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Brexit’s effect on construction: What we know so far

Noble Francis

It’s a year since Theresa May wrote to European Council president Donald Tusk and triggered Article 50, giving the UK two years to leave the EU.

With another 12 months left on the Brexit clock, it’s worth looking at what progress has been made and the critical outstanding issues for construction.

First, the good news

On the bright side, the UK government has finally agreed a 21-month implementation period with the EU after Brexit next March, which effectively keeps most things the same until the end of 2020. This is vital to ensure firms have the time they need to invest in changing their business models to suit the post-Brexit environment.

The prime minister has stated that the UK may stay in agencies that are overseen by the European Court of Justice, which implies that we could remain a part of the European Investment Bank (EIB), which is important given our reliance on the EIB for infrastructure funding.

Muddled thinking

We are also now getting a clearer picture of what Mrs May is looking for from Brexit. There isn’t really a precedent for a prime minister intentionally leading the country down a path she doesn’t believe in, and one she expects is likely to make the country worse off.

She’s effectively caught up in an existential quandary and so it’s no wonder she hasn’t looked ‘strong and stable’, particularly since the general election last year.

The prime minister appears to be looking for a Brexit that is as close to being in the EU as possible without angering hardline Brexiteers too much. However, what this means in practice is another matter.

“People have focused on whether EU workers here will suddenly all leave, but the long-term issue is how we get additional workers to come here after Brexit”

It’s easy for the prime minister to say “free movement of people will end”, yet “businesses across the EU and UK must be able to attract and employ the people they need”. How you square these two remains a key unknown.

The effect on skills and labour

Construction already has a skills shortage despite EU workers and free movement of labour, never mind what will happen once you put barriers in the way.

In Q4 2017, 67 per cent of contractors stated they had difficulty recruiting bricklayers and 50 per cent had problems recruiting carpenters and joiners, according to the CPA Construction Trade Survey published in February. Contractors also reported they found it hard to find enough good-quality roofers, plumbers, site managers, planners and civil engineers.

The reliance on EU labour is highest in London, where almost half of construction employment is from the EU.

People have focused on whether EU workers here will suddenly all leave, but the long-term issue is how we get additional workers to come here after Brexit. Even if it just means a work permit, there will be a financial and admin cost to bringing foreign workers in.

This isn’t a big problem for major companies but 84 per cent of employment in construction is in small firms, which don’t have the financial and admin resource to deal with this. In addition, this is likely to be exacerbated by the age-demographic issue among the UK-born construction workforce, from which we are likely to lose 500,000 workers to retirement in the next 10 years.

All this in a time of low unemployment across the UK economy.

Trading with the EU post-Brexit

In terms of trade with the EU, it has been interesting to follow Mrs May’s commentary.

The prime minister has said there will be “as frictionless a border as possible” after 2020, the UK will not be a part of “the” customs union but possibly be part of “a” customs union, and that the government doesn’t “want to see the introduction of any tariffs”.

However, tariffs aren’t the key concern, as those on construction products are relatively low. The main worry is non-tariff barriers: products being stopped at the border and drivers being checked will take time.

How you make trade relatively “frictionless” remains a crucial unknown for products trade, given the long delays at the Turkish-EU border and even between Norway and Sweden.

Technology isn’t going to be a panacea and if it was, these countries would have implemented it by now. And that’s even before we get to the political issues around the Irish border.

Businesses across the industry need to be thinking about the skills and trade issues now, informing government what they need and investing in changing business models to deal with potential hindrances post-Brexit.

Professor Noble Francis is economics director at the CPA

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