Current Issues - 3rd Quarter 1999 The FMB state of trade survey questionnaire ends with an invitation to members to write down any comments they would like to add about the current state of trade in their localities, or about current issues facing small and medium-sized construction firms. Once again, over 30% of firms responded to this invitation, and once again the subject of most concern, raised by more than one in five of all those that added comments, is the new Construction Industry Scheme for the taxation of sub-contractors. This is a subject with a number of different dimensions that are of more or less concern to different firms, but there are three that predominate. The first of these is the increase in labour costs where tradesmen who were formerly employed as sub-contractors are taken into direct employment. In a market where competition from the Black Economy, and from firms operating legitimately below the Value Added Tax registration threshold, remains very intense, so it is difficult to pass on additional costs, these extra costs mean added pressure on the cash flow and profitability of small building firms. Some firms have indicated they would prefer to avoid this pressure by turning down work the taking of which would require them to hire additional direct employees. Meanwhile the CIS is putting further pressure on existing small firms, particularly those registered for VAT, as a significant number of firms again report a movement of tradespeople from being available to work for them as sub-contractors into becoming direct competitors with the firms for which they used to work, and not charging VAT on their services. Some respondents have then gone on to say that the Scheme is encouraging growth of the Black Economy. However, with the VAT threshold at its present level it is possible for construction tradesmen to earn a good income whilst their turnover stays below it and, so long as they pay Income Tax and National Insurance Contributions as required, without joining the Black Economy. The third main complaint about the CIS is that it is adding further to the burden of bureaucracy and red tape that seems to bear particularly heavily on small building firms. Also cited in this connection are the construction health and safety regulations, in respect of which some FMB survey respondents raise the further complaint that not enough is being done to identify and prosecute those firms that ignore the regulations and, in doing so, avoid the cost of complying with them. Training is another subject that has featured prominently in comments accompanying the third quarter survey, just as it did in the two preceding surveys. Here also there is a concern over the competitive situation arising from some firms being required to bear additional costs that make it more difficult for them to compete with those that are not bearing those costs, with particular reference to the Construction Industry Training Board levy. By comparison, one concern that has reappeared this time, after not being mentioned in the first two surveys in 1999, is that of late payment by customers. First posted: 19 October 1999. Last modified: 21 January 2000.