THE construction industry has shrunk by 10 per cent since the Government came to power, with the loss of 89,000 jobs, according to an alarming new report.

Research by the TUC found that cuts to publicly-funded projects were the main reason for the dramatic slump, which has led output to be at its lowest level since 1998. 

The findings sparked an angry response from the North-East building trade which accused the Government of being out of touch with the challenges faced by one of the region's biggest industries.  

The Coalition has reduced support for public construction works by over 27 per cent, while spending on school, hospital and transport building projects has been slashed by over 37 per cent, the union said.

The fall in public sector building projects has not been made up by the private sector, which has also seen a decline in construction work since the coalition was formed, said the report.

Construction workers have suffered a 3,000 a year pay cut as a result of the downturn, said the TUC, which urged the Government to launch a programme of affordable house-building and investment in infrastructure projects.

Graham Howard, president of the Northern Counties Builders Federation, told The Northern Echo: "The Government is out of touch with reality. They don't realise that if people are working in construction money comes back to the Exchequer through tax and national insurance payments.

"While it does at least now recognise the importance of infrastructure in principle, it's still nigh impossible to get overdrafts that will enable new building and new employment to get under way. Companies have been living off their fat and now there's no fat left.

"Banks say no-one's coming forward to borrow money. But we have come forward and been rebuffed so we don't bother again. Interest charges and setting-up fees are astronomical and you can't get those charges onto the price of the job."

The TUC report coincides with research by insolvency trade body R3 that suggests almost a quarter of the North-East's construction and civil engineering businesses -1,301 out of 5,407 firms - are facing "significant" risk of failure.

A further 296 businesses are said to face "high" risk of failure and may have difficulties in continuing to trade unless significant remedial action is taken.

Douglas Kell, director of the Civil Engineering Contractors Association (CECA) in the North East said: "These latest reports confirm with hard figures what we have been consistently point out to the Government. If 1,301 face significant risk of failure in our region, how many others are only slightly better placed than this?  And how many could be described as fine and dandy? Few if any, we would say."

Earlier this year, CECA joined forces with the North-East Association of Consultancy and Engineering, and the Institution of Civil Engineers sent a letter backed by The Norhtern Echo to Chancellor George Osborne ahead of his Budget, urging him to help construction and engineering firms. 

TUC general secretary Frances O'Grady said the Government's failure to support construction has been "terrible" for jobs, growth and wages.

She added: "This research shows what happens to the economy when you cut back on vital state funding and why we need urgent investment in new affordable housing and infrastructure projects.

"Without this stimulus the construction sector will continue to struggle and slow down our recovery."

Steve Murphy, general secretary of the building workers union Ucatt, accused the Government of "economic vandalism."

He added: "It is not only damaging the construction industry, it has also been hugely detrimental to the entire economy.

"The Government's gamble that the private sector would meet the demand created by the cuts in the public sector construction budget has also been shown to have failed. Since the Government took office private sector construction work has declined by 4.5 per cent."

Among the firms to have gone to the wall in recent years are Sunderland-based builders merchant A Thompson and Sons, C&A Pumps, in Bowburn, Durham City, Gateshead contractor Barton Civil Engineering, property repair group Rok, and Morgan Sindall, which shut its Durham office on Belmont Business Park.