Small building firms are experiencing an increase in salaries as a result of the growing skills shortage, according to the Federation of Master Builders (FMB).

In its State of Trade Survey for Q1 2016, the FMB found that output prices, wages and salaries and material costs are all projected to rise over the next six months.

Compiled quarterly using a random rolling sample of FMB member firms, the survey reported that in the three months to March 2016, SME workloads continued to experience rising activity as more firms reported higher workloads (33 per cent vs 29 per cent in the previous quarter). In contrast, those indicating lower workloads fell to 21 per cent from 23 per cent.

Over the next three months businesses are predicting an increase in activity levels. Firms anticipating lower workloads declined to 12 per cent from 19 per cent in Q4 2015. However the number of respondents forecasting higher workloads went up to 38 per cent from 22 per cent.

A rise of 5 percentage points took the net balance for expected wages and salaries to +51. Over half (53 per cent) of respondents anticipate increasing wages and salaries, up from 49 per cent. In contrast, just 1 per cent of firms forecast decreasing wages and salaries over the next six months, marginally down from 2 per cent.

Employment indicators improved in the three months to March 2016: While fewer respondents stated that their workforce had decreased (10 per cent vs 18 per cent), around 71 per cent of firms stated no change in their workforce, up on the 62 per cent registered three months earlier.

Scotland’s net balance moved back into positive territory as it increased by 19 percentage points to +6. A fifth of weighted responses were negative, down from 34 per cent while the share of weighted responses which were positive went up to 26 per cent from 21 per cent. The majority of weighted responses (54 per cent) were neutral, up on the 45 per cent posted three months earlier.

Commenting on the results, Brian Berry, chief executive of the FMB, said: “More than half of small construction firms are predicting that wages and salaries will increase over the coming six months. Given that brickies are already able to command wages of up to £60,000 per year in London and around £45,000 a year in the North of England, it’s clear that the skills squeeze is starting to push up costs for construction SMEs. A whopping 55 per cent of small building firms are currently reporting difficulties hiring bricklayers, which makes these tradespeople the most in-demand of all construction workers. This particular skills shortage is of course linked to the steady growth in private house building.

“The results for the first three months of this year show consistent growth among small construction firms in almost all parts of the UK. What’s more, despite evidence of the EU referendum causing some uncertainty within the business community, more than two-thirds of firms expect their workloads to increase over the coming three months. These results are heartening but skills shortages, and the knock-on effect on wages and salaries, remains a major cause for concern.”

Berry added: “We need tens of thousands of new and returning construction workers to pick up the slack, or this growth among construction SMEs could so easily unravel. The Government is hoping to address the skills shortages through the new Apprenticeship Levy, which is due to come into force in exactly one year. However, I have spoken to many small construction bosses who have major concerns about the impact that the new funding arrangements, which will come into effect alongside the levy, will have on their ability to hire an apprentice. The Government must work closely with the construction industry to ensure its new system is as easy to use as possible, or else we could see apprenticeship training by small firms nose dive at exactly the wrong time.”