The building industry is one of the backbones of the Scottish economy, yet the sector has been ravaged by the downturn. Figures show the industry contracted by 15% last year.

For the last few months, - with some hope of a recovery from the slump - builders have appeared to be a little more hopeful about their prospects.

There is a danger that the new Conservative-Liberal Democrat coalition government might throw a spanner in the works – in terms of cutting back on public sector building work.

After just a few weeks of the new government being in power Michael Levack, chief executive of the Scottish Building Federation, speaks to Enterprising News about his hopes for the new government and the industry as a whole. And he comes up with some hard-hitting comments and radical suggestions for the way ahead.

What is your initial reaction to the creation of the new Conservative / Liberal Democrat coalition government at Westminster?
It is something that a sizeable majority of people in the UK will never have seen in their lifetime – I think there is a continuing worry for the construction sector that the new government may not last all that long.

Political stability is really important at the moment, given that general business confidence remains so weak. I think there is a lot of public apprehension about how the new Government will perform – and also a great deal of expectation about what the Government ought to be doing to speed up the economic recovery.

What has been the impact of the recession on the Scottish construction sector?
Not far short of devastating. The industry contracted by 15% last year. That has wiped £1.65 billion off its value to the Scottish economy. We have seen thousands of jobs lost and hundreds of apprentices made redundant.

The impact on the private sector has been particularly acute and our industry’s dependence on public sector investment for new work has never been stronger. The proportion of total work coming from the public sector has risen from 40% pre-recession to around 70% now. That is not a comfortable position for the construction sector to be in.

So what do you think this new government should be doing to support the industry?
In broad terms, I would say that the new government should focus on three priorities:
First, reversing the decline in private sector construction activity;
Second, sustaining capital investment in new infrastructure, schools, hospitals and housing;
Third, working with the industry to improve its image, drive up standards and drive out the cowboys.

What action is needed to reverse the decline in private sector construction activity?
Getting banks to start lending again is very important. And it is one area where there appears to be a degree of consensus between the two coalition partners in the new government.

Clearly, the banking sector had its fingers badly burned by the collapse in the property market. But as a consequence, many banks have been guilty of a wholesale black-listing of building firms. This takes no account of the prior reputation or financial track record of individual firms. We need to end a situation where reputable businesses with a sound financial history are forced to fail because their bank is preventing them from raising the necessary capital to get new projects off the ground.

We also need to see incentives to encourage individuals and businesses to invest – particularly where this can contribute to the achievement of other policy goals. Reducing VAT on repair and maintenance works would provide a major stimulus to the sector while helping to improve the energy efficiency of our built environment and tackle climate change.

How likely do you think it is that the new government will cut VAT in this area?
Cutting VAT on building repairs and maintenance was actually a specific commitment set out in the green chapter of the Liberal Democrats’ general election manifesto. With a Liberal Democrat heading up the Department for Energy and Climate Change and another occupying the position of Chief Secretary to the Treasury, I would hope that that commitment will be honoured.

What is more – if (as many predict) the standard rate of VAT rises to 20%, I actually think that the case for introducing a differential for VAT on building repairs and maintenance becomes even more compelling. Without it, a 20% standard rate of VAT plays into the hands of the cash-in-hand cowboys even more, because it increases their price advantage over reputable law-abiding construction firms.

Is it realistic to expect that levels of capital investment will be sustained in view of the state of the public finances?
In the current climate, I fully accept that sustaining capital investment will be an objective that is particularly hard to deliver.

Nonetheless, organisations such as the Scottish Building Federation will continue to make the case. At the end of the day, politicians need to realise that, by failing to provide construction firms with new work and letting many more of them go to the wall, we risk stoking up major price inflation within the sector and creating a skills and capacity shortage that will take years to reverse and cost even more money to fix.

As George Osborne begins sharpening his axe, I also think that we need to redouble our efforts to come up with new and innovative models of finance to sustain the flow of capital investment our economy needs to secure a recovery. I fully accept that it is doubtful that any new public money – or even a further advance on future budgets – will be found.

But I am somewhat encouraged by early dialogue with the devolved administrations, which suggests the new UK government may be prepared to consider new alternative sources of finance.

In particular, there seems to be gathering momentum in favour of giving the Scottish government borrowing powers. This could help smooth the path towards the creation of a National Infrastructure Investment Bank.

The SBF has been championing this as a mechanism for mobilising private capital to help fund major infrastructure projects such as the new Forth Crossing. Not necessarily because we are concerned that the funding of these projects will be cut – although this is itself an increasing risk.

But we are very concerned that, to safeguard funding for these major projects, other categories of capital spending will suffer significant cutbacks. That is likely to stifle economic recovery – and would obviously be very bad news for the construction industry.

You mentioned also improving the industry’s image?
Sadly, the vast majority of reputable building firms continue to be let down by a small minority responsible for shoddy work, poor quality and inflated pricing. As a third priority, I would like to see the new Government doing more to support schemes such as Trusted Traders.

These schemes exist to give consumers assurance that their chosen trader will carry out work according to the high standards of quality, customer service, safety and value for money they rightfully expect. But too few people know about the existence of schemes like Trusted Traders. In the past, I’m afraid the government has done too little to promote them amongst the general public.

So, what would be your core message to the new government?
We accept that these are challenging times. But also to remind the government that they overlook at their peril the huge contribution the construction industry makes to the economy in terms of jobs, skills, apprenticeships and revenue. Ultimately, as the new government finds its feet, we will continue to press home the case that a healthy construction sector represents a cornerstone of sustainable economic recovery.