Trade Skills Index 2024

The UK Trade Skills Index 2024

An analysis of the skills that are required to deliver our national goals

September 2024

Foreword

Skills: The building blocks for growth and opportunity

Giving businesses and SMEs more flexibility to invest in the skills and training they need in their teams, as well as take on apprentices, is an important step in unblocking the skills system and meeting changing skills needs. At Checkatrade, we see huge potential for SMEs to play a part in this, and with the right support and incentives, SMEs could become key drivers for skills. This report presents a diagnosis of the challenges we face and recommendations to overcome those barriers to opportunity. Collective will and action from industry and government can secure the promise of skills for future generations here in the UK.

The trade and construction sector sits at the heart of the national mission to get Britain building, reach net zero and drive economic growth. From plumbers and electricians to roofers and carpenters, there will be huge opportunities for careers and job creation in building the skilled workforce we need to deliver these targets.

But the UK is facing a chronic skills shortage.

Our Trade Skills Index 2024 reveals the need to find 1.3 million new recruits and 350,000 apprentices over the next ten years. An ageing workforce and a growing demand for trade skills is creating a perfect storm that as an industry we need to address. In my role as CEO of Checkatrade, I have the privilege of visiting schools and colleges across the country and discussing opportunities with the trades. I can see the huge amount of untapped potential there is. This is the next generation of tradespeople that we need to attract as an industry with the promise of well-paid careers. Yet the thing I hear most commonly is that there aren’t enough apprenticeships on offer. And this is true - data from the government shows that applications for apprenticeships exceed supply by three to one. The other issue is that existing apprenticeships are overly prescriptive.

Jambu Palaniappan CEO, Checkatrade

Contents

Executive summary…………………………………………………………………..... 4

1. Macroeconomic context…………..…………………………………………..… 8

2. Policy context……………………………………………………………………..… 11

3. Construction sector workforce……………………………………………….. 15

4. Construction sector apprenticeships…..…………………………..…….. 22

5. Modelling need for workers and apprentices…..…………….…….. 27

6. Modelling results by geography…………………………………………….. 36

Recommendations……………………………………………………………………… 45

1.3 million new recruits and 350,000 apprentices needed in the construction sector over next 10 years to deliver on housing and net zero, with 30% for housing I&R work

Estimated need for new recruits and apprenticeships in the UK by 2033 in construction, housing I&R and by occupation under housebuilding and net zero path (thousands)

Two of the key priorities of the new government’s agenda are to ‘Get Britain building’ and ‘Make Britain a clean energy superpower’. Delivering on these visions will require a suitably sized skilled construction workforce. This report looks at the number of new skilled recruits and apprentices needed over the next ten years to provide capacity to deliver accelerated housebuilding and faster progress to net zero related to the housing stock. While considering the needs for the construction sector overall, this report focuses on the demand for home improvement and repair (I&R) activity, and twelve skilled occupations that are most relevant for this type of work.

Total new recruits

Total apprenticeships

Construction

1,265

347

Of which: Housing I&R

377

103

Non-housing I&R and new work

888

243

Of which: Carpenters

The key findings from the report are:

113

Builders

114

▪ Strong growth in housing I&R activity is driven by increased housing transactions and retrofitting, rising from 1.7% of GDP in 2023 to 2.4% in 2033, equivalent to a £24 billion annual increase by 2033 in 2019 prices ▪ To deliver the construction output needed over the next 10 years, we estimate the construction workforce will need to expand by 515,000 and employment in the home I&R sector will need to expand by 219,000 ▪ To expand the workforce as well as replace retirees and others that leave the workforce, the sector will need to recruit a total of 1.27 million people over the next 10 years, of which 377,000 are needed in the home I&R sector

Electricians

111

Plumbers

Painters

Bricklayers

Roofers

Glaziers

Plasterers

Floorers

Scaffolders

Steel erectors

▪ A range of skills are needed to carry out I&R work with the greatest demand for carpenters, builders and electricians

Total twelve occupations

635

293

Other occupations

630

▪ We estimate that a minimum of 347,000 completed construction apprenticeships are needed by 2033; this would require around 700,000 people starting these apprenticeships

Source: Capital Economics . Note: May not sum to totals due to rounding.

Key findings (1)

The report comprises six sections. The key points from each section are set out below.

1. Macroeconomic context ▪ The surge in energy prices over 2022 has largely reversed. With headline CPI at 2.2% in July and signs of a looser labour market, the Bank of England cut interest rates from 5.25% to 5.00% in August. We expect headline inflation to fall below the 2.0%-target next year, as spare capacity in the economy and a looser labour market help to bring down services inflation. This should allow the Bank to cut the policy rate further, to 4.50% by the end of 2024 and to 3.00% by the end of 2025 ▪ The UK economy fell into a mild recession at the end of last year, but the recovery has already begun. Lower inflation and further cuts to interest rates should help to support economic activity. We expect real GDP to average 1.2% in 2024 and a stronger 1.5% in 2025 and 2026 ▪ An AI-fuelled boost to productivity should enable real GDP to grow by an average of 1.7% per year over the next decade. That is stronger than the 1.2% average per year seen over 2007-2019 2. Policy context ▪ Two key pillars of the new Labour government’s policy agenda are to ‘Get Britain building again’ and to ‘Make Britain a clean energy superpower’ ▪ The government has set a target of delivering 1.5 million net additional dwellings in England over the course of the parliament, with an overhaul of the planning system, through the Planning and Infrastructure Bill, used as a lever to stimulate housebuilding ▪ Net zero is a key priority for the new government; the warm homes plan includes a commitment for an extra £6.6 billion over the parliament to improve energy efficiency of the housing stock and a commitment to ensure all homes in the private rented sector meet minimum energy efficiency standards by 2030

