Construction clients and contractors join politicians in assessing what the vote to leave the EU will mean for the sector both now and in the long term.
23 June proved that one of the world’s most hackneyed sayings – ‘the bookies are always right’ – is wrong.
Bookmakers across the country – and their punters – spent the months before the in/out EU referendum playing down or, in some cases, ignoring fluctuating opinion polls. They always had Remain in the lead, even when the Leave campaign was building what many Europhiles feared was an unstoppable momentum in the first half of June.
A quick glance on Oddschecker.com on the day before polling showed that most of the bigger bookies had Remain as heavy odds-on favourite, with Leave as far back as 3-1 – a huge disparity in a two-horse race.
But Leave has triumphed, which senior Brexiteer and leader of the Commons Chris Grayling estimates will trigger about three years of negotiations on a new trade settlement with the EU. He believes the UK’s membership will end by the 2020 general election.
The Leave camp has rejected claims from Remainers, notably chancellor George Osborne, that the vote will result in a 12-month recession and the loss of up to 820,000 jobs over two years.
Boris Johnson, the charismatic face of the Leave campaign, has even vowed to apologise on television if Brexit results in two or more consecutive quarters of negative growth.
What is for certain is that the way the economy is structured will be transformed by this new-found ‘independence’, whether that means, pessimistically, restricted access to the single market of 500m people or, on the upside, being able to strike trade deals with the rest of the world.
Whatever happens now will have a huge impact on construction, which is one of the most economically sensitive sectors in British industry. Construction News has contacted a range of contractors, clients, politicians and infrastructure experts to analyse what Brexit means in the key areas of skills, costs and projects.
Leave’s trump card was arguably immigration through the EU’s free movement of labour. These citizens will face tougher entry criteria as a result of Brexit. It was recently found that if they were subjected to the same tests as immigrants from the rest of the world, about three-quarters of UK immigrants would be rejected for visas.
That proportion was reflected in the construction industry, which has become so reliant on Eastern and Central European labour.
During the campaign, Barratt Developments chief executive David Thomas noted that 30-40 per cent of his workforce came from mainland Europe, adding that “it wouldn’t be unusual to find 10-plus nationalities on a London construction site”.
“As I walk down my street and people are having their domestic work done, all I hear are Eastern European voices. I just don’t know who’s going to build stuff now”
Paul Morrell, former chief construction adviser
The Royal Institution of Chartered Surveyors highlighted that, even with all this EU labour, there is still an acute skills shortage, resulting in a 6 per cent increase in the sector’s wages last year – three times the increase across industry as a whole.
Paul Morrell, who was the government’s first chief construction adviser from 2009 to 2012, says: “As I walk down my street and people are having their domestic work done, all I hear are Eastern European voices, particularly Polish, and they’re highly skilled. I just don’t know who’s going to build stuff now.”
Mr Morrell estimates that economic uncertainty could last anywhere between two and 10 years, which reflects the dangers of lengthy negotiations and the time it will take for new trade deals to bed down.
In the short term, he highlights the “huge political fall-out” that will ensue. This is expected to include attempts by Conservative eurosceptics, fuming by what they consider to be David Cameron’s overly aggressive tactics during the campaign, to topple the prime minister and replace him with a prominent Brexiteer.
On a more positive note, some in the industry are confident that direct political consequences will not be overly severe.
Severfield chief executive Ian Lawson says that, even if the EU chooses to raise tariffs on steel to Britain, prices will be relatively unaffected, as the likes of Severfield will still be able to obtain inexpensive product from other countries.
He also points out that steel is more of a specialist area and his firm’s factories benefit from being in regions such as Teesside, which is close to areas where there are plenty of workers available from complementary industries such as shipbuilding. Mr Lawson believes any skills gap will be noticeable in core trades, such as bricklaying.
But Mr Lawson is concerned commercial jobs in London that are currently in the planning process could be delayed or cancelled. “Will people be prepared to invest when there is such uncertainty around the economy?” he ponders.
Ian Lawson chief executive Severfield
Keltbray managing director for road and rail infrastructure Phill Price says many projects in the capital have already been on hold for 9-12 months while investors awaited the referendum outcome. He also thinks the UK will struggle with the economic instability created by Brexit because it has not yet recovered to full strength following the recession.
