How could Brexit affect the UK's construction industry?

The UK’s European Union referendum is proving to be a hugely divisive topic with the population split between leaving and staying. A potential Brexit on June 23 could have far-reaching consequences throughout almost every aspect of life from house prices to immigration policies. But what would leaving the EU mean for the construction sector? Those working in the industry give Builder & Engineer magazine their views.

THE GENERAL OPINION

At the beginning of the year a survey by financial group, Smith & Williamson, revealed only 15 per cent of property and construction executives in the UK favoured an exit from the EU.

This seemingly demonstrates support for the remain campaign from the construction industry, suggesting the business interests of those included in the survey has influenced their decision, explains Paul Manchester, director of construction site suppliers Manchester Safety Services

The survey suggested confidence in the industry is at an all-time high, and executives are keen that the careful balance of growth and prosperity is maintained.

"A radical decision, such as leaving the EU, could upset this balance and inhibit the growth and confidence within the industry," says Manchester.

"Uncertainty surrounding the global economy, taxation and access to funding could remove a layer of security from the UK’s construction industry. This potentially could lead to an increase in conservatism practiced by construction executives, unwilling to take risks in an unknown financial landscape."

There are few within the construction industry supporting the leave campaign. However Lord Bamford, chairman of JCB, suggests that leaving the EU could be beneficial, labelling the sentiments to remain as ‘scaremongering’.

“I think it would be, because I really don’t think it would make a blind bit of difference to trade with Europe. There has been far too much scaremongering about things like jobs. I don’t think it’s in anyone’s interest to stop trade. I don’t think we or Brussels will put up trade barriers. It’s a burden on our business and it’s easier selling to North America than to Europe sometimes.”

ACCESS TO LABOUR

The free movement of labour between the UK and other EU member states is a valuable asset to the construction industry – with a significant number of skilled and non-skilled roles filled by non-UK nationals.

The construction industry accounts for around three million jobs in the UK (10 per cent of total employment), and a significant number of these professionals are from other EU member states.

"If the UK were to leave the EU, skilled construction workers who would previously have considered coming to the country for work may find it easier to find work in France, Germany or Spain,” explains Manchester.

Freedom of movement is seen by many to be at the very cornerstone of the UK construction industry’s success, accommodating the combination of a varied selection of skills in this multi-discipline environment.

Mark Webb, chairman of the property and construction group at Smith & Williamson explains: “When considering that the key components of the sector are also cornerstones of the EU, access to labour and flexible working, it is less shocking.

"The survey highlights the concern within the industry that should a Brexit happen there is a very high likelihood of access to labour declining as margins are squeezed.”

Glasgow Roofing Service's director Jamie Wood also fears that if immigration laws change it would leave Britain worryingly short of tradesmen in the construction and housebuilding sectors.

“Why would workers struggle across to Britain with strict emigration laws?” he asks.

Paul Payne, managing director of construction and rail recruitment specialist One Way, expects support from specialist professionals across the EU to become more difficult, potentially slowing down project timelines and stalling completion dates.

“Our construction workforce could miss out on gathering new insight and skills from their EU counterparts. In a field where new developments and green initiatives impact the way we work, the ability to gain experience from across the continent is hugely beneficial in staying ahead of the curve,” he says.

Wood also expects the cost of labour to rise and for small contractors and business owners “this is a worrying notion,” he says.

The current cost of construction has increased by average eight per cent on labour cost in the last six months and is set to keep on rising, explains Monika Slowikowska, founder of Golden Houses Developments.

“By leaving the EU, we predict that this could increase by an extra 15 to 20 per cent,” she says.

Being part of the EU also has a positive effect on science and engineering according to Dr Rod Wilson, director of engineering at Trolex, who fears an exit decision will mean a significantly weaker UK sector.

“The UK is a very attractive place for scientists and engineers to work and this greater pool of talent in the UK drives competitiveness, growth and creates more of the high value jobs we want in the UK. The quality of our design also significantly benefits from the cultural awareness that is brought by having more culturally diverse design teams.”

However, some supporters of the leave campaign will suggest that splitting from the EU could benefit UK workers. Without the competition of construction workers travelling from the continent, UK professionals may have access to a bigger selection of roles in the construction industry.

ACCESS TO RESOURCES

Similar to the freedom of movement for labour, the EU can simplify the process of importing resources, tools and materials from other member states, explains Manchester.

As the construction industry grows increasingly varied and progressive, the materials, tools and techniques used continue to diversify.

"Following the model of Switzerland by remaining within the single market, but outside the European Economic Area, the UK may be forced to forge new trade agreements. Without the clout of other EU member states behind the UK, dealmakers may find it hard to secure agreements with favourable terms. And this could have huge knock-on effects upon the industry, potentially increasing the cost of resources, tools, materials, and subsequently, projects," says Manchester.

