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Reality check: impact of Brexit on construction

The beginning of 2018 has not been uplifting for the construction industry, with headline after headline bringing uncertainty and unrest about the future and sustainability of UK businesses, a rise in inflation, and a weakened pound.

January has seen the collapse of one of the largest construction and utilities companies in the UK, Carillion, creating a murky future for some 20,000 employees, as well as high-profile projects such as HS2. Add to this the statistics compiled for Sadiq Kahn which demonstrate that the ‘hard Brexit’ being threatened could cost the industry £10bn, and the impending skills gap that a restriction of the movement of people would bring about, and the year ahead looks anything but bright. It is with this dim landscape ahead that I consider the effects that Brexit will have on the UK construction industry, which is still fragile and recovering from the economic crisis of 2010.

Before the referendum, there was a difference of opinion among UK businesses as to the benefits of being part of the EU, with many business owners believing that a vote to leave would mean more freedom and less red tape, whilst others argued that our reliance on both employees and funding from the EU were too high to simply walk away. With Brexit talks taking longer than anticipated, it is still largely unclear exactly what impact our decision to leave the EU will have on the economy, and construction in particular. Based on recent intelligence from the Cambridge Econometrics study, it seems that any one of the five possible outcomes will have negative effects on the economy.

There are still some potential benefits for British industry however, and these will also be considered below.

The worsening skills shortage

Construction companies in the UK have been battling a worsening skills gap for years now, with an aging workforce, lack of investment in apprenticeships, and a lack of interest from young people in joining the industry. Whilst the new apprenticeship levy was deemed a step in the right direction to closing this gap, this did not account for the roughly 10% of the workforce who hail for EU accession countries, a figure which rises to as much as 50% in London and the South East of England. If the free movement of people is restricted, or rights of EU citizens become uncertain, this gap will not be bridgeable, as experts suggest we need around 13,000 new construction workers every year to 2021 to plug the gap. This lack of personnel will in turn see labour costs skyrocket through over-time payments as demand outstrips supply, making delivering projects on time and within budget an impossibility.

The housing crisis

The government have targeted the construction of 300,000 new build homes each year to help combat the housing crisis in line with other schemes such as ‘Help to Buy’. However, with a lack of construction workers, labour is spread too thin between housing, infrastructure, and other government and private projects, casting doubt over the feasibility of this target, meaning this housing deficit will continue to grow year on year.

Imports and exports

Currently both exports and imports of materials between the EU and Europe sit just under 65% of all supplies, not an insignificant figure by any means! The effect of leaving the EU upon import and exports will depend entirely on whether we can stay within the single market, or must negotiate new trade deals, as seems likely. The major benefit of leaving the EU could indeed see a reduction in the ‘red tape’ which many wanted away with. This could mean, as an example, that projects could insist on using British materials only, a boost for British industry. It would also mean that British products would often be the natural first choice due to import tariffs making foreign materials more expensive. However, the flip side to both of these points would be that the export duties on British products to Europe would likely lessen demand, damaging companies who rely on their European clients to survive.

The British steel industry has also been an oft discussed subject, with many believing that some of the money the government will save by not being a member state could be invested back into our struggling steel industry. Whilst this is feasible, with cheaper steel available from China, it is unlikely that the government will see this huge investment as a priority, or want to rock the boat on this trade deal.

Infrastructure and funding

In 2015 alone, the European Investment Bank invested €7.8bn into infrastructure projects in the UK. In the same year, the European Investment Fund lent €665.8m to UK SMEs. The EIB covers a multitude of platforms, including energy, urban development, transport, education and health, and agriculture, whilst the EIF supports SMEs with access to funding. Without access to these funds, it is unclear how the UK will continue to fund ongoing projects such as HS2 or smart motorways. As with the steel industry, it would be easy to look to the government for support, but as they are continually cutting funding to infrastructure, it seems very unlikely that relief will come from parliament, meaning funding to the tune of billions of pounds per year must be sought elsewhere.

Finally, we come to the ‘red tape’ and the argument of many that a decision to leave the EU was one which would mean freedom of choice and rule making for Britain. Unfortunately for them, it seems highly unlikely that anything will really change in terms of regulations, and certainly not in the short term; the EU have been our long-term allies and will remain our closest neighbours regardless of how we Brexit. We simply cannot begin breaching EU compliance and burning those bridges overnight if we are to have any hope of the British construction industry surviving.

The important thing throughout the coming months and years is to remain positive, and to both build on these existing relationships with our European neighbours, and maximise opportunities elsewhere. The UK building industry has suffered hardships before and has always come back fighting, and Brexit need not be any different. Futureproofing is key, and as an industry we must make smart, strong decisions which will allow minimal disruption, and maximum stability.

Whilst we cannot be certain of exactly what Brexit will bring, there will certainly be change; it is up to us to make that change as positive as possible.

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