▪ Bringing the entire housing stock up to EPC rating C would save households a total of £8.8 billion annually

Key findings (2)

3 . Construction sector workforce ▪ Skills shortages persist in the construction sector, despite having eased since their peak in 2022; the share of businesses reporting skills shortages across construction occupations was 33.8% in Q2 2024, broadly in line with the pre-pandemic level ▪ Although construction vacancies have fallen from their peak of 3.2 per hundred employee jobs in the first quarter of 2022, the current number of vacancies is higher than at any time in the 20 years preceding the pandemic ▪ An ageing workforce presents a challenge for the sector, with 35% of construction workers over the age of 50 compared to 32% in the economy as a whole. Almost three fifths of workers plan to retire between 61 and 65 and only 5% plan to work beyond this 4. Construction apprenticeships ▪ Apprenticeship completions increased by 11.9% to 8,620 in 2022/23 compared to the previous year, but they remain over 30% below their peak of 12,400 in 2017/18

▪ In 2022/23, 90.8% of apprenticeship starts were undertaken by males, while 92.1% were white

▪ Under 19-year-olds make up the greatest share of construction apprentices. In 2022/23, 50.5% of construction apprentices were under 19, compared to 23.0% in all sectors

Key findings (3)

5. Modelling the need for workers and apprentices ▪ Delivering on the government’s vision for housebuilding and net zero will require an expansion of the skilled construction workforce; in this section we provide estimates of the number of new recruits and apprenticeships needed ▪ Strong growth in housing I&R activity is driven by increased housing transactions and retrofitting, rising from 1.7% of GDP in 2023 to 2.4% in 2033, equivalent to a £24 billion annual increase by 2033 in 2019 prices ▪ To deliver the construction output needed over the next 10 years, we estimate the construction workforce will need to expand by 515,000 and employment in the home I&R sector will need to expand by 219,000 ▪ To expand the workforce as well as replace retirees and others that leave the workforce, the sector will need to recruit a total of 1.27 million people over the next 10 years, of which 377,000 are needed in the home I&R sector

▪ A range of skills are needed to carry out I&R work with the greatest demand for carpenters, builders and electricians

▪ We estimate that a minimum of 347,000 completed construction apprenticeships are needed by 2033, with 30% of these for housing I&R; based on historic completion rates this would require around 700,000 people starting these apprenticehips

6. Need for workers and apprentices by location ▪ Our modelling results for UK employment required under the house-building target and net zero path can be split into three main categories: expand output; replace retirees; and replace leavers and changes in roles ▪ Our modelling estimates have been split by geography using a range of inputs, including current construction employment and activity, housing targets and dwelling stock ▪ The total employment requirement in the construction sector to reach targets totals 202,000 in London over the next decade; the largest need of the ten geographies studied. That equates to 16% of the 1.3 million need across the UK. Scotland’s requirements are just behind, at 96,000 over the next decade ▪ London will need at least 55,000 qualified construction apprentices over the next 10 years to unlock the potential to hit housebuilding and net zero targets and to replace leavers. Scotland will require a slightly lower 26,000

1. Macroeconomic context

◼ The surge in energy prices over 2022 has largely reversed. With headline CPI at 2.2% in July and signs of a looser labour market, the Bank of England cut interest rates from 5.25% to 5.00% in August. We expect headline inflation to fall below the 2.0%-target next year, as spare capacity in the economy and a looser labour market help to bring down services inflation. This should allow the Bank to cut the policy rate further, to 4.50% by the end of 2024 and to 3.00% by the end of 2025 ◼ The UK economy fell into a mild recession at the end of last year, but the recovery has already begun. Lower inflation and further cuts to interest rates should help to support economic activity. We expect real GDP to average 1.2% in 2024 and a stronger 1.5% in 2025 and 2026 ◼ An AI-fuelled boost to productivity should enable real GDP to grow by an average of 1.7% per year over the next decade. That is stronger than the 1.2% average per year seen over 2007-2019

Healthy economic recovery this year and next as interest rate cuts support activity

UK headline CPI inflation and Bank rate (%)

Policy rate to be cut to 3.00% by end-2025

The surge in energy prices over 2022 has largely reversed and global inflation has fallen sharply. Headline CPI in the UK has eased from its 41-year high of 11.1% in October 2022 to 2.2% in July 2024. However, sticky services inflation had been preventing the Bank of England from cutting interest rates until August this year. Signs of a looser labour market and the economy growing below potential enabled the Bank to cut rates in August for the first time since March 2020, from 5.25% to 5.00%. We expect inflation to fall below the 2.0%-target by mid-2025. The UK economy has hardly grown since the pandemic. At the end of 2023, real GDP was just 1.0% higher than its level in 2019. There is therefore spare capacity in the economy. That, paired with a rise in labour supply should help bring services inflation down further. We expect the Bank to cut the policy rate to 4.50% by the end of this year, and to 3.00% by the end of 2025.

