Right Fuel Card surveyed a selection of businesses across their SME base to determine the general outlook on the future of their industry. The building, construction, and engineering industry were one of the most optimistic sectors that were surveyed, with 45% of respondents stating that they feel either positive or very positive about the next 12 months.
Although there has been a recent boom in construction which has provided more job opportunities, the cost-of-living crisis is taking its toll and many businesses are becoming financially strained. In addition, the changes to the red diesel entitlement have brought new challenges and there are several barriers that are preventing these businesses from adopting EV technology.
A bright future ahead?
Unlike many other industries that were shut down due to the outbreak of Covid-19, building, construction, and engineering were declared essential by the UK Government allowing businesses to continue working throughout the pandemic and mitigating the financial impact felt by other industries. Although there were challenges, such as projects being delayed, most businesses were able to bounce back fairly quickly which is perhaps why this industry is more positive about the future than others that were surveyed.
Demand for the building, construction, and engineering industry is expected to grow further because of the recent Government initiatives that have been introduced. The slashing of stamp duty proposed as part of Kwasi Kwarteng’s mini-budget in September 2022, is expected to drive up housing purchase demand. However, this may be mitigated by the increasing interest rates which will drive up the cost of ownership.
The mini-budget also contained plans to reform the planning permission process, helping to make it easier and quicker for businesses to start new projects. This will benefit the building, construction, and engineering industry significantly as previous projects have been delayed, sometimes by more than a year, due to the long waiting periods for planning permission which has caused businesses to lose profits.
Another plan by the Government to encourage growth in this industry is the disposal of surplus public sector land. The sale of more public land for development and housing is a fantastic prospect for businesses as they’ll be able to invest in new areas. All these initiatives will undoubtedly lead to an increase in the housing market, providing job security for workers in the building, construction, and engineering industry.
Impact of the cost-of-living crisis and inflation
Despite these positive opportunities for businesses in this sector, a hangover of supply issues caused by Covid-19 and the cost-of-living crisis is having a significant impact. Building costs have risen by almost 10%, and with inflation continuing to rise, firms are putting projects on hold as they’re struggling to find the necessary funding. There are concerns that if costs continue to rise then it may become unstainable for some businesses to continue operating, so SMEs are calling on the Government to offer more financial assistance.
The financial crisis is also likely to reduce demand for home improvements and construction as many of us no longer have money to spare on new purchases. This could mark the start of a challenging period for businesses in the building, construction, and engineering industry as a decline in activity has already been reported. It’s expected the decrease in demand will continue until the cost-of-living crisis is resolved and there’s no way to predict when this might be, causing uncertainty for the future of businesses in this sector.
Brexit and the skills gap
The skills gap is another challenge that businesses in the building, construction, and engineering industry are facing as it’s vital that this is closed, or they’ll be a risk of a worker shortage. There are currently thousands of job vacancies in this sector as the demand for workers is incredibly high, but the selection of applicants is limited due to the skills gap. More needs to be done to encourage people to join this industry and increase employee retention so that businesses can continue to develop and grow.
Brexit has exacerbated this skills gap as Britain has left the European Freedom of Movement agreement. Many roles are classified as unskilled, therefore do not meet the minimum salary threshold to secure a visa. However, there are initiatives being introduced that will provide workers with more opportunities for progression and reduce the skills gap. This will provide much-needed support to help this industry meet its demand for workers, in preparation for a high level of activity that’s anticipated for the future.
99% believe the red diesel changes will increase costs
Changes were made to the red diesel entitlement in April 2022, so it can no longer be used by most sectors, including construction. According to our recent survey, 99% of respondents believe that these changes will only raise costs for businesses. As red diesel is taxed at a much lower rate than standard diesel, fleets are now having to pay up to twice as much for their fuel.
Another consequence of these changes is the rise of fuel theft. As fuel prices have increased, perpetrators are stealing fuel more frequently and they can no longer be easily identified by a red dye. The building, construction, and engineering industry is a prime target for this kind of crime as construction sites are often in remote, rural locations and have minimal security presence.
The purpose of the red diesel change was to encourage businesses to consider greener alternatives for their fleets, however, only 33% of respondents in this survey think that it could drive users towards electric vehicles. This is because there are still too many barriers that are preventing the widespread adoption of EV technology within this industry. Hydrogen and HVO vehicles are likely to be the more practical option for businesses in this sector as they have a longer driving range and faster charging.
Lack of confidence in the EV infrastructure
Businesses will soon need to consider greener alternatives for their fleet vehicle as the sale of new petrol and diesel cars and vans will be banned from 2030. As the construction sector accounts for 39% of all global emissions, it’s essential that businesses switch to alternative fuels so they can help to protect the environment. However, there are issues with the accessibility and technology of electric vehicles, in particular, which is deterring businesses from investing in them. The key challenges of EV technology for this industry are:
Increased cost. Not only are EVs significantly more expensive to purchase, but currently they’re almost as expensive to run as petrol vehicles and many businesses cannot warrant these increased costs. It can also be more costly for drivers that travel long distances, as EVs need to be regularly recharged and there may be a need for an overnight stay.
Lack of models available. There are very few EVs on the market that can be used in the building, construction, and engineering industry as they’ve not been designed to transport the heavy equipment that’s needed. Components in an electric vehicle are heavier than traditional fuel tanks, reducing the vehicle’s payload capacity which would be impractical for businesses with high payload requirements.
Inadequate charging infrastructure. Many businesses have concerns about the existing EV network, as charging points can be sporadic, particularly in rural areas. This makes drivers more vulnerable, as they risk their vehicle breaking down if they cannot easily access a charge point when needed.
Limited driving range. The driving range of electric vehicles is limited in comparison to ICE vehicles. This makes them less appealing to businesses that need to travel long distances on a regular basis, as more stops will be required to recharge, increasing driver downtime. Recharging an electric vehicle can also be time-consuming and this can cause significant delays to journeys.
Due to these barriers, it’s likely that hard-to-abate industries, such as construction, will be more likely to switch to hydrogen vehicles in the future, as this technology is more practical for HGVs. They’re cost-efficient as they produce ultra-low emissions and can travel 300-500 miles before they need to be refuelled, making them an appealing option to businesses that travel nationwide. Once the charging infrastructure has been developed further, hydrogen will undeniably have a crucial role in the UK, as it provides an alternative to electric vehicles which are not as accessible for businesses in the building, construction, and engineering industry.
Right Fuel Card is committed to helping our customers through these challenging times. Our wide range of fuel cards can help businesses reduce the time spent on admin and save money on their fuel expenditure. Through our online account management system, you can monitor every fuel card transaction and view all your invoices, so drivers no longer need to keep hold of receipts.
Contact a member of our team at 0113 202 5110 to discuss your options or use our quick comparison tool to discover our selection of fuel cards. We are also working on an EV alternative to help our customers make the switch to electric. Click here to register your interest in a EV card.
Note: The survey was conducted in June 2022, receiving 1156 responses.