The Federation of Small Businesses (FSB) has called for small construction firms to be brought “into the fold of government decision-making” to achieve housing targets.

The FSB has written to the government outlining a set of plans to help bolster the struggling small housebuilding sector.

Data from the organisation reveals a sector being hit by falling confidence, skyrocketing running costs and increasing late payments. 

The letter, to Minister of State for Housing and Planning Rachel Maclean, calls on the government to “focus policy proposals on a sector experiencing significant pressures and adjust policy proposals currently marginalising a sector, which will be pivotal to achieving housebuilding targets and economic aims”.

Increasing late payments and spiralling running costs are taking their toll on small construction firms, with confidence amongst the sector falling considerably in Q2 2023, from 27.4 to -31.8, according to FSB’s latest Small Business Index.

FSB research found that more than a third of small construction firms (39%) experienced an increase in late payments in the last three months. Over the same period, almost 90% of small construction businesses reported higher running costs compared to the same time last year. Input costs are a huge driver of this, cited by 75% of construction firms in Q2, up from 44% in Q1. 

The FSB says if the recent announcement by the government to build one million homes over this parliament is to be achieved, increased focus should be placed on helping small construction firms. They add, although welcome, other policy proposals about the regeneration of 20 towns and cities across the country, and an £800m injection into brownfield sites both lack detail in how small construction businesses will be supported to realise the essential revitalisation of residential and commercial spaces across the country.

To help support these small construction firms, FSB has set out a wish list calling for: 

• A Small Construction Business Strategy to bring small housebuilders into the fold of government decision-making, ensuring that new and existing policy proposals provide real focus on smaller firms. 
• A Brownfield Development Relief for small construction businesses using the successful model of the Land Remediation Relief. Brownfield land holds the best potential in providing sites for new homes, but small construction businesses need support to overcome the higher costs of reclaiming and developing these areas.
• Small construction businesses to be allowed to pay the Community Infrastructure Levy (CIL) due on any project at the end of the process upon sale, rather than upfront. Requiring payment of CIL at the start of the project disadvantages small construction businesses already spending a large proportion of their capital on materials and other regulatory costs.
• Government to reaffirm their target of 33% of public procurement money reaching small businesses, as well as require councils to measure this in their development projects and extend this intent to joint-venture use of land. 
• The creation of a national database of available public land for development and joint-venture opportunities. Larger construction businesses often have the advantage identifying and securing these partnerships. Transparency and accessibility are required to level the playing field and help government achieve its supply-chain targets. 
• Reduce the maximum amount of retention payment funds that can be held to 2% of total project value. Supporting the increased use of project bank accounts is also vital to mitigate the cash flow risk to small construction businesses by requiring independent third parties to release money when it is owed. Late payment affects all small businesses and is particularly severe in the construction sector and a main factor in small construction business survival.                                                       

FSB policy and advocacy chair Tina McKenzie said: “Small construction firms are key to achieving housebuilding targets, giving a much-needed shot in the arm to the economy.

“But without targeted policies this cannot happen. Despite recent ambitious government announcements within the sector, smaller firms are being left out. On top of this, small construction firms are being hit particularly badly by late payments and ever rising costs, both hampering their ability to complete projects and having a serious impact on cash flow. 

“Government needs to take the opportunity to put small construction firms front and centre of decision making. Measures like creating a focused strategy to ensure they are not forgotten when it comes to setting future policy, providing monetary support to allow small businesses to reclaim and develop brownfield sites and making changes to the way they pay Community Infrastructure Levy, would make a huge difference. 

“This list gives backing to construction firms and shows government understands what is needed to reinvigorate the sector. We look forward to engaging across government to implement these key measures to realise these essential and ambitious housing targets.”