CPI inflation

Bank rate

2% target

10 12

CE forecast

0 2 4 6 8

2016

2018

2020

2022

2024

2026

UK real GDP quarter-on-quarter and year-on-year change (%)

Real GDP growth to average a healthy 1.5% in 2025 and 2026

% q/q (LHS)

% y/y (RHS)

1.5

The high interest rate environment and cost of living crisis seen over the past few years has weighed on consumer spending and housing activity. The economy experienced a very mild recession at the end of last year, involving a 0.5% fall in real GDP. The economic recovery is already underway, as real GDP rose by 0.7% on the quarter in Q1 2024 and by a further 0.6% in Q2. Lower inflation and falling interest rates are set to support disposable incomes and consumer spending, along with investment over the next few years. We expect real GDP to grow by 1.2% in 2024, and by a stronger 1.5% in 2025 and 2026.

CE forecast

1.0

0.5

0.0

-0.5

-5

2022

2023

2024

2025

2026

Sources: Capital Economics and Refinitiv

Real GDP to average 1.7% over the next decade, driven by pick-up in productivity growth

UK real GDP (year-on-year change, %) and contribution from employment and productivity (percentage points)

AI-fuelled productivity boost to drive pick-up in GDP growth

We expect real GDP to grow by 1.7% per year on average over the next decade. The pick-up in economic growth is driven by stronger growth in output per worker, or productivity, which we expect to average 1.1% over the next decade. This is stronger than the 1.2% GDP growth and 0.3% productivity growth over 2007 to 2019. Our view is that productivity across developed economies will receive a boost from artificial intelligence (AI) in the second half of the 2020s and 2030s. AI is a general-purpose technology that promises to have a wide range of applications. Capital Economics’ AI Economic Impact Index attempts to capture how well-placed economies are to benefit from AI. The index uses data on 40 indicators to rank 33 economies by their ability to innovate and adopt AI technologies, and to adapt to the structural changes that AI is expected to bring. The UK is particularly well- placed to benefit, ranking second, behind the US.

Employment

Productivity

Real GDP

-2

Ageing population and migration to weigh on employment

-4

The boost to productivity growth will more than offset weaker employment growth. Our forecast is for employment growth to average 0.6% per year over the next decade, which is weaker than the 0.9% seen between 2007 and 2019. An ageing population, outward migration and low labour force participation following the rise in people exiting the work force after the pandemic all put downward pressure on prospects for employment growth. However, there should be some support from inward net migration, which is high relative to past standards, and we do expect participation in the labour market to pick up.

-6

Real GDP, CAGR %

2001-07 2007-19 2019-23 2023-28 2028-33

2.5 1.2 0.4 1.6 1.7

-8

-10

-12

2000 2005 2010 2015 2020 2025 2030

Sources: Capital Economics and Refinitiv

2. Policy context

◼ Two key pillars of the new Labour government’s policy agenda are to ‘Get Britain building again’ and to ‘Make Britain a clean energy superpower’

◼ The government has set a target of delivering 1.5 million net additional dwellings in England over the course of the parliament, with an overhaul of the planning system, through the Planning and Infrastructure Bill, used as a lever to stimulate housebuilding ◼ Net zero is a key priority for the new government; the warm homes plan includes a commitment for an extra £6.6 billion over the parliament to improve energy efficiency of the housing stock and a commitment to ensure all homes in the private rented sector meet minimum energy efficiency standards by 2030

◼ Bringing the entire housing stock up to EPC rating C would save households a total of £8.8 billion annually

New Labour government ushers in increased housing targets to get Britain building again

Net additional dwellings in England (millions)

Labour announces overhaul of planning system

After their landslide victory in the general election, the new Labour government has set out its agenda and made higher rates of house building one of its top priorities. Although not all the details have been announced, the government has set out its intention to deliver 1.5 million net additional dwellings over the next five years. A key part of delivering this target is an overhaul of the planning system to remove some of the obstacles to housebuilding, with the Planning and Infrastructure Bill introduced in the King’s speech. Councils in England are to be given new mandatory housing targets to pave the way to deliver 1.5 million more homes in the next five years, reversing the Conservative’s decision last year to water down housing targets by making them explicitly advisory at a time when planning permissions were at a record low. They have been given new flexibilities which will see them review their green belt land if needed to meet their own target, identifying and prioritizing ‘grey belt’ land - low- quality green belt land. The government’s defines grey belt land as land on the edge of existing settlements or roads, as well as old petrol stations and car parks.

