Chancellor George Osborne says Britain is 'incapable of building enough homes' as construction output hits record low

Construction output was 1.3% lower than in April, according to ONS
There was a fall of 5.8% month-on-month in new housebuilding in May
Osborne introduces new reforms to try and turn the market around
Barratt, Persimmon and Taylor Wimpey shares all making gains

Published: 05:42 EST, 10 July 2015 | Updated: 05:54 EST, 10 July 2015

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Construction in the UK plunged in May, figures revealed today, as Chancellor George Osborne announced a raft of measures aimed at stimulating housebuilding across the country.

Construction output was 1.3 per cent lower than in April, according to the Office for National Statistics - its biggest fall since February last year. On a year-over-year basis, it gained a measly 1.3 per cent, against forecasts for a much healthier 3 per cent gain.

Both new work, and repair and maintenance contributed to the fall but it was the grossly under performing housebuilding sector that did the most damage.

Construction output suffered its biggest monthly fall in more than a year in May,

The ONS said in its report: 'The data suggests that output in the construction industry as a whole has been broadly flat over the last 2 quarters, a marked slowdown compared with the industry’s performance during the broader economic recovery.

'Much of this easing is due to lower house building output growth, which has softened considerably in 2015.'

Howard Archer, at IHS, said: 'The fall in construction output in May was led by a 5.8 per cent month-on-month dip in new housebuilding, which the government may well highlight as showing the need to take measures to boost housebuilding.'

The figures come as Osborne launched planning policies to try and boost housebuilding. Osborne said reforms were needed because Britain had been 'incapable of building enough homes'.

The measures include automatic planning permission being granted on many brownfield sites in England for housebuilding.

Plans also include powers for the government to step in and draw up housing plans if local authorities fail to do so. Town halls that drag their feet on planning decisions may be fined, the government said.

Getting tough: Osborne said reforms were needed because Britain had been 'incapable of building enough homes'

As a result of Osborne's plans housbuilding stocks have soared this morning.

Barratt Developments is up 2.0 per cent, or 11.5p, at 632.0p. Persimmon has gained 1.7 per cent, or 21.0p at 1,975.0p and Taylor Wimpey rose 1.9 per cent, or 3.5p, at 188.5p.

The government hopes that a nimbler land and housing market will help improve Britain's poor productivity growth by making it easier for people to own homes close to their work and for firms to have more freedom of location.

It follows a warning this week's Budget would cut investment in new homes.

The proposed changes feature in a 90-page document to address Britain's productivity record.

A strong recovery in the economy in the last two years has pushed employment to record highs. But growth in output per worker lags behind the rates of many other advanced countries.

Friday's launch of the productivity plan represents the second half of the government's first budget since the Conservative Party of Prime Minister David Cameron won an outright majority in national elections in May.

In the budget statement on Wednesday, Osborne announced major cuts to welfare spending and the introduction of a higher minimum wage as he set out his plans to overhaul the economy over the next five years.

The finance ministry said Britain's economy would be 31 per cent bigger if it could match US productivity.

The productivity plan will cover areas including higher education and training, transport, trade and the devolution of power to cities and regions. But changes to planning rules for housing would be the centrepiece.

Osborne said: 'Britain has been incapable of building enough homes. The reforms we made to the planning system in the last parliament have started to improve the situation.

'But we need to go further and I am not prepared to stand by when people who want to get on the housing ladder can't do so.'

British house prices have risen sharply in the past two years thanks largely to a lack of properties on the market.

Other measures due to be announced on Friday include stronger compulsory purchase powers to bring forward more brownfield land and the devolution of planning powers to the mayors of London and Manchester.

Major infrastructure projects which include housing development may be fast-tracked and planning permission requirements could be relaxed for raising the height of buildings in London to the same level as an adjoining building.