Building

Chuck it, Tony!

Malcolm Hoppe

"For God's sake, lay off!" That message from Mr Campbell Adamson, the CBI's directorgeneral, was a collective cry to the Government that has already echoed through innumerable boardrooms up and down the land. Many of them will have been in building companies. By next year the building industry's output may have fallen 8-10 per cent below 1973.

So drastic a change in the fortunes of one of the country's major industries obviously calls for a very serious look not only at government attitudes to industry and the effect they have on building clients' confidence. There is also the way the economy is managed, because a dramatic but brief recovery from building's 1968-70 recession is now being followed by a still more serious decline. Building has been among the leading sufferers from the stop-go cycle of demand management.

Since political and economic developments have determined that the Government and other public authorities provide half the demand for its products, building naturally has an ambivalent feeling towards intervention from on high. Any lessening of government intervention would present it with problems of short-term adjustment. But building firms rightly feel that they are asked to adjust too often and too quickly. Risk and uncertainty are the businessman's inseparable companions. He should not complain about that. The justifiable complaint is that his greatest uncertainties are so often imported by government action.

As those uncertainties and shifts in official policies must contribute to the rise in costs, a mirthless smile is the least response of a builder to criticisms of his own efficiency. When it is also suggested that public ownership is needed as a solution to building problems, the reaction is violent.

Threats of nationalisation and of widespread government control of industry have caused the collapse of business confidence, and with it many plans for industrial investment. With the private housing market already looking sick, builders see hoped-for orders for factories, offices and shops disappearing, too. Mr Anthony Crosland, the Environment Secretary, warns local authorities that they must also cut their spending. Large cuts in public spending were announced by Mr Anthony Barber last year, and it has been estimated that they alone will show a reduction in new orders for the non-housing public sector this year of some £500 million. Measure the effect of that against an industry capable of producing more than 0,000 million annually. If there is a bright spot, it is the rise in orders for public housing. But even this rise is being measured against orders in 1973 — the lowest for a decade.

Read that paragraph again and guess at the solution being offered to the problem. It is simply more nationalisation. For the good of ' the economy, it is argued, it will be necessary to take parts of the building industry into public ownership. Moreover, Mr Crosland himself suggested to.the last Labour Party conference that there is a ready-made instrument for extending public ownership. Local authorities already have municipal building departments. Many of them carry out no more than repairs and maintenance to some of their council's property. But before reorganisation there were some 300 departments with experience of capital building work. In the larger authorities they provide a nucleus for more ambitious plans.

The snag — for the general public who foot the bill in the long run — is that past evidence gives no encouragement to the belief that these "direct labour" departments will lead to lower building costs.

Direct labour departments have over the years recorded some spectacular losses. What is more worrying is their failure to produce any convincing evidence that they can build as economically as building firms. There is still a major gap in the public accountability of direct labour departments. By their very nature — as offshoots of their parent body — they cannot be subjected to the same commercial pressures for efficiency as building firms. Above all, there can be no contract between a direct labour organisation and its council to act as a brake on inefficient spending. Whatever costs are incurred inevitably fall to be paid by the council out of the public purse.

Because a local council can always find the money to meet its losses, production of yard sticks for efficiency and all the information necessary for measuring performance is vital. We have seen that ratepayers' revolts can

produce rapid government action. But until ratepayers are-given information that will help them make a judgement, they tend to be pas-.

sive and uncomplaining. Increases in their rate demands of 50-100 per cent were needed to'

bring about this year's "revolution." But the' need to tackle .local government spending has been evident for years. Direct labour building has been one of the more obvious fields for inquiry.

Until those inquiries have been made and recommendations carried out, direct labour departments should not be expanded. Yet a movement for expansion is already gathering force. Spokesmen for the Institute of Municipal Building Management look forward to direct labour building 40 per cent of council houses and one-fifth of schools, libraries, and other public buildings in ten years' time. The interest of the public is that all building work should be allocated on the basis of competitive efficiency. That will not happen while direct labour is able to avoid producing evidence of its performance

pee-LaEor August 10, 1974 that is capable of independent investigation and verification.

Curiously, although competition is essential to maintaining efficiency over a long period, some local authorities have announced their ambition to carry out all their own building work. None has so far approached this goal. But reorganisation has revived the ambition. WiI gan, for instance, formerly the possessor of a small capital works department, anticipates an organisation with a 100 per cent monopoly of public building in its area. Fourteen direct labour departments (thirteen with experience of only repairs and maintenance) are being welded into one under the new council. And 100 per cent monopoly means no competition at all.

Previous inquiries into direct labour led to recommendations that genuine competition with builders was necessary. The last inquiry also led to a series of proposals for making that competition genuine. Although those proposals appeared more than five years ago, the financial information produced by direct labour departments continues to fall far short of conviction. It is true that occasionally departments and councillors proudly announce `savings' or `profits' sometimes exceeding a million pounds. Disbelief remains, both inside and outside local government, about the value of such claims. In the absence of acceptable financial information they have no meaning. Certainly, they give no support to the case for part-nationalisation of building, or direct labour expansion.

The local government treasurers' organisation, the Chartered Institute of Public Finance and Accountancy, has been at work for months on new accounting recommendations. Next month may see the approval of their final draft. The need for yet more regulations is admitted because of the continued resistance in local government to taking all the essential, but time-consuming, actions needed to make valid comparisons between direct labour and building firms. When the CIPFA work is complete, it is still doubtful whether all the regulations will be followed without a government directive. Until now, all governments have stopped short of insisting that local councils act to give full information to the public. Traditionally, this is a matter for local autonomy.

So direct labour remains a controversial nonsense in building. What is required is the adoption, in total, by every council with a direct labour department of a 'Manual of Principles' recommended five years ago. Then it should be compulsory for them to have an independent inspection of direct labour work to ensure, in particular, that it follows exactly the agreed specification to which a builder would have been bound. Finally, separate direct labour accounts for each job and each year, and for new work and maintenance, must be drawn up to permit at least a reasonable judgement ibnegtwfiermens.the cost of direct labour and of build firms.

between public and private sectors of building will never be totally satisfactory. But it can be made much better than it is today. Until something is done, direct labour will go on attracting work and labour on uneconomic terms. This unreal competition for resources can only add to the inflation of building costs — and to inflation of the rates. For in these circumstances, builders must remain uncertain about their future market and there will be no incentive to cut costs.

Today only about one voter in six believes that more nationalisation is desirable. Two in three oppose it. But nationalisation can creel) up on an unsuspecting public, especiallY, through extensions of municipal activities. It public authorities have to produce true comparisons of their organisations' woo' against private sector costs, that opposition would grow. But another ratepayers' revolt

the could be needed before the public is given information it deserves. If they had it, theY might say much more than "For God's sake, 10 (fl"