Annual

Cumulative 5 year average

1.6

Labour’s 1.5 million target

1.4

1.2

1.0

0.8

0.6

Delivering on targets will put pressure on construction capacity

0.4

Although housebuilding has been their initial focus, Labour have also committed to facilitating the construction of key critical infrastructure such as laboratories, gigafactories, and data centres, as well as modernising the UK’s transport networks and implementing changes to promote the development of large onshore wind projects and solar installations across the country. All of this will add pressure on capacity in the construction sector. An expanded pool of skilled workers will be needed to deliver the new housing Labour has identified as crucial to addressing the housing crisis.

0.2

0.0

2002 2005 2008 2011 2014 2017 2020 2023

Source: Capital Economics and the Office for National Statistics

Meeting net zero targets will require an increase in capacity in the construction sector

Climate Change Committee net zero pathway residential buildings emissions abatement (mtCO 2 e)

Net zero is back on the agenda

Net zero policy is a key priority for the new Labour government, with their aim of becoming a ‘clean energy superpower’. As part of their Green Prosperity Plan, they have committed to achieving clean power by 2030, backed by two new bodies to stimulate public and private investment in the form of GB Energy and the National Wealth Fund. In its manifesto the government also set out a warm homes plan, which committed an extra £6.6 billion over the next parliament, in the form of grants and low interest loans, to improve energy efficiency of the housing stock. There is also a commitment to ensure all homes in the private rented sector meet minimum energy efficiency standards by 2030.

Emissions

New homes: Energy efficiency and low-carbon heat Existing homes: Low-carbon heat

Existing homes: Fabric efficiency

Retrofit of housing will boost improvement and repair activity

Specific details on the warm homes plan are yet to be laid out, but to deliver improved energy efficiency of the housing stock will require a range of retrofit measures including the installation of heat pumps, solar panels, window glazing and wall insulation. A skilled workforce will be required to undertake these interventions. A 2021 Construction Industry Training Board (CITB) study estimated that reaching net zero in Great Britain, largely through retrofit, would require around 350,000 more construction workers than in 2019. 1 Another study by Capital Economics, which focused on the retrofit of historic buildings, estimated that over 100,000 additional workers would be needed to carry out a full retrofit programme of the UK’s housing stock. 2

Existing homes: Behaviour change

All homes: Lighting and appliance efficiency

All homes: Electrification of household and garden machinery All homes: Cooking decarbonisation

2020

2030

2040

2050

1 Construction Industry Training Board, Building Skills for Net Zero (Eunomia: Bristol), 2021 2 Capital Economics, Retrofitting traditional buildings – helping to progress to net zero (Capital Economics: London), 2022

Sources: Capital Economics and Climate Change Committee, ‘Sector explorer’ in The Sixth Carbon Budget Dataset, 2021. Available from https://www.theccc.org.uk/2021/02/01/the- numbers-behind-the-budget-six-ways-to-explore-the-sixth-carbon-budget-dataset/

Improving energy efficiency of homes will save residents money on bills

Domestic properties by Energy Efficiency (EPC) Rating in England and Wales as of 2023 (share of total, %)

There are a range of benefits to improving energy efficiency of the residential stock including reducing emissions in the battle against climate change. But households will also benefit from future savings in energy bills. Data from the English Housing Survey 2019-20, produced by the Ministry of Housing, Communities and Local Government, suggests that moving from EPC rating D to C will save households an average of £236 per year. Moving from E to C and F/G to C will save £783 and £1,764 each year respectively.* Around 58% of domestic properties in England and Wales are EPC rated D or worse. If all of these properties implemented retrofit measures to reach EPC rating C, the total savings to households would total £8.8 billion annually.

Average annual saving from upgrading to an EPC rating C by starting EPC rating (£, 2024)*

Estimates of annual savings in the UK if all properties below EPC rating C are improved to C

Initial EPC rating

Saving per year, £bn

2000

1764

EPC D

2.7

1500

EPC E

3.6

1000

783

EPC F and G

2.6

500

236

Total

8.8

F or G

Sources: Capital Economics, * 2019 published estimates updated by Capital Economics based on change in Ofgem energy price cap. Savings are gross figures that do not account for initial cost of work

3. Construction sector workforce

◼ Skills shortages persist in the construction sector, despite having eased since their peak in 2022; the share of businesses reporting skills shortages across construction occupations was 33.8% in Q2 2024, broadly in line with the pre- pandemic level ◼ Although construction vacancies have fallen from their peak of 3.2 per hundred employee jobs in the first quarter of 2022, the current number of vacancies is higher than at any time in the 20 years preceding the pandemic ◼ An ageing workforce presents a challenge for the sector, with 35% of construction workers over the age of 50 compared to 32% in the economy as a whole. Almost three fifths of workers plan to retire between 61 and 65 and only 5% plan to work beyond this

◼ The composition of the construction workforce remains white and male dominated

Current skills shortages have eased since 2022 but remain elevated

Share of respondents reporting skill shortages by occupation in the UK (%)

Skills shortages in skilled occupations above pre-2020 level

The loss of construction workers aged under 50 during the pandemic and the swift recovery in construction output in 2021 led to a rapid rise in worker shortages. Results from a survey conducted by the Royal Institute of Chartered Surveyors (RICS) indicate a sharp rise in the share of businesses reporting skills shortages across construction occupations, from 28.7% in Q1 2021 to a peak of 54.7% by Q3 2021. Although these reported shortages have eased somewhat since the middle of 2022, with the latest figure for Q2 2024 at 33.8%, it remains broadly in line with the pre-pandemic level. The same trend can be seen when looking at specific occupations. Widespread shortages rapidly rose across the key construction occupations of plumbers, bricklayers, carpenters, plasterers and electricians in 2021. These shortages persisted throughout 2022 and then eased to broadly pre-pandemic levels by mid-2024.

