CONSTRUCTION LAW UK

EFFECTS OF BREXIT ON CONSTRUCTION INDUSTRY

Tahmidur Rahman, Senior Associate

20 September 2019

The impending effects of Brexit on Construction Industry:

 

Government statistics indicate that over 3.5 million foreign employees were employed in the UK in the final quarter of last year, two-thirds of them from the EU. “The most significant move an employer can take is to encourage any EU employee to apply for settled status and be proactive in the provision of necessary data,” Cole said.

“Settled status means that after Brexit, the rights of EU citizens living in the UK will remain the same. “Applicants will need to show that they have been settled in the UK for at least five years, so assisting them through this phase by offering ancient employment-related records, such as pay slips and letters of appointment, can be really helpful.”

In some industries, global employees presently account for a substantial percentage of the general workforce. For instance, in building, the National Statistics Office discovered that 10% of employees come from outside the UK–with that figure in London as high as 35%. Rebecca Palmer, head of building of Prettys, said that any limitation on the employment of overseas employees would be a significant challenge for the industry.

“If we were to lose our valued global employees for whatever reason, I believe it would really harm the building sector in the UK,” she said. “Inevitably, as part of our role as consulting organizations in the building sector, our team frequently engages with global employees.

“Whether its contractors, developers, consultants, subcontractors or others with whom we interact, it is evident that the strengths shown by people to deliver good projects on a day-to-day basis are not exclusive to national employees, but as prevalent (and sometimes even more so) in global employees as they are.

“The dedication, versatility and adaptability we experience is a major driver of change and we really need them in the industry.” Cole called on the government to do more to prepare businesses to deal with any shortage of post-Brexit abilities.

“Training is essential and it will certainly help to make the learning path as easy as possible. Many employers still do not use their complete distribution of apprenticeship tax and the government could do more to promote this, “he said.

Palmer added that one of those for whom skill shortages have long been recognized as a pressing challenge is the building sector. “One of the greatest problems facing the UK is its gap in productivity. Our productivity remains behind much of the remainder of Europe, and there is a general feeling of dependence on labour, rather than considering technology-related innovation to fix issues. So, the solution is for the state to look at how it encourages companies to invest in long-term alternatives that will make the decreased labor pool as profitable as the bigger labor pool is at present. “

 

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Immediate ramifications:

According to an article released by the Guardian on April 14, this is what could happen in the months leading up to Brexit:

No Deal:

Brexit could formally commute.

May’s Deal:

Brexit could occur sooner if the House of Commons voted to recognize the Brexit agreement of Prime Minister May, potentially on May 22.

In any case, we can work on the understanding, and possibly very soon, that Brexit will happen. That implies that what will happen in the months to follow is the true key to strong preparing.

 

The transitional period:

 

Regardless of what date goes down in history as the official Brexit Day, a transitional period (end of December 2020) has already been created, offering the sector a reasonable quantity of time to gage real impacts on the global financial scene as well as in the UK.

For the building sector, this is a welcome bit of “breathing space” and an opportunity to influence beneficial change wherever we can. It will also provide access to concrete facts for building experts, a luxury that we have not often enjoyed when debating this subject. Because of instant uncertainty, to be honest, continuing projects could feel temporary pressure, and big upcoming projects with timelines stretching into 2021 will probably involve cautious negotiation and planning. But, all in all, as long as we take complete advantage of it, this transition period is a beneficial thing for the sector.

Ahead of this shift, here are the main challenges that we will have to face as an industry:

The challenges construction pros must face going forward

 

The challenges facing building experts in the UK in a post-Brexit globe will have to develop practical approaches to address some very true problems. In reality, many of the following problems have already had an effect on the sector, merely because of the ambiguity surrounding Brexit:

Construction materials imported from the EU:

About 64 percent of the construction materials used in the UK. Similarly, about 63 percent of UK-exported construction products go to EU members. Existing free trade agreements with the EU would vanish after Brexit, probably leading in obligations, volume constraints, and delays at different boundaries, all of which could mean greater overall material expenses.

