How Could a Brexit Affect the Construction Industry?

04/04/2016

A referendum on whether Britain should remain in the European Union is to be held on Thursday, 23^rd June 2016.  Britain leaving the EU (popularly known as a ‘Brexit’) could have profound consequences on all UK industries and construction is no exception.

Although the construction industry has been subdued in its comments over whether it supports a Brexit or not, a recent survey, carried out by accountants Smith and Williamson, showed that an overwhelming proportion (85%) of construction and real estate companies backed the UK staying in the EU.

Although construction companies conduct most of their business within the UK, (the industry is the country’s second most domestic focused, behind the Government), any decision to leave the EU could impact the industry in terms of:

• Obtaining a ready supply of cost-effective, skilled labour          

• Investment and funding         

• Health and safety, and environment protection standards

These areas could be affected dramatically if Britain votes to leave the EU; therefore, it is worth looking at each in detail.

Labour within the construction industry

One of the founding principles of the EU is free movement; the ability for all EU nationals to move and work freely within the Treaty states.

A ready supply of skilled labour (mainly from Eastern European countries) has helped level out skills shortages in the construction industry, with many SMEs now relying on free movement to recruit the workers needed to take on more complex projects. Would a Brexit effectively end the ability to hire cost-effective, skilled labour quickly and easily?

It depends.

David Cameron has made no secret that he wants EU immigration reduced.  However, the Conservative Government seem to be attempting to achieve this by targeting EU migrant families, by making it increasingly difficult for workers to bring dependents with them when they move to the UK to work.

Apart from the change to the income threshold required for Tier 2 workers to obtain Indefinite Leave to Remain, (from April they will need to be earning a minimum of £35,000 per year to apply), the Government is leaving business immigration relatively untouched.  The construction industry is such an important part of the UK economy (contributing £103 billion in economic output in 2014, 6.5% of the UK total), it would be surprising if the Government, especially with the world’s markets looking so shaky, would risk holding back the construction industry’s growth by strangling its lifeline to skilled labour.

It must also be remembered that even if Britain does exit the EU, free movement may be a point which the Government must concede on to retain unfettered access to EU markets.  Both Switzerland and Norway sit outside the EU; however, both countries are subject to almost the same free movement rules as the UK.

Investment and funding

Belonging to the EU provides potential EU-based investors in large UK construction projects the ability to do business without being subject to metres of red tape and bureaucracy.  If Britain was to leave the EU, would the barriers to European investment in the UK’s construction industry rise?

Some companies, such as manufacturing giant Airbus, have expressed concerns about investing in an independent UK.  Nothing hampers investor confidence like uncertainty, and uncertainty is what the UK is likely to face for many years if negotiations for a new relationship with Europe have to be entered into from June.

EU funding, of which the construction sector is one of the biggest net beneficiaries, would also be affected by a Brexit.  Although money saved from having to contribute to the EU funding scheme can be redirected into domestic projects, there is a risk that projects would cease to attract funding based on need and merit and instead be subject to the voting preferences of local constituents if the UK Government took control of funding administration.

Health and safety and protection of the environment

Many in the construction industry would welcome the chance of a reduction in EU ‘red-tape’ with regards to health and safety, and environmental law.  Exiting the EU would provide the UK with a chance to implement its own, more favourable legislation in these areas, which may help reduce the enormous costs often associated in complying with EU directives.

These cost savings may mitigate an anticipated rise in wages demanded from a tightened labour market if a Brexit was to occur.

In Summary

The points outlined above are just some areas of the construction industry that could be affected dramatically if Britain chooses to leave the EU.  Admittedly, nothing is likely to happen in a hurry, (nothing in the EU ever does), but it would be prudent for construction companies to put in place a strategy to deal with possible changes that may occur after June.