25 Feb 2020 6 min read

How BREXIT Affects The Construction Industry In The UK?

 

After being a part of the European Union for 47 years, the UK left. What are the consequences of leaving the EU? What does that mean for the construction industry?

On the 23rd of June 2016, after a referendum where 52% of the population voted to leave, the United Kingdom withdrew from the European Union. The leave was delayed by a deadlock in the UK Parliament but… it happened: the UK left the EU at 11 PM GMT on the 31st of January 2020, 47 years after it joined.

So long, Farewell EU

Leaving the EU will take its toll on the British construction industry and effects have been present ever since the June 2016 referendum. The construction industry sector has been affected by an increase of 13% in the number of businesses that are in significant financial distress between Q4 2018 and Q4 2019. It is the highest increase in year-on-year measures by the Red Flag Alert research: 53 159 businesses in the construction sector are considered to be in great financial trouble! Propriety investors have falling investments as well - 7% more companies suffer when compared Q4 2019 vs Q4 2018 - that is 13 686 companies! Housebuilders are affected as well - 4% increase: 6360 companies affected… and the list continues to grow!

EU Migrant Workers and Labour Shortage

Brexit has caused significant insecurity and it will prevent companies from investing. Changes on the market will continue to affect the UK construction industry and with a labor shortage problem (that the UK faced even before Brexit), with 28% of London’s construction workers coming from EU countries, the United Kingdom faces great issues. (The BuildUK Position Paper states that around 10% of the construction workforce are non-UK nationals and in areas such as London, migrant labor can make up to 50% of the workforce).The right of free movement and working long term on the UK land will be an issue now for the EU workers if the UK government does not move forward with an immigration policy favoring the workers that are “highly skilled”. If the UK will need people for the Construction industry (and it’s most likely that it will) the Government must provide policies that would let the construction workers move freely and the Construction industry must think long term and join in companies that have training initiatives aimed at building the workforce the UK needs:

School Leavers Training Course - Illustrious Homes have teamed up with Camden Council to put together training courses aimed at School Leavers who are interested in a career within the construction industry.

Women in Construction Trainings - real training opportunities (several per year) for the local residents, powered by Kunle Barker & Illustrious Homes

National Apprenticeship Week - a joint project by Kunle Barker & Illustrious Homes, Building Lives, Lakehouse to renovate a local community center in Camden using local Apprentices

EU Materials and the costs skyrocketing

Due to the UK leaving the EU, not only the free movement of workers will be blocked but also the free movement of the materials. The free movement of goods imported from the EU will become an issue. The Department for Business, Innovation and Skills (current Department for Business, Energy & Industrial Strategy) declared that, in 2017, almost ⅔ of the building materials used in the British construction industry were imported from Europe! Even if the construction industry would focus on the manufacturing of British goods and replacing the import by using local products, this does smell like trouble for many UK builders on the market. The BuildUK Position Paper states “the UK imports £4.9 billion more building materials and components from the EU than it exports. Around 15% of all manufactured construction products consumed in the UK are imported from the EU and currency fluctuations have a significant impact on project costs”.

Builders are unable to meet Government housing targets!

The combined trouble of labor shortage and the problem with the free movement of materials coming from the EU come as domino blocks falling one on top of the other and start also the housing crisis. The British construction industry is already affected by Brexit and the effects remain to be seen also in the long term. After the 2019 election and Boris Johnson’s election win, there are certain things that the population expects to happen:

Fulfilling the pre-election promises - in the December 2019 Queen’s speech Boris promised to “implement the biggest infrastructure revolution in living memory”. He also promised a 100 billion pounds “infrastructure revolution” for both road and rail (just as an example, the railway projects such as HS2 and Crossrail). Resolutions are needed also for the Heathrow Airport - the Prime Minister promising to lie down in front of the bulldozers, in order to stop the creation of a new runway. Desperate times call for desperate measures…?

Free migration for the construction workers - large construction sites need large numbers of workers on the field, so having construction workers from abroad is almost a must! The migration of construction industry workers benefits both sides and the flow of such people should remain undisturbed. The Prime Minister will need to deliver working criteria that the EU workers must follow, in order to work inside the UK post-Brexit.