Plumbers

Bricklayers

Carpenters

Plasterers

Electricians

Construction average

100

2001 2004 2007 2010 2013 2016 2019 2022

Construction vacancies per 100 employee jobs in the UK

Construction vacancies remain at historically high levels

The reported skills shortages fed into a surge in vacancies in the construction industry, as construction employers struggled to find staff. Although vacancies have fallen from their peak of 3.2 per hundred employee jobs in the first quarter of 2022, the number of vacancies in May 2024 was higher than at any time in the 20 years preceding the pandemic.

There has been an uptick in vacancies since a recent low of 2.2 in September 2023 to 2.4 in May 2024.

2001 2004 2007 2010 2013 2016 2019 2022

Sources Capital Economics, Refinitiv and Office for National Statistics

An ageing construction workforce represent risks to the construction sector

Construction employment by age group in the UK (millions)

Ageing workforce contributes to construction’s labour shortage

The construction industry faces an issue of an ageing workforce; around 750,000 of the 2.1 million workers in the sector are over 50. As a share, this represents 35% of the workforce which compares with a national average of 32%. According to a study by Censuswide, 15% of workers in the built environment sector planned to keep working in some form in retirement compared to an industry-wide average of 27%. Meanwhile, 58% planned to retire between the ages of 61 and 65, with only 5% intending to work beyond 65. 3

2019 2020 2021 2022 2023

16-64

The pandemic compounded the issue

50+

There was a drop in construction workers between the ages of 16 and 64 after the onset of the Covid-19 pandemic, with a fall from 2.24 million in 2019 to 1.99 million in 2021. Although it has rebounded slightly, the workforce of 2.04 million in 2023 remains below the pre-pandemic level. Much of the fall was in the 25 to 49 age range, which saw a 14% peak to trough fall. There was a fall of 6.3% in the over 50 age category and it remains 4.0% below the pre- pandemic level. The share of construction workers over the age of 50 has increased from 27% in 2004 to 35% in 2023. The Construction Products Association (CPA) have predicted that, with the big spike in employment in the 50-64 age range, construction will be losing around 500,000 workers (around one-quarter of the workforce) in the next 10-15 years. It suggests this issue has accelerated considerably over the past three years and has been exacerbated by long-term health issues attributed to Covid. 4 3 Censuswide, Providing for tomorrow today: understanding an ageing workforce (Censuswide: London), 2023 4 Worm, P, Data shows construction struggles with new talent, 2024 c onstructionmanagement.co.uk [accessed 10 August 2024]

25-49

20-24

16-19

0.00

0.50

1.00

1.50

2.00

2.50

Source: Capital Economics, the Office for National Statistics, Centre for European Reform

The construction industry has a high proportion of self-employed workers

Share of self-employed workers by industry in the UK as of Q1 2024 (%)

Over one third of construction workers are self-employed

The construction sector has relatively high levels of self- employment. As of the beginning of 2024, 37% of those working within the construction industry were self-employed, which equated to 773,000 people. As a share of all employment in a sector, construction has the third highest rate of self-employment after agriculture and retail/wholesale and is well above the average of 15% for the whole economy. Within construction, women are more likely than men to work as employees and less likely to be self-employed; in the first quarter of 2024, approximately 45% of male construction workers were self- employed whilst only 4% of women were.

Agriculture

Retail and wholesale

Construction

Hospitality

Transport

Self-employment can present challenges for addressing skills gap

Finance and business services

High rates of self-employment can hinder efforts to increase skills in the industry and create pathways for young workers to enter the sector. The Construction Leadership Council’s Industry Skills Plan advocates for increasing direct employment in the construction sector to modernise and enhance skills. It states that direct employment can act as ‘an enabler of apprenticeships, digital upskilling, and competence.’ 5 However, this can be more difficult for the many SMEs in construction who may need to draw on a more flexible set of skills throughout a project and thus highly utilise a variety of self- employed tradespeople.

Public and private administrative and Support…

Education

Health

Manufacturing

Source: Capital Economics and the Office for National Statistics

5 Construction Leadership Council, IndustrySkills Plan for the UK Construction Sector 2021 – 2025 (Construction Leadership Council: London), 2019

Construction remains a male and white dominated industry

Gender split by industry in the UK as of Q1 2024 (%)

86% of construction workers are male

As of the start of 2024, data from the Office for National Statistics showed that the construction industry had the highest share of male employees of any industry based on the broad sector definitions from the Office for National Statistics. Around 86% of the workforce within the construction industry was made up of male employees, compared to 51% across the whole economy. The share of male employment in the sector has been fairly consistent over time. In 1997, 87% of workers were male. This rose to a peak of 90% in 2011 since which it has fallen back slowly to 86%.

