How is brexit going to affect the construction industry

When it was announced that the electorate had voted that the United Kingdom must leave the European Union, there was much speculation about the possible future impact it would have on the construction industry.

The Divided Industry Opinion

The industry displayed mixed views throughout the campaign and no clear opinion could be formulated regarding the prospect of brexit and how it might affect the export and import of materials, skills shortages, and standards and regulations.

Prior to the referendum, a survey was undertaken by Smith and Williamson which revealed that the percentage of construction executives who were in favour of Brexit was just 15 percent.

On the other hand, the chairman of JCB, Lord Bamford, had suggested that the reduced costs of bureaucracy resulting from Brexit would be sufficient to cover the additional costs that the UK may have to incur as a result of leaving the EU.

This article covers the possible impact that Brexit may have on the construction industry.

Skills Shortage

It is a well known fact that foreign migrant labour is crucial to the construction industry. In its absence, construction companies may find it difficult to employ skilled and unskilled labour even with construction finance. The EU guarantees the right to free movement and leaving the EU could worsen the existing skills shortage problem.

If restrictions are put in place which limit the immigration of skilled workers into the UK, the project costs may further increase as supply will not be able to meet the demand for labour.

This will have a direct impact on the capacity of housebuilders to meet the housing targets set for them by the government. This will increase the cost that construction companies need to pay as well as the cost that consumers need to pay to purchase a house.

It may worsen the housing crisis in London and other parts of the UK as it may lead to an overall decline in housebuilding. Another possibility is that global investors may withdraw their investment from the UK property market which may free up the properties that are currently unoccupied and lead to a reduction in prices.

Prime Minister Theresa May was criticised by Mark Reynolds, the CEO of Mace, for proposing that high skilled workers from the EU would not be given priority when it comes to post-Brexit immigration. This would severely restrict the free movement of workers which has always existed between the UK and EU. He went on to accuse May of completely ignoring the worries of the construction industry over access to unskilled labour.

This criticism, coming from such a high profile construction industry figure should not go unheeded, especially when 28 percent of all construction workers in some parts of the UK are from the EU.

Reynolds also said that the availability of both unskilled and skilled labour will shape the future of the UK’s engineering and construction sector. Without access to skilled and unskilled labour, both industries will have a difficult time trying to deliver sustainable growth in construction post Brexit. In his opinion, the policy needs to be reviewed urgently and businesses must be consulted again.

Export and Import of Construction Materials

Along with the free movement of people, membership of the European Union also allows for the free movement of goods and supplies within the EU with lesser restrictions and elimination of duties.

The Department for Business Skills and Innovation conducted a study in 2010 which estimated that nearly 64 percent of the materials used for construction were imported from the EU. The same study also revealed that the exports of construction materials to the EU accounted for 63 percent of total exports to the EU.

It is possible that exporters and importers may face limits on quantities or the imposition of duties post Brexit which could lead to an increase in costs or an acute shortage of construction materials, both of which could be disastrous for the UK’s construction industry. However, there is also the possibility that the government may make it mandatory for UK companies to use UK firms and materials only, in a bid to support UK based enterprises and the UK economy.

Red Tape

It is a popular perception at the moment that Brexit will put an end to the endless layers of bureaucracy that UK businesses are subjected to as a result of the trade policies of the EU. However, it is worth remembering that Brexit doesn’t mean that all ties between the UK and EU would be broken. Regardless of which model is adopted, it will certainly include a condition in its trade agreement with the EU to comply with existing trading standards.

Infrastructure

The fact that the UK is a member of the European Union allows it to access the European Investment Fund (EIF) and the European Investment Bank (EIB). In the year 2015 alone, the total investment by these organisations in the UK’s major infrastructure projects was €7.8 billion and it also gave a total of €665.8 million as loans to SMEs.

The loss of both these revenue streams may have an impact on the ability of construction companies to deliver big infrastructure projects and it will also threaten the stability of startups across the UK. Whilst it is possible to reverse the damage by utilising the money saved from the EU membership, it doesn’t seem likely that the government would invest this saving in infrastructure in the face of ongoing cuts to government spending.

Planning Laws

In October 2018, statutory instruments relating to the planning regime and environmental assessments were published by the government with the assurance that the policy will be continued post Brexit. Environmental impact assessments (EIA) will still need to be carried out by developers to ensure that they are factoring in environmental considerations into the planning process.

As it is now inevitable that the UK will leave the EU, the only question being when, the construction industry needs to come to terms with this reality and be prepared to tackle any challenge that lies ahead for them.

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