“The chancellor warned of a recession and I can certainly believe that,” Mr Price says. “The experts are saying that public spending will reduce and the principal issue is that Brexit will cause instability in the workplace.”
George Osborne took one of the biggest gambles of the campaign by announcing that Brexit would mean the need for an emergency Budget.
”There’s going to be uncertainty and consequences – particularly for housebuilding – of filling that £30bn black hole”
Sir Terry Morgan, Crossrail
Leavers derided this as a ‘punishment Budget’, while Labour, although ostensibly on the same side of the EU argument, said it would vote against measures that would include £30bn of spending cuts and tax rises.
The gamble is thought to have put his job at risk, but plenty of people in the industry believe the economic uncertainty caused by Brexit will necessitate those very measures, despite Mr Osborne ruling it out before a new prime minister is named in September.
Crossrail chairman Sir Terry Morgan says: “I want to know what Mr Osborne meant by an emergency Budget – given the cuts he’s talking about, that would have to have an impact on infrastructure. There’s going to be uncertainty and consequences – particularly for housebuilding – of filling that £30bn black hole.”
In an article for website WriteYou on the eve of polling, housing minister Brandon Lewis gave much the same warning: “We saw housebuilding fall as low as 88,000 homes [a year] before Labour lost power in 2010 and we are now back up at around 180,000. We need to continue that growth to get where we want to be.
”I think there’s a danger of projects being postponed and I will be asking ministers what will happen to them”
Louise Ellman, transport select committee
“The trajectory is good and the sector itself has been clear we can do it, but – and it is a big but – we need stability. We need economic growth and we need skills – for all of this we need to remain in the EU.”
The future of projects
Transport select committee chair Louise Ellman says she will demand answers from the government about the future of schemes over the coming weeks.
She tells Construction News: “I’m certainly concerned about the economy and infrastructure investment. I think there’s a danger of projects being postponed and I will be asking ministers what will happen to them.”
Richard Threlfall partner and head of infrastructure, building and construction KPMG
However, a senior figure in the Department for Transport insists that the top team, who were mainly for Remain, have not made any emergency plans to cancel or limit the scope of projects.
The source says: “Everything has been geared towards carrying on as normal. Brexit has not been mentioned at all [in terms of projects]; we just keep going on projects we’re doing at the budgets set – there’s been no discussion of cancelling in any meetings.”
“Guess what? Not much has changed. I don’t think this will stop schemes in their tracks”
Richard Threlfall, KPMG
Even KPMG head of infrastructure, building and construction Richard Threlfall, a Remain champion, says he is “not remotely wedded to the sort of scaremongering” that other Europhiles have undertaken.
“This is the biggest non-event the day after,” he says. “Guess what? Not much has changed. I don’t think this will stop schemes in their tracks, just leaving them halfway through in the middle of a field.
“The pain will be meted out slowly. Any hold-off on the development pipeline will take a while to show.”
Controversial plans threatened
Another infrastructure expert broadly echoes this argument, but adds that the government will feel even more heat on political milestones for controversial projects such as the £55.7bn High Speed 2 line.
Wanting to avoid yet more public spats, the source suggests ministers could delay the more contested aspects of such schemes.
Rob Holden chairs High Speed 1 – better known as the Channel Tunnel Railway – and is a non-executive director at the Nuclear Decommissioning Authority. He says an emergency Budget “has to” consider the scope of multi-billion-pound projects such as HS2.
But his major concern is the exchange rate: whenever Leave took a significant lead during the campaign, the pound dropped sharply, while the stock exchange was also hit.
Rob Holden HS1
Mr Holden argues that exchange rate volatility will create construction inflation, adding that these dramatic fluctuations will cause problems “for all businesses”.
It should be noted that polls suggested the construction industry, certainly at executive level, was broadly pro-Remain, so most are likely to have reacted to the result with trepidation.
However, if many of those concerns are proved to be correct, the industry could face as long as a decade struggling with a volatile economy.
Just like the bookies, electorates don’t always get things right.