years. My accounts are in order and my taxes all paid unlike the real cowboy builders who are the ‘white van man’ touting for business door to door never to be seen again. It has been a conscious decision at times of glut to limit my income to below the ludicrously low thresholds in order to reduce overheads and commitments to collecting taxes for our government instead of doing the job I love, joinery. To this end I have had to reduce profit margins and turnover at times when others have reaped the rewards of abundant work, I have not asked for or accepted cash as a means to this end; instead, any spare time or money has been invested in my property which is now worth many times more than it cost even in these hard times. The net result is that with retirement not many years away and poor health likely to prevent physical labour I have no pensions nor will I be eligible to any benefits because of my assets. And yet I have to listen to debts to other countries being written off, handouts to immigrant European workers, massive donations to the Euro countries, grants to farmers for harsh weather or set aside and the list goes on.

    The government tells us that we need new houses and the importance of the construction industry and yet they continue to fail to support us. Locally legitimate and long established businesses are folding every day because of lack of order and unfair competition from immigrant workers from Poland and Portugal. Only the other day a ‘suicide’ quote I submitted was rejected and when I asked why was told that the client had found someone who will do the work for £5 per hour! The ‘worker’ is from Poland, was unable to give a quote for the work and had to go out and buy tools with the down payment made for the work to be done!

    In no particular order we must rid ourselves of the scourge of the legal migration to this country of unskilled labour, stop paying benefits to non UK citizens, remove ourselves from the EU and raise the VAT threshold to a more realistic level. The present government is showing true potential to achieve some of this and I applaud Mr. Cameron’s stance. I also welcome the Guilds timely communication and hope that pressure will continue to be applied to all the right quarters.

  2. Another Member Says:

    I, like your recent writer have struggled for too long against unfair competition, having employed between 5 and 50 people during my life, never claimed any state help (paid out redundancy as I closed down) and now coming up for retirement the private pension which I had paid into when I had spare cash has been reduced down to a pittance (less than I paid in) so I get just over £400 per monthly, but as I am working drawing plans and applying for planning permission to survive, but then you must be aware of how many extensions and maybe one off houses are being built at the moment (so that’s not lucrative)but even then HMRC kindly taxes my pension at full rate, so I receive under £300.00 per month, when I stop work it means I will get around £700.00 per month i.e. £8400.00 it doesn’t stack up for a life of hard work does it!

  3. David Dore Says:

    Having read the main blog and the comments left by 2 other members I have to agree with most of what has been said. However I do think that even though the VAT rate is high that it is about time all people in every business should be VAT registerd and this would make the playing field a little fairer.

  4. Founder Member Says:

    This Government like previous administrations ignores our building industry requirements that would over a period of 4 years go someway to reduce the number of people currently unemployed.

    In the building maintenance restoration and refurbishment business that I represent we are currently short of some 100,000 core trade craftsmen, those such as carpenters and joiners, plumbers and heating engineers, bricklayers and painters and decorators each takes four to five years to train by on the job site experience and technical education.

    For the past thirty years Politicians and educationalists have completely ignored the needs of those of us who are not academically gifted, who need from a quite early age to be vocationally educated by a system that in the past provided the craftsmen that are the key personnel of my business today, the majority of whom have reached 50 years of age or more.

    The use of migrant labour mainly from Eastern Europe has benefitted the industry but while working with us they have learnt a lot, many of them now trade as independent builders.

    They are registered with no one, they pay no tax averaging 20%, they pay no VAT a further 20% and no CITB Levy or insurance a further 5% meaning that they are 45% cheaper than my company if they work for me. The private client would indeed be a fool to pay me 45% more for the job in order that I pay this directly to the Government or its agencies.

    Many years ago an organisation was created by Government legislation to train core craftsmen for the building industry; this is The Construction Industry Training Board which currently levies some £130,000,000 from the industry in return for which it trains most things that are only of a fringe benefit to my industry but little if any of this money funds the essential commodity of core craft training because it takes 4 to 5 years to achieve results whereas CIS skill cards these useless and meaningless pieces of plastic can be acquired with just a few days training.

    We continue to advertise for skilled craftsmen who we are told are currently unemployed but all I see and interview are semi skilled kitchen fitters, floor layers, partition fixers and paint brush hands but regretfully no skilled craftsmen.

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