A 2021 report by the University of Strathclyde Fraser of Allander Institute analysed the economic, social and environmental benefits of stimulating repairs and improvements to the Scottish built environment.
… repair and improvement activities – generates the biggest economic impact…
The Fraser of Allander Institute writes:
The construction sector is an important contributor to the Scottish economy – directly supporting £8.5bn in Scottish GVA and supporting over 170,000 full-time equivalent jobs in the economy.
Once spill over effects are accounted for, we find that the sector supports almost £16bn in Scottish GVA and almost 300,000 full-time equivalent jobs across the Scottish economy.
According to the ONS’ UK SIC 2007, the construction sector (SIC41-43) is made up of the following industries:
- Construction of buildings (SIC 41);
- Civil engineering (SIC 42); and,
- Specialised construction activities (SIC 43).
Specialised construction activities includes repair and maintenance and home improvements work. Repair work and home improvements, i.e. repair work to bring a house to standards or energy efficient improvements, are more common for older properties. Modern properties (i.e. built post- 1982) are typically more energy efficient and require less repair work.
One of the main purposes of this report is to understand the differential economic multiplier effects of different construction activity with a particular focus on SIC 43. The Scottish Government’s input- output tables, used for such multiplier analysis, aggregates SIC 41-43 therefore, this research involved splitting the tables into a larger table which disaggregates the construction sector.
The results indicate that –
- Within the construction sector, specialised construction activities – which includes repair and improvement activities – generates the biggest economic impact of the three construction industries. Both in terms of GVA impact and employment impact. We have used new data sources to build these new multipliers.
- We find that, once spill over effects are considered, for every £1m spent on specialised construction activities, around 21 full-time equivalent employment and £1.09m GVA is supported in the Scottish economy….
Additionally, this report looks into the potential economic impact that a VAT cut from 20% to 5% in the specialised construction sector could have on the Scottish economy.
The results show that –
- The positive impact from the positive demand shock alone could generate between £80m – £400m in Scottish GVA and support between 1,500 – 7,500 full-time equivalent Scottish jobs – the economic benefit is dependent upon the price elasticity of demand.
- The net economic impact would be negative if the government does not borrow to finance its current level of expenditure as the VAT cut would result in decreased VAT receipts – this is after the positive impact on VAT receipts from the positive demand shock is accounted for.
- The gross benefit to the economy is highly dependent on the pass through rate of the VAT cut – i.e. the extent to which the reduction in VAT feeds into a change in demand.
