Construction industry calls for 'kick-start'

Scotland's builders have demanded government help in restoring industry morale after it was revealed that 60% of construction firms are concerned about the impact of a faltering economy on their businesses.

A survey by the Scottish Building Federation of 98 companies found that six out of 10 construction firms are slightly or much less confident about the economic prospects facing their business over the next 12 months, compared to the previous year.

Some 8% are more confident, with the balance seeing no change.

The findings - which reflect the recent downturn in the housebuilding sector and slowdown in public sector infrastructure projects as the Scottish Government implements the Scottish Futures Trust, a replacement for public private partnerships - come from a new quarterly business confidence survey the federation is to begin publishing.

Michael Levack, chief executive of Scottish Building Federation, said: "The Scottish Government should be proactive by kick-starting investment in the public sector and ending unnecessary planning delays.

"They should end the uncertainty over the Scottish Futures Trust by bringing forward new school and hospital building projects. This would send a strong message to the trade and help build the confidence employers need to invest in apprenticeships and skills."

However, he highlighted reasons for builders to remain optimistic.

"Major projects like the Forth Crossing, the 2014 Commonwealth Games and the Government target of 35,000 new homes offer opportunities for Scottish firms."

The findings come as the housebuilding industry prepares itself for trading update from major players Persimmon and Barratt Developments.

Persimmon is expected to use its update tomorrow to reveal that it is axing around 1000 jobs, a fifth of its workforce.

It is not the only one trimming its employee numbers. Kier Residential is also expected to shed 300 staff, some 60% of its employees.

Last week, Barratt laid off 1000 staff, and Taylor Wimpey cut 900 jobs.

Persimmon, which was in the FTSE-100 until earlier this year, is still lumbering under the burden of its £643m purchase of Westbury in 2006. When it updated the market in April it announced a 24% reduction in sales.

Barratt, which has a trading update scheduled for Thursday, is expected to announce a £400m refinancing deal with lenders including Royal Bank of Scotland and HSBC, that could delay the repayment of some £600m it borrowed to buy rival Wilson Bowden. This would save it from raising further equity, but some analysts reckon it needs at least £1bn to see it through the credit crunch. It is also expected to write down its land bank by as much as £100m.

But the difficulty of persuading investors to back fundraisings was demonstrated last week when shareholders in Taylor Wimpey refused to back a £500m share placement scheme, sending its shares down 42% in one day.

The company conceded that it could breach banking covenants if the housing market does not recover.

Housebuilder Crest Nicholson is reported to have appointed a team from accountant Deloitte to advise on a potential financial restructuring.

Housebuilders are suffering in the face of a declining market exacerbated by an increased reticence among lenders to approve mortgages as they struggle to find funding. This is despite a scheme launched by the Bank of England that allows them to swap mortgage assets, which in the past they would have sold into the market, for more saleable government bonds.

The headwinds faced by the industry were illustrated by figures published at the weekend by analyst Panmure Gordon estimating that as much as £3bn could be wiped off the value of housebuilders' land banks if the housing market falls by 17.5%.

One sign of optimism, however, came from a weekend report suggesting that Berkley Group is set to reward its directors with a 7% stake in the company, worth some £60m. The share distribution, based on a bonus scheme agreed four years ago, is expected to take place before the company's annual meeting scheduled for the end of August.