Last edited 16 Aug 2016

What does Brexit mean for construction?



[edit] The result

As the United Kingdom wakes up to the news that the electorate has voted to leave the European Union, many will be wondering what the implications could be for the construction industry.

The industry, throughout the campaign, had displayed mixed views on the prospect of Brexit, with particular concern about how it might affect the skills shortage, the import and export of materials, and regulations and standards.

A survey undertaken by Smith and Williamson prior to the referendum, found that only 15% of construction executives favoured a UK exit from the EU.

Lord Bamford, the chairman of JCB, was an oft-cited voice for the Leave campaigners, as he was convinced that a Brexit would reduce the costs of bureaucracy so much that any additional costs of leaving the EU would be easily covered.

The industry must now come to terms with the reality of the UK's departure from the European Union. But what are possible implications?

[edit] Skills shortage

The construction industry relies heavily on foreign migrant labour for skilled and non-skilled roles. It is feared that outside of the EU, which guarantees the right to free movement, the skills shortage could worsen. If immigration is limited, particularly for skilled workers, the UK could witness higher project costs where labour demand outstrips supply.

This could have a knock-on effect on the capacity of housebuilders to meet the government's housing targets, with cost increases possible for the housing market and construction companies. This further decline in housebuilding could deepen the housing crisis especially in London.

Alternatively, if global investors start to take their money out of the UK property market, this could lead to a reduction in prices and free up investment properties that are currently sitting empty.

[edit] Import and export of construction materials

As well as the free movement of people, membership allowed for the free movement of goods within the EU, eliminating duties and other restrictions. This benefited construction. A 2010 study by the Department for Business Skills and Innovation estimated that 64% of building materials were imported from the EU. The same report estimated that 63% of building materials were exported to the EU. With Brexit, importers and exporters may now face duties or limits on quantities, which could lead to a shortage of construction materials or an increase in costs.

However, Brexit could allow UK public procurement to stipulate the use of 'UK firms and materials only', supporting UK-based and enterprises.

It is unclear whether Brexit might enable the UK government to impose tariffs on cheap steel imports from China that have led to the decline of the UK's steel industry. Historically, UK governments have not been in favour of propping up industries in this way, and there is always the potential for retaliation from affected countries.

On the positive side, the UK may be able to negotiate and develop its own trade agreements with the EU and other large importing companies, such as China and the USA.

[edit] Red tape

The general perception is that Brexit could result in a removal of the extensive red tape mandated by the EU. However, it is important to note that Brexit will not result in the breaking of all ties between the UK and EU. Whatever model is adopted, it is almost certain that a condition of a trade agreement with the EU would be compliance with existing trading standards.

An EU Referendum debate held by UCL and The Edge on the effect on the environment and climate change, made clear the overriding opinion among experts was that Remain was the preferred decision.

[edit] Infrastructure

As a member of the EU, the UK had access to the European Investment Bank (EIB) and the European Investment Fund (EIF). Together these institutions had invested €7.8 billion in major infrastructure projects, and lent €665.8 million to SMEs, respectively, in 2015. Losing both these revenue streams could have a significant impact on the delivery of big infrastructure projects such as High-Speed 2 (HS2) as well as start-ups across the UK.

Whist this may be replaced by some of the money saved from EU membership, it seems unlikely in the face of ongoing cuts to government spending that this would be invested in infrastructure.

What are your views? Click Add a comment at the bottom of the page and let us know.

[edit] Find out more

[edit] Related articles on Designing Buildings Wiki

[edit] External resources


Bear in mind that changes to any EU trading agreements involving labour or materials will not come into effect until 2019 or even later if the EU wish to extend the negotiations. What might have a more immediate effect is market perception that devalues sterling and UK inward and domestic investment decisions.

There will be many people in the industry who will be glad to see the end of the obligation to advertise forthcoming public sector commissions in OJEC . The procedure has cost unnecessary delays and additional cost to many projects.

This may give many in the UK Construction Industry the impetus to start apprenticeships or increase the number of apprenticeships, to overcome the skills shortage.