Skills/Labor shortage:

 

The UK construction industry presently depends strongly on foreign labor to fill qualified and unqualified positions, and even as an EU member, the sector has long been plagued by severe skill shortages. This skill shortage is likely to be exacerbated with the removal of the right to free motion among EU members. As many as one third of construction employees presently engaged in building projects in and around London are migrant workers from EU nations, according to one research.

With 28% of London building employees migrating from EU nations, it is no secret that the domestic building sector is highly dependent on migrant labor. After the eventual withdrawal from the EU, however, migrant workers will be stripped of their right to freedom of motion and consequently of their automatic right to work in the UK. In an effort to fulfill the wishes of hard-Brexiters, Prime Minister Theresa May announced government plans to concentrate a post-Brexit immigration policy favoring’ high-skill’ employees, with the exception of announcing the end of a free labor movement. As a consequence, some may contend that this could result in a skill shortage leading to greater project expenses, with demand for labor outweighing the capacity to supply.

 

Financing for infrastructure:

 

A change in partnership with the European Investment Bank (EIB) and the European Investment Fund (EIF) will require rethinking of prepared access to financing for large-scale infrastructure projects. These connections may be shielded by post-Brexit negotiations, but that is not certain. Of course, delays in the launch of infrastructure projects or the need to reduce their size and budgets will have a direct impact on the UK construction industry without sufficient funding.

“Companies should be prepared to engage in pre-matter planning and partner with the client to handle the matter in the best possible way. Particularly when operating off a fixed fee framework”

 

Housing crisis:

 

With labor supply likely to be unable to satisfy its demand, a knock-on effect is probable to occur, with house builders unable to fulfill government housing goals. As a result, house prices and project expenses would increase.

Alternatively, Brexit could lead foreign investors to withdraw their funds from the UK property industry, leading to lower rates and increased accessibility of initial investment assets. Yet, while this may sound like a light at the end of the tunnel, the uncertainty of financial instability implies that the Bank of England will become progressively apprehensive about borrowers ‘ capacity to repay, thereby changing their requirements for poor credit payments, guarantor loans and other private loan choices, thereby reducing credit availability.

Material costs: After British withdrawal, it is not just the free movement of employees that will be revoked; the free movement of products between the UK and the EU will also stop.

With the Business, Innovation and Skills Department stating that nearly two-thirds of building products have been imported from Europe, greater tax rates and post-Brexit quantities of imported products could be catastrophic for the construction industry.

While some may celebrate a subsequent enhanced focus on British goods manufacturing, consequential tariffs enforced on British products across Europe could spell additional difficulty for British sector and UK businesses. It is in such circumstances that it becomes essential for Theresa May to create a fair withdrawal agreement with the EU that protects British trade and the right to free motion of products–an agreement that becomes an progressively unlikely prospect at the moment of writing.

 

Cuts in funding:

 

The UK benefits from investments worth € 7.8 billion from the European Investment Bank and the European Investment Fund in significant infrastructure projects. These institutions also lend over € 500 m annually to British SMEs.

The loss of these income streams could have a significant effect on the sector, including the capacity to perform on large-scale infrastructure projects like HS2. Although some have suggested that this money could be substituted by that saved from EU membership charges, it is progressively unlikely that infrastructure would see any important investment in the face of continuous governmental reductions and reassessment of the budget across all industries.

 

 So, how does the Construction Industry deals with the Brexit?

 

All things considered, we are now at the threshold of UK leaving the EU, still largely uncertain of what the full impacts will be. With that in mind, Sir Winston Churchill’s popular phrases— so often cited, they have become mainly clichés at this stage — seem suitable for professionals in the building sector jointly confronting this monumental event: “Success is not final, failure is not deadly: it is the courage to continue that counts.” Maybe that’s the best advice that experts in the building sector can take at this stage.

While it sounds all doom and gloom, we can’t tell for sure how Brexit will impact the construction industry objectively without first setting out a definite exit strategy. With Theresa May and her Conservative government still having to negotiate an agreement with EU officials effectively, it is no exaggeration to declare that the construction industry’s future still hangs very much in the balance.

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