10th October 2018
Brexit and Construction: What Will it Mean for Your Business?
At the time of writing, we don’t know what form the Brexit deal between the UK and the EU will take, or if there will be a deal at all - and nothing will be acknowledged until everything is agreed. We do however have some information regarding the draft agreement. For construction, the key points are:
- EU citizens living in the UK can apply for settled status which will allow them to continue to live and work in the UK post-Brexit (assuming their applications are successful)
- There will be a two year transition period where the UK maintains membership of the single market and customs union, while respecting the EU’s rules.
- Any EU citizens who arrive in the UK during the transition period will have the same rights as those who arrived before the transition period started.
In a no-deal scenario, the latter two points would not apply - there would be no transition period. On the other hand, it appears that settled status will still apply if there isn’t a deal.
Many of us are fed up with hearing about the Brexit negotiations, but the fact remains that their outcome will have vast impacts on the UK construction industry, and almost every contractor and subcontractor that plies their trade in the UK.
The main concern in the UK construction industry is that Brexit will significantly worsen the already harmful skills shortages in construction. In London, more than a quarter of construction workers are EU27 nationals, while in the rest of the UK one in 14 of workers are non-UK EU citizens.
The non-UK proportion of the construction workforce is also significantly younger than British construction workers, with only 18% aged 45 or older, compared with 47% of UK construction workers.
Whilst EU citizens who currently live in the UK may apply for settled status and stay post-Brexit, there are concerns that many will choose to head back to mainland Europe. Additionally, with the government keen to end freedom of movement, it’ll be vastly more difficult to source new EU workers in the future.
As the labour supply shrinks, costs will rise. The government is investing more money into apprenticeships and other routes into construction, but it’ll take time for this to boost labour supply.
Contractors should therefore prepare for rising labour costs.
Supply chain problems
Experts estimate that around 20% of UK construction materials are imported. If there is no deal (and no transition period), expect the value of the pound to fall significantly. This will lead to a significant spike in prices for key materials such as wiring, lamps and fittings, and wood. As freight gets held up in queues at Dover and elsewhere, the supply of imported items will also become less reliable. Expect significant delays in deliveries in the initial days after no-deal. Stockpiling materials is unlikely to be a realistic solution for most small contractors. Instead, try to switch to alternative UK-based suppliers - at least in the short to medium term.
One of the most commonly mentioned benefits of Brexit is the ability to cut red tape once we’re outside of EU rules. This could help cut costs for the construction industry and its suppliers. However, with EU regulations expected to initially be translated directly into UK law, any regulation changes will take place in the medium to long term. Pay close attention to news from construction trade bodies like the FMB and CITB to stay informed about any potential regulation changes that will affect your business.
With no-deal looking increasingly likely, construction businesses need to start planning for disrupted supply chains and a weakened pound. The impact of rising labour costs is likely to be less immediate, but no less damaging in the long term. Now’s the time to identify areas of inefficiency within your business, to reduce your exposure to risk and give your company a strong foundation from which to weather the storm - and grasp any opportunities.
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