300 000 houses/year - The National Audit Office says the previous government failed to build any of the 200,000 Starter Homes promised in 2015, despite election pledges to do so by the mid-2020s. This means that the Conservatives must focus strongly on housebuilding. The Prime Minister must also focus on using (as promised) the Modern Methos of Construction (MMC) that will allow him to solve the affordable housing crisis. Shelagh Grant, chief executive of The Housing Forum, commented: “The guide challenges the myths surrounding procurement, contracts, and costs, to help public sector organizations assess the business case for MMC, armed with accurate information. MMC will help the government meet its commitment to deliver 300,000 homes a year, but also benefit affordable housing providers and its tenants. Using MMC effectively will future-proof the housing supply. It leads to faster build times, minimizes disruption to communities, and there are fewer defects, providing consistent quality better as-built performance.”

Prevention of late payments - When you are a small company serving a bigger business that has poor payment practices, all goes downhill… Federation of Small Businesses national chairman Mike Cherry said that late payments and poor practices lead “to the closure of 50,000 small businesses a year”.

The DEAL needed ASAP! - 5 major construction trade bodies: Build UK, Civil Engineering Contractors Association, the Construction Products Association, the Federation of Master Builders and the Association for Consultancy & Engineering wrote to Boris to warn him a no-deal Brexit could cost construction 12 billion pounds. A Deal is needed to make sure the future of the British construction industry still stands.

Prime Minister Boris Johnson recently (ambitiously) promised that his government would ensure 1 million new homes are added to the national housing stock by the end of the current Parliament. A recent survey conducted by the NHBC Foundation found that 20% of companies considered the availability of funds their biggest concern for the future - let’s hope that the UK Prime Minister will manage to fulfill his promises.

EU Investment has gone = cutting funds

The House of Lords EU Committee 25th Report of Session from 2017-19 states that the UK benefited from 7,8 billion pounds worth of investment in major infrastructure projects from the European Investment Bank and the European Investment Fund. Besides that, on a yearly basis, these institutions lend over 500 m Euros to British SMEs. Even if, as some have suggested, the EU membership fees (that the UK no longer has to pay) would be redirected towards housing projects, that would not be enough still… Having huge infrastructure projects (like HS2 and Crossrail) will not happen unless significant investment is attracted. This is why the EU and the UK need to forge a new partnership, and fast!

Oddly enough, none of the Construction industry bodies were present during any of the Brexit summits organized. None were invited to the meeting with the cabinet minister Michael Gove on the eve of Brexit happening when regulations and border issues were to be discussed. Nobody from the National Federation of Builders (NFB), the Construction Products Association (CPA), the Federation of Master Builders (FMB), Build UK, the Construction Leadership Council (CLC), nor the Civil Engineering Contractors Association (CECA) were invited.

National Federation of Builders CEO Richard Beresford said: “We hope this oversight is a symptom of Brexit fatigue because the next 11 months will be key to delivering policies and ambitions that work for industry, the UK and our economy. The NFB has always had a great relationship with ministers who needed construction input, for example, when forming biodiversity net gain policy, and we hope that the government gets back to seeking engagement, as soon as possible”.

FMB chief executive Brian Berry: “It is very disappointing that no one within the government felt the need to invite the construction industry to Michael Gove’s meeting to discuss borders and regulation. Britain’s economic success will depend on having a thriving construction industry that is able to deliver the infrastructure and housing that this country needs to compete in a global market.”

There were reports stating that Brexit will bring no issues other than the migration of workforce - foreign labor. That is a gross misunderstanding, especially as several large construction companies have started stockpiling materials from the EU - afraid of losing access to them due to Brexit (eg. Galliford Try started stockpiling ahead of the original Brexit date of 29 March 2019).

The fact that the British construction industry bodies were not present to the discussion does not bode well. We are looking towards the future with great anticipation as we wonder what Brexit challenges (new ones!) the future will bring.
What is your opinion on this matter? How did Brexit affect your construction or manufacturing business in the UK? We would love to hear your thoughts on the subject in the comments section below!

 

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