Construction Transport Agriculture Manufacturing Finance & prof. services Retail Administration Hospitality Education Health

Female Male

The construction industry exhibits low levels of diversity

20 40 60 80 100

According to data from the Office for National Statistics, employment in the construction sector is made up of 93.1% workers of white ethnicity. A further 3.0% is Asian, 1.7% black and 1.3% mixed. This compares to the ethnicity breakdown of the workforce as a whole which is 86.7% white, 7.1% Asian, 3.2% black and 1.5% mixed. There is some variation between occupations related to repair and maintenance activities in the construction sector. At 92.1%, general builder occupations had the lowest share of white workers, compared to steel erectors which had the highest share at 96.9%.

Diversity split by occupation* in England and Wales as of 2021 (%)

White Asian Black Mixed Other

100.0

95.0

90.0

85.0

Source: Capital Economics and the Office for National Statistics *Note: Due to gaps in the data some categories have been rebased to sum to 100%

Construction is the most exposed sector to increased demand and upskilling pressures resulting from the net zero transition

More skilled construction workers needed to achieve net zero

Share of jobs impacted by the transition to net zero in the UK economy, by sector*

The UK’s ambitions to achieve net zero by 2050 will significantly impact jobs in the construction sector, both by increasing demand for occupations but also requiring occupations to learn new skills. The LSE’s Grantham Institute on Climate Change and the Environment (ICCE) and the Place-Based Climate Action Network (PCAN) have estimated the proportion of jobs that will need ‘upskilling’ (those that will need major changes in skills and knowledge) and those that will be ‘in demand’ (existing jobs that will be in high demand as a result of transitioning to net zero). They identified that around 29% of construction sector jobs would require upskilling as a result of the transition to net zero and around 30% would be in demand. This was the highest proportion of jobs being impacted in a sector across the economy, at 59%. These figures indicate the need for young people to enter into careers in construction, as well as measures implemented to encourage current workers to stay and learn new skills.

In demand Requiring upskilling

Hospitality Health Education Arts, entertainment, recreation Retail Agriculture Finance IT Public administration Professional, scientific, technical Property Business administration Wholesale Mining, quarrying, utilities Transport Motor trades Manufacturing Construction

Net zero policies will increase demand on certain occupations

Within the construction sector, certain occupations will be in higher demand than others as a result of the UK’s transition to net zero. Commitments made in the previous government’s Net Zero Strategy: Build Back Greener policy paper indicate some of the construction skilled occupations that may experience an increase in demand. For example, commitments included phasing out the installation of new natural gas boilers by 2035 and ensuring all heating systems are compatible with net zero by 2050. This will increase demand for skills related to plumbing and heat pump installation. Another pledge was upgrading fuel poor homes to EPC Band C by 2030, which will increase the demand for occupations such as glaziers for installing double and triple glazing. Increased demand for these occupations could create further skills gaps and shortages if the UK fails to attract or train more skilled workers.

Sources: Capital Economics and LSE Grantham Institute on Climate Change and the Environment (ICCE) and Place-Based Climate Action Network *Figures in the chart estimated from: https://pcancities.org.uk/tracking-local-employment- green-economy-pcan-just-transition-jobs-tracker 0 20 40

Most skilled construction occupations saw an acceleration in their wage growth between 2015 and 2023, as skills shortages rose

Average annual nominal median wage growth (%) and median annual earnings for all employees in 2023 in the UK, by occupation (£ thousands)

Wage growth was weak post-GFC for nearly all occupations

In the period after the global financial crisis (GFC), from 2008 to 2015, most of the skilled occupations in construction saw relatively weak growth in their nominal earnings, ranging from an average of 1.7% decline per year to 2.8% growth per year. This coincides with the time when reported skills shortages in the construction were low. (See slide 13.) Earnings growth in the overall economy averaged 1.0% per year over the same period. From 2015 to 2023, skilled occupations in construction saw an acceleration in their wage growth, ranging from an average of 1.8% for roofers to 3.8% per year for plasterers. Over this period, average wage growth in the whole economy averaged 3.3%

Median salary 2023 (£000s)

2008-2014 2014-2023

Plasterers

31.2

Floorers

32.4

29.7

Overall economy

34.8

Steel erectors

27.7

Painters

Most skilled occupations had above average wages in 2023

26.4

Glaziers

In 2023, 8 out of the 11 occupations have median annual earnings above the average of the economy overall. The occupation with the highest median annual earnings is electricians, at £35,200, whilst the occupation with the lowest average annual earnings was roofers, at £26,200.

30.5

Bricklayers

34.4

Plumbers

32.8

Scaffolders

35.2

Electricians

29.7

Carpenters

26.2

Roofers

-2 -1 0

Sources: Capital Economics and the Office for National Statistics Note: As there is no median wage data for roofers in 2023, the 2023 median wage is estimated by applying the average wage growth rate from 2014-2022 to the 2022 median salary.

