The Scottish Building Federation has hit out at news that Highland Council faces a 45% cut in Scottish Government funding for affordable housing for 2011-12, forecasting "significant business failures" and "substantial lay-offs" in the region’s construction industry as a result.

The industry body has also complained that, as competition for dwindling public sector contracts intensifies, many firms are already being forced to put in "suicidal tenders" to secure new work. It has suggested that, with further cuts on the horizon, such practices will push an increasing number of construction firms to the wall.

SBF Chief Executive Michael Levack described the cuts as "even worse than we had feared" and described them as "another hammer blow" for the Highland construction industry. He also suggested that the impact on employment and skills would be "acute", with many Highland building firms under severe pressure and hundreds of apprentices unable to start or complete their training and forced to seek out an alternative career.

A recent SBF Highland Association survey found that three quarters of member firms in the region described themselves as "heavily reliant" on the public sector. Traditionally viewed as a strength, the Highland industry’s strong reliance on public sector investment now makes it particularly vulnerable to threatened cuts in public sector capital investment, the SBF has warned.

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A growing crisis in the availability of affordable housing across the region will also accelerate a continuing outflux of workers from the region, further stifling its economic recovery, Mr. Levack added.

The SBF Chief Executive also expressed concern that the effects of the cuts would be to create a skills shortage which would stoke up major cost inflation in the construction sector when the economy finally recovers.

Mr. Levack was speaking following the announcement on Thursday by Highland Council that the funds available to the Council in 2011-12 to promote affordable housing developments would be reduced by almost one half by the Scottish Government.

Mr. Levack commented: "We expected cuts but these are even worse than we had feared. This is yet another hammer blow for the Highland construction industry.

"But this is not just disastrous for the building sector. It will do nothing to address a growing crisis in affordable housing provision in some of the most rural and remote parts of Scotland. Such a drastic cut in public funding will stifle the region’s economic recovery, forcing an increasing number of younger people to leave the Highlands altogether in search of a job and an affordable roof over their head.

"For the construction industry in the Highlands, the impact will be to create an acute skills shortage that will stoke up major cost inflation when the recovery finally comes."

Willie Gray, Managing Director of Inverness-based construction company William Gray Construction Ltd, an active member of the SBF’s Highland Association, added: "If you crunch the numbers, the 45% cut in investment in affordable housing could mean almost 200 fewer new homes getting built in the Highland region next year – that’s a huge reduction not just for building firms such as my own but for all of the associated services and trades that rely on our industry for new work."

(GK/BMcC)