Public spending squeeze hitting Scottish builders

FEARS are growing that Scotland's battered construction industry will be plunged into a second crisis after a key survey yesterday revealed that commercial development activity had hit its lowest level for almost a year.

The biggest monthly decline in public-sector contracts for 17 months pushed the Savills Commercial Development Activity Index to its lowest level since July 2009 when Britain was still in the grips of recession.

Although the monthly survey monitors commercial building projects across the UK, construction experts are particularly concerned about the pipeline of work north of the Border.

Responding to the Savills report, the Scottish Building Federation (SBF) warned that the public sector now accounts for more than 80 per cent of income in Scotland's construction industry. Previously this figure was closer to 40 per cent but the sector's reliance on government, local authority and social housing contracts has grown over the past couple of years since as private sector development has failed to stage a comeback.

With public-sector work now hitting the buffers, experts warn the Scottish industry is facing a potential double-dip downturn.

Michael Levack, chief executive of the SBF, said: "I am seriously concerned about the next 12 months. Regional contractors in particular are getting squeezed and I think we'll see more (company] failures."

Lindy Patterson, construction and engineering partner at Dundas & Wilson, said: "The public sector is where the work has been coming from over the last two to three years. When that goes, given that the private-market has not really re-started, it leaves a big hole. A number of contractors are talking about hard times ahead."

Roddy Pearson, director with Colliers International Scotland, said contractors fear a number of key public sector projects will be shelved following the Westminster government's spending review in the autumn, which will have a knock-on effect on the Scottish Government's budget. The industry is relying on projects such as a new headquarters for Strathclyde Police going ahead to keep them afloat over the next couple of years.

"The building sector is nervous because it can see all of the public-sector work almost drying up overnight," Pearson said. "The Office of Government Commerce has already issued an edict to all government departments not to extend or sign any new leases."

Savills yesterday warned that parts of the industry which are reliant on public-funded projects are now in "double dip territory".

Michael Pillow, head of building consultancy at Savills, said: "Public-sector austerity measures are now firmly impacting on the development market."

Although in England and Wales, private-sector work has picked up, firms north of the Border remain concerned about the availability of bank finance to kick-start commercial development activity.

The SBF's latest quarterly membership survey, published last month, revealed that 88 per cent of firms had suffered a fall in private-sector work over the last financial year. This lack of demand was blamed on a continued lack of bank lending.