4. Construction apprenticeships

◼ Apprenticeship completions increased by 11.9% to 8,620 in 2022/23 compared to the previous year, but they remain over 30% below their peak of 12,400 in 2017/18

◼ In 2022/23, 90.8% of apprenticeship starts were undertaken by males, while 92.1% were white

◼ Under 19-year-olds make up the greatest share of construction apprentices. In 2022/23, 50.5% of construction apprentices were under 19, compared to 23.0% in all sectors

Construction apprenticeship completions up by 11.9% but below previous peaks

Construction apprenticeship starts and completions in England (thousands) and completions as a share of starts (%)

Apprenticeship starts down but completions up in 2022/23

Apprenticeship starts in construction declined by 5.9% in 2022/23 compared to the previous year. However, they were 8.3% higher than their previous peak in 2017/18. Conversely, apprenticeship completions increased by 11.9% in 2022/23 to 8,620, as completions as a share of starts rose to 35% from 30% the previous year. However, completions remain over 30% below their peak of 12,400 in 2017/18.

60 30 Completions (LHS) Starts (LHS) Completions as share of starts (RHS)

Much of the apprenticeship levy is unspent

All employers with an annual pay bill of £3 million pay the Apprenticeship Levy. The levy is paid into a firm’s ‘apprenticeship service’ account at an amount equal to 0.5% of their annual pay bill and is available for them to use to fund apprentices. In 2021-22, £3.2 billion was raised via the Apprenticeship Levy. However, not all funds are used by employers each year, and unused funds expire after 24 months in an employer’s account. In 2020 -21, the latest year for which there are data, nearly half of funds raised two years prior were left unspent.

Apprenticeship levy funds raised and expired (£ million)

2019/20 2020/21 2021/22 2022/23 2023/24

Funds raised

£2,798 £2,910 £3,213 £3,580 £3,841

Value of funds expired (Funds first declared 24 months prior)

£847 £1,314

Percentage unspent

37.3% 48.4%

Sources: Capital Economics, HMRC, Office for Budget Responsibility, Department for Education, and the Education and Skills Funding Agency

Apprentices in construction are disproportionately male and of white ethnicity

Apprenticeship starts in construction in England, by sex (thousands, LHS) and share who are male (%, RHS)

Construction apprenticeships dominated by males

Apprenticeships in construction are male dominated. In 2022/23, 90.8% of construction apprenticeship starts were male, which compares to 48.8% for all apprenticeships. This is a fall from 92.6% in 2021/22 and is down from 97% in 2016/17. There has been some progress in increasing the number of female construction apprentices. The number of female apprentices in construction has risen at an average annual growth rate of 24% from 2016/17 to 2022/23. This compares to an annual average growth rate of 1.3% for males over the same period. However, the growth in female apprentices is from a small base and construction apprentices are still overwhelmingly male. This is reflected in the construction labour market; in the first quarter of 2024, 86% of those employed in construction were men.

Male (000s, LHS)

Female (000s, LHS)

Share who are male (%, RHS)

100

2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23

Apprenticeship starts in construction in England, by ethnicity (thousands, LHS) and share who are white (%, RHS)

Vast majority of construction apprentices are white

White (000s, LHS)

Non-white (000s, LHS)

A similar lack of diversity is seen when looking at ethnicity. In 2022/23, 92.1% of construction apprentices were white. This compares to 83.0% of all apprenticeship starters in 2022/23. Looking over time, there has been some progress in having more non-white construction apprentices. The share of construction apprentices that are white has been on a slight downward trend from the 95.6% seen in 2016/17 but remains at disproportionately high levels.

Share who are white(%, RHS)

96.0

94.0

92.0

90.0

2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23

Sources: Capital Economics and the Department for Education

Relative to all apprentices, construction apprentices are disproportionately under 19

Apprenticeship starts in construction in England, by age group (thousands)

Construction apprentices are younger than other sectors

Under 19-year-olds make up the greatest share of construction apprentices. In 2022/23, 50.5% of construction apprentices were under 19, compared to 23.0% in all sectors. In 2022/23, the share of older construction apprentices, those 35 and over, was 5.3%. This compares to 23.8% in all sectors or subjects. The fact that the apprenticeship population in construction is younger than all apprenticeships is a reassuring trend, given the reduction in younger workers in the industry since before the pandemic. (See page 14.)

<19 19-24 25-34 35+

North West has the most construction apprenticeships

2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23

There is a mismatch in the number of construction apprentices in different regions of England compared to regional construction output. In 2023/24, London had the smallest number of construction apprentices, at 1,780, which represented 8.0% of all construction apprenticeship starts. This is despite having the highest construction output in 2023 at £45.6 billion, or 23.5% of England’s construction output. On the other hand, the North West of England had the highest number of construction starts in 2023/2024 at 3,680, or 16.5% of all construction apprenticeship starts.

Apprenticeship starts in construction in England, by region, in 2023/24 (thousands, LHS) and construction output (£ billions, RHS), by region, 2023

Apprenticeship starts (LHS)

Construction output (RHS)

Ldn.

W. Midls.

N. East E.

East S. EastS. WestYorksh.N.West

Midls.

