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Brexit Challenges for Construction Companies Include Talent, Material, and Funding

With the precise terms of the UK’s departure from the EU still unclear, businesses have been left in a swirl of uncertainty. The construction sector will be impacted in any event, in particular due to its heavy reliance on its migrant workforce and imported materials, and a potential loss of funding. Below, we consider some of the issues in each of these areas.

Workforce

The UK construction industry depends upon EU migrant workers, both for skilled and non-skilled roles. According to figures produced by the Office for National Statistics, an average of 2.2 million people worked in the construction industry between 2014 and 2016. Of these workers, 7.5% (around 165,000) were nationals of other EU countries. In London, 28% of construction workers are from the EU (excluding the UK itself).

A departure from the EU could have a negative impact on the industry’s skills shortage, leading to higher project costs with UK workers insisting on higher wages due to demand outstripping supply.

Another concern relates to the efficacy of the replacement schemes that might be put in place by the government to allow foreign nationals to work in the UK. A new visa system would take time to implement, involve complex procedures, and could be less attractive than visa-free European countries. Construction companies could face lengthy and costly procedures to employ foreign nationals.

Materials

A 2010 study by the Department for Business Skills and Innovation estimated that 64% of UK building materials were imported from the EU. A potentially weaker pound post-Brexit would lead to increased costs of imported materials. A no-deal Brexit would also mean the UK would lose its tariff-free access to the single market, and face the imposition of duties and quantity limits – or even lack of availability.

The unavailability or increased costs of some materials could raise the question for contractors as to who is responsible for the risks involved with blown-out timelines or extra costs. Strategy and planning are vital on projects where contracts have already been agreed and which continue post-Brexit.

Funding

As a member of the EU, the UK has access to the European Investment Bank (EIB) and the European Investment Fund (EIF). In 2015 alone, these institutions invested €7.8 billion in major infrastructure projects, and lent €665.8 million to small and medium-sized enterprises. The potential loss of such funding could jeopardise future construction projects, such as High Speed 2 (HS2) and Crossrail 2 – although it could be offset if a weaker pound was to attract investment in the UK. Overall, the biggest challenge for the industry will be to present itself as an attractive investment choice regardless of the political uncertainties that dominate the delivery of Brexit.

As uncertainty as to the terms of the UK’s departure from the EU continues, businesses within the construction industry are encouraged to lean on their operational and strategic resilience in order to manage these uncertain times.