Supply chain crisis wipes out Rishi Sunak’s £2bn plan to fix cladding

The global supply chain crisis has meant the Government will need to find more money to fix Britain's cladding crisis with a £2bn housebuilder tax unable to cover escalating costs, experts have warned.

An extreme shortage of labour and materials, already causing havoc in Britain's construction and home renovation industries, will add an extra £1.2bn onto the cost of fixing unsafe blocks of flats. This will effectively wipe out a £2bn housebuilder tax expected to be announced in tomorrow's Budget.

Sean Clemons, of Robinson Low Francis construction consultants, said: “The cost of cladding jobs, as they stand now, has increased by 8pc since last year.”

Ian Cooper, of DWF, a legal and business services provider, said that the cost of some jobs have seen double digit rises. Other projects are encountering six month delays while they wait for materials and labour, he said.

Last year, MPs estimated the cost of solving the cladding crisis would be £15bn. An 8pc increase in costs would therefore be equivalent to £1.2bn. The Government has so far only committed £5.1bn, which will be partly funded by the new £2bn tax.

Campaigners fear that without any additional Government funds, the escalating costs will be borne by leaseholders. An 8pc increase in costs could mean leaseholders pay an extra 12pc, as the gap in funding will increase from £9.9bn to £11.1bn.

Others have argued the £15bn estimation from MPs was already conservative. Contractors Colmore Tang Construction said the true cost of the cladding crisis would be £50bn. Using that benchmark, an 8pc jump in construction costs will mean leaseholders pay an additional £4bn.

Jon Curtis, of Ringley Group, which manages 300 buildings across England, said: “Escalating costs of construction materials caused by supply chain disruption, including those required for cladding remediation, are disproportionately adding to an ever-greater burden borne by affected leaseholders.”

He called for the Government to reassure leaseholders that they will not bear the brunt of rising construction prices.

The construction supply chain has been crippled by a lethal combination of the pandemic, Brexit, a global construction boom, the energy crisis, and a surge in demand for cladding works.

Many cladding replacements are steel-based, said Mr Cooper. “And steel prices are just crazy, some companies are refusing orders.” Government data showed that prices of fabricated structural steel in August were up 74.8pc year-on-year.

Delays in turn trigger further price rises. Mr Clemons added: “You get situations where the price has been agreed by the contractor, and they will only hold it for so long. If the block has an application with the Government's Building Safety Fund, by the time that has been approved, the market has moved on and they have increased their prices.

"If you try to find a quote for another price, that will add three or four months’ delay, by which time you will get an even higher quote because of inflation."

Mr Clemons noted a project of four blocks in Birmingham where the contractor increased the price by 4pc between the first and second stages of applying for funding.

The pace of price growth will likely soften by spring next year, said Mr Clemons. “But it will still continue to increase.”

Noble Francis, of the Construction Products Association, a trade body, said labour shortages were particularly a problem with UK construction vacancies at an all-time high.

A Government spokesman said: “We will not compromise on building safety, and building owners must take swift action to fix dangerous cladding. The government will fund every eligible application to the Building Safety Fund. So far we’ve processed over 600 building applications, with estimated remediation costs of £2.5bn, and we are progressing the remainder as quickly as possible."

He added: “The new Secretary of State is looking afresh at work in this area to make sure we are doing everything we can to protect and support leaseholders, and he will not hesitate to take further action if necessary.”