"A restriction on materials and resources could lead to higher acquisition costs. This would subsequently increase the cost of professional construction services. The impact of this change would affect those working within the construction business, and also any homeowners/businesses/organisations looking to employ any such services.”

Slowikowska agrees that a UK that’s not part of the EU becomes more difficult for the 27 members to invest in and do business with.

“Once out, we’ll need to negotiate new arrangements with the 27 countries – either collectively or individually – and it could take several years,” she says.

HOUSEBUILDING AND THE ECONOMY

Andy Hill, chief executive at housebuilders Hill, believes a Brexit would have severe consequences for the property industry and economy in general.

“It is widely acknowledged that we need to build more homes more quickly, with more than one million required by 2020. Without investment coming into the UK at current levels however and demand diminishing significantly, developers would likely pull away from building more homes and this figure will be incredibly difficult to meet."

While Jacqueline O’Donovan, managing director of O’Donovan Waste Disposal, is concerned that if Britain leaves the EU, there will be a huge amount of uncertainty within the construction sector as “we try to figure out what the decision means for our industry”.

“There will be an impact on investment if we leave the biggest trading union in the world. There will be a knock on effect discouraging companies investing in safety technology for their fleet and training for their drivers which is vital for the industry to grow and thrive. There is also worry that the exit will see firms slashing their prices and cutting corners as the work reduces and companies are fighting to get any work that that is available,” she says.

Kalpana Padhiar, risk underwriting manager and construction specialist at global credit insurer Euler Hermes, argues there is already a concern that the sector is struggling to pick up momentum because it is worried about the referendum.

“The growth forecast for construction has already been downgraded three times in the last six months as inflating input costs and lingering low margin, legacy contracts, together with global economic headwinds, continue to take their toll. Housebuilding and commercial, past star performers in the sector, have both seen output drop since the end of last year.”

Matt Ainscough, CEO of Wigan-based national engineering company Ainscough Industrial Services (AIS), believes there is simply too much at stake for the UK to leave the EU.

“A vote to leave would seriously risk jeopardising the expansion and commercial viability of UK engineering companies like AIS, currently thriving by supporting manufacturing projects on the continent,” he says.

“As a national integrated engineering services provider we provide a full suite of specialist operations on projects at home and across Europe coordinated from our 10 UK bases. A decision to sever the UK and Europe’s invaluable close relationship would present serious logistical challenges and could potentially impact AIS’s competitive market positioning.”

LOSS OF EU FUNDING

Perhaps the most damaging effect of Brexit would be the loss of EU funding and “closing the door on access to these funding streams would have a very negative impact on UK innovation,” says Wilson.

Funds, such as the European Structural Investment Fund (EUSIF), European Regional Development Funding (ERDF) and Joint European Support for Sustainable Investment in City Areas
(Jessica)
have proved invaluable to the UK, explains Slowikowska.

“Examples include the €755 million committed to the North West between 2007 and 2013, a £24 million contribution to a £50 million regeneration fund for Scotland in 2011 and a similar investment in Wales. The list goes on, extending to most of the major regeneration and social housing retrofitting schemes around the UK. In fact, we’re one of the EU’s biggest net beneficiaries of these funding schemes. Leaving the group means disqualifying ourselves from this incoming investment,” she says.

PROTECTION OF WORKING CONDITIONS

The EU labour law provides plenty of the rules and regulations regarding working conditions practiced in the UK. Working hours, health and safety, and posting of workers are just a few of the important areas covered by EU labour law.

“Whilst many of the regulations and restrictions will be kept in place should the UK leave the EU, changing standards could lead to potential exploitation – with cowboy traders open to taking advantage of any uncertainty,” says Manchester.

“EU officials in Brussels have set the standard for human rights and equal opportunism. Whilst the union is sometimes derided for its overzealous approach to regulating everyday life and business; many of its policies have drastically improved the standard of living and working in the UK.”

CONCLUSION

The knock-on effect of an exit could be dramatic, with the cost of services potentially increasing and the speed of new jobs slowing, explains Manchester.

“Not only would the construction industry be affected, but so would those who are reliant upon the services it provides. From first-time property buyers to large corporations; the impact could be immediate, and significant. The EU may not be perfect, but a reactionary vote to leave could cause a high level of damage which may take years to resolve,” he says.

Wood agrees: “We would be the first-ever country to leave the EU, we have no blue print to base it on and if we are going on hope and nostalgia alone, for me this isn’t enough.”

However, as Payne argues, it is almost impossible to predict exactly what would happen should a Brexit occur until it actually happens. “We’ll simply have to wait and see,” he says.

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