Sources: Capital Economics and the Department for Education

Apprenticeships for Electricians, Carpenters, and Plumbers most common apprenticeships of the key trades

Apprenticeship starts in England in 2022/23 by occupation (thousands)

Electricians

7.4

Carpenters

4.6

Plumbers

3.0

Bricklayers

2.6

Scaffolders

0.6

Painters

0.6

Plasterers

0.4

Roofers

0.4

Floorers

0.2

Steel erectors

0.1

Sources: Capital Economics Thousands

5. Modelling the need for workers and apprentices

◼ Delivering on the government’s vision for housebuilding and net zero will require an expansion of the skilled construction workforce; in this section we provide estimates of the number of new recruits and apprenticeships needed ◼ Strong growth in housing I&R activity is driven by increased housing transactions and retrofitting, rising from 1.7% of GDP in 2023 to 2.4% in 2033 ◼ To deliver the construction output needed over the next 10 years, we estimate the construction workforce will need to expand by 515,000 and employment in the home I&R sector will need to expand by 219,000 ◼ To expand the workforce as well as replace retirees and others that leave the workforce, the sector will need to recruit a total of 1.27 million people over the next 10 years, of which 377,000 are needed in the home I&R sector ◼ A range of skills are needed to carry out I&R work with the greatest demand for carpenters, builders and electricians ◼ We estimate that a minimum of 347,000 completed construction apprenticeships are needed by 2033; based on historic completion rates this would require around 700,000 people starting these apprenticeships

We have modelled output and employment if housebuilding and net zero targets are met

Overview of methodology for output, employment and apprenticeship requirements between 2023-2033

In this section we model the need for skilled construction workers and apprentices over the next ten years in order to support a growing economy and replace workers that retire or leave the sector. The modelling accounts for the government’s ambitious plans for housebuilding and progress towards net zero. As such, it provides estimates of what is required to deliver on their vision, rather than providing views on what is likely to happen. The basis for our calculations related to additional housing and net zero related construction work are set out on page 26. The model accounts for growth in all sectors of construction to provide estimates for the total number of recruits needed in the construction sector as well as a breakdown for housing improvement and repair work and for twelve specific occupations that are relevant for this work. The results presented in this section show the gross number of new recruits needed and estimates of what that means for the number of apprenticeships needed based on previous relationships between new recruits and apprenticeships. Meeting the overall demand for new workers to deliver the government’s vision will be a challenge. It is likely to involve a combination of increased apprenticeships, attracting young people into construction careers, encouraging workers to stay in the sector, adapting practices to help people work for longer, and providing opportunities for re-skilling for people of all ages.

Employment requirements

Apprenticeship requirements

Construction sector output

Key drivers: • Projections of employment need • Historic need versus apprenticeship completions Apprentice completions

Expand output

Key drivers: • Housing starts • Housing targets • Lag between policy announcement and starts • CCC net zero investment path for new dwellings Housing new work Key drivers: • Transaction volumes • CCC residential dwellings net zero investment • Progress to heat pump targets Housing I&R Key drivers: • Real GDP and investment • Historic trends Other new work Key drivers: • Real GDP and investment • Historic trends • CCC infrastructure and non- residential investment Other I&R

Key drivers: • Output projections • Productivity assumption • Employment by trade and sector • Output by task and type of work

Retirees

Key drivers: • Construction

workforce age breakdown • Non-UK workers Key drivers: • CITB surveys • Non-UK workers Leavers and change of roles

Sources: Capital Economics, ONS, and the Climate Change Committee

Accelerated housebuilding and retrofitting will require a boost in construction output and employment

England net additional dwellings (000s)

Housing target of 1.5m dwellings would require more workers

The Labour government’s target is to build 1.5 million homes by 2029 in England.

500

The model is based on assumptions about how quickly housebuilding could increase given a number of constraints. First, the amendment of planning laws will take some time to implement. Second, there is a lag before work begins as planning permission is granted. Third, it takes time to build a property. As such, the modelling assumes that housing starts start to see a boost towards the end of 2025 and the significant boost to completions and net dwellings starts to feed through from 2027. The model assumes that the government reaches its target by 2029, with net additional dwellings peaking at 427,000 in 2028/29. Thereafter, we assume that the England target averages 300,000 per annum. Housing starts in the rest of the UK grow at the same pace as England. This activity is a key driver of our model, particularly of new work on housing.

400

1.5 million target over five years achieved between 2025-2029

300

200

100

2002 2005 2008 2011 2014 2017 2020 2023 2026 2029 2032

Climate Change Committee heat pump installation (millions) and real net zero investment in residential buildings (2019 prices, £bn)

Real residential investment (LHS, £bn) Heat pump target (RHS, millions)

Investment into net zero and retrofit will boost activity

1.5

To quantify the activity associated with net zero we draw upon the estimates of net zero investment published by the Climate Change Committee (CCC). These are used to model the additional work in housing, non-residential property and infrastructure. We assume that annual investment reaches the CCC’s targets by 2028, using heat pump installations as a proxy for the additional progress that is needed to reach CCC projections.

1.0

0.5

0.0

2020

2023

2026

2029

2032

Sources: Capital Economics, ONS, and the Climate Change Committee

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