Brexit - implications for the construction industry

This article was published prior to the publication of the post-Brexit agreement between the UK and EU which covers the relationship between the UK and EU following the end of the implementation period (commonly referred to as the “transition period”) created by the European Union (Withdrawal Agreement) Act 2020, and should be read in that context.

We are now only weeks away from what many consider to be one of the most important votes for a generation, and campaigning on both sides is reaching its peak. UK firms in all sectors are considering the implications of a leave vote on their business and trading arrangements, and in this article we focus on the potential implications for the construction industry.

The mechanism under which the UK can extract itself from the European Union is set out in Article 50 of the Treaty on European Union. A leave vote will trigger a notice under Article 50 (which the UK may or may not decide to give immediately), which will be followed by exit negotiations.  As part of the process, the UK will need to consider and negotiate the options for its future relationship with the EU. Article 50 provides for a two year negotiation period, during which time the UK will continue to be a member of the EU, and subject to its laws. No country has ever previously withdrawn from the EU and the impact of a leave vote is therefore the subject of much debate, speculation and uncertainty. The implications of a Brexit will very much depend on the outcome of negotiations in respect of the UK's future relationship with the EU, but issues which might affect the construction industry are:

Availability of labour

The construction industry relies heavily on European labour. Until now, movement of labour through the EU has been facilitated by the principles of freedom of movement enshrined in European law.  

A leave vote is likely to impact on availability of labour as free movement is likely to be restricted following the transition period.  Whilst the UK may introduce new visa systems this could take a considerable time and added complexities may deter workers from seeking to work in the UK, perhaps preferring other European destinations.

A shortage of workers could be serious for the construction industry.  It may lead to higher wages being commanded by those workers who are in the UK labour market which individual workers may no doubt welcome, but which in turn could increase the cost of projects. Depending on the replacement schemes put in place, construction companies may find themselves faced with increased bureaucracy in dealing with visas and immigration law.  On the other hand, it's possible that a skills shortage may result in increased investment in training and upskilling of local workers to fill the gaps

Materials

Similarly, EU membership allows free movement of goods across member states through the elimination of customs duties and quantitative restrictions. A leave vote will have implications for construction companies who import materials from the EU (and indeed for companies who export to the EU), and could leave them facing new duties or restrictions.  If UK companies wish to continue to export materials or products to the EU they would still need to comply with EU product regulations in the relevant EU member state.

Investment

Investment is another area where the impact of a Brexit is likely to be felt.  EU investment has funded numerous significant projects and regeneration schemes and the potential loss of such funding could impact on the viability of future schemes. The counter argument, however, is that any loss of EU funding will be outweighed by the saving of the UK's contributions to the EU, part of which could instead be directed towards such projects.

Regulation

EU "red tape" often comes in for criticism.  From a construction perspective, given that most measures, (for example EU laws relating to health and safety and environmental protection), are now enshrined into UK law a Brexit may have little impact, at least initially.  Is the UK likely to seek to amend or repeal legislation that protects the health and safety of our workers and the future of our environment?  Perhaps not, but there may be areas of such laws which the UK may wish to address in time. For example, the extension of the application of the CDM Regulations to domestic projects was a requirement of EU law.  It's unclear whether the government would seek to amend this, and other EU driven regulations, following a Brexit, but a wholesale relaxation of regulation seems unlikely.