Brexit | What does it mean for the construction industry?
The impacts of Brexit on the construction sector are far reaching. Leaving Brexit with no deal will certainly impact how the industry trade in goods and services with the EU and see a sharp impact on recruitment in the industry. A no-deal Brexit could introduce barriers to cross-border trade and access to the the single market preventing freedom of movement of EU workers.
Brexit has the capacity to disrupt every aspect of business. Political focus in negotiations has been towards trade in goods rather than services due to the anticipated impact upon the manufacturing sector and consequential impact in the poorer regions.
Over time, construction has become increasingly reliant on EU migration to meet skills gaps and labour shortage, with 9% of construction workers coming from the EU. The UK has already experienced a reduced appetite of EU migrants entering or remaining in the UK to work at all candidate levels due to Brexit uncertainty, fall in sterling, reducing the value of earnings and construction projects picking up in other European areas.
Perception of the building industry needs to change to attract fresh talent, male and female, young and old. How we engage with our workers needs to change. Hire and fire is not a strategy. When recruiting staff, recognise how to relate to your employees, to encourage retention. Provide a career journey – what drives them? Bonus, promotion, flexible working? Many construction workers are expected to retire in the next five years with not enough skilled young blood to replace this gap. Up-skilling and re-skilling your workforce is vital to support UK growth, is great investment for business with many seeing a significant financial benefit as a result. Apprenticeships are available for any age, not just the young.
A migration policy that works for construction is needed. The current deal with the EU does go someway to secure the freedom of movement of EU citizens, allowing those resident in the UK for a period of 5 years to apply for the right to remain through a simple application. The recent Migration Advisory Committee (MAC) report and Immigration white paper has the consequences to impact the low skilled sector as migrants earning less than £30,000 would not be granted entry to the UK. It is conceivable this will increase salary and recruitment costs. Research suggests EU migrant workers contribute £2300 more per year to the UK purse than the average British citizen, which has eased the tax burden on other tax payers. Ultimately, this could result in an increase in UK taxes on Mr & Mrs Smith to meet a shortfall.
Business expressed it wants a deal rather than no deal due to the anticipated consequences to disruption of our economy, as disclosed in the recent economic analysis publications suggesting UK GDP could be 8% worse off under a no-deal scenario or 1% worse off under a Chequers style deal (Economists could not look at the current deal in view of the timeframe so published a Chequers comparable as next best). The degree of uncertainty and radical change from a no deal Brexit is something that business want to avoid.
Innovation and technology can be utilised to replace some roles. Robotics can be a useful benefit and do have their advantages over people – they don’t get tired, have a bad day, reliable but there are of course risks relating to cyber security. Construction can expect to embrace upon this change in future years, with investment from R&D funding. In the long term future it is anticipated robots will operate our construction sites!
Brexit is the current political focus for the UK with the Industrial Strategy developed alongside to build a global Britain fit for the future. Construction lies at the heart of the government’s strategy, improving infrastructure, in particular house building. A skills shortage could have a knock-on effect on housing targets, deepening the current housing crisis. However construction is slow to take on innovation, preferring traditional methods. Investment in research and development (R&D) is needed to increase productivity in construction skills; reform skills systems to ensure