What Brexit may look like for the UK Construction Industry

31 March 2016

With the 23 June fast approaching, we have taken a look at some of the hot topics that may have an influence on the construction industry.

Exchange Rates

The announcement of the EU Referendum alone was enough to have an immediate effect on the value of the Pound compared to the Euro. This has impacted particularly on businesses that operate both in the UK and the wider EU. For example, those businesses that are paid in the pound and proceed to convert to Euros are currently missing out on 20 cents per pound, compared to the 12 month high. This rate may normalise following a vote either way, but the costs (or benefits) associated with the fluctuating exchange rate must certainly be considered.

Labour

Immigration is a topic that many people seem to be particularly passionate about when it comes to the UK’s EU membership. A common argument is that by allowing other EU nationals the right to work in the UK, British people have a restricted access to jobs. The reality is that there simply are not enough skilled or unskilled British workers to fill the demands of the construction industry. A recent CIOB report estimated that 9.6% of construction workers in 2011 were born outside the British Isles.

Taking the reasonable assumption that a fair proportion of this percentage are EU citizens, a vote to leave could have the effect of making other countries more attractive to labourers if access to the labour market was less restrictive. If the amount of construction workers does decrease, the capacity of house builders is also likely to decrease (or at least their costs will increase). This could be detrimental to the housing market and in turn those construction companies that operate in it.

However, it is important to note that many companies who import workers to the UK for construction purposes also operate in other countries around the globe. They are likely to have experience in dealing with issues similar to those they may face in getting workers into the UK following a potential exit. In addition, companies may be willing to suffer a short term drop in quality of work by training people from the UK in the requisite skills. This may mitigate some of the losses suffered through no longer having straight forward access to the EU’s workforce.

Materials

Much of the general public are well aware of the EU principle of the free movement of people. However, perhaps less people are aware of the free movement of goods which eliminates customs duties and quantitative restrictions. Like any other industry in the UK, construction benefits from this principle. In 2010, the Department for Business Skills and Innovation estimated that around 64% of all building materials were imported to the UK from the EU. Not only that, but the same report estimated that 63% of our construction material exports were to the EU.

A vote to leave could leave importers and exporters potentially facing heavy duties or limits on quantities. As with labour, this will either mean a shortage of materials in the UK, or that it will simply cost more to get hold of the materials that the industry needs.

Less red tape

A common perception is that the UK is subject to a lot of red tape from the EU, which makes it difficult for businesses, especially small ones, to keep their operations legal. An example of this in the construction sphere is that by 2020, all construction in the EU must be “near” zero carbon standard, which no doubt would be an onerous obligation.

Whilst there is truth in the statement that a lot of our legislation comes from the EU, it is important to note that EU legislation is incorporated fully into UK law. Any past measures from the EU will remain part of our laws even if Britain does leave the EU, unless the government repeals such laws.

It is important to note that a vote to leave will not sever all ties between the UK and the EU. A free-trading arrangement may be negotiated in an exit scenario which could have the effect of allowing the UK access to the free movement of people and goods mentioned above. However, it is almost certain that one condition on the UK being part of such an arrangement would be compliance with EU trading standards. In this situation, not only would the UK have to comply with the same standards that it is subject to today, but it would also have little or no say in setting the standards in the first place, meaning the same red tape but with less of the benefits.

The points above are just a small selection of factors that would be affected by Britain leaving the EU. However, they do serve the purpose of highlighting just how far reaching the benefits and burdens of our membership in the EU are.

Blog by Brandusa Tataru-Marinescu and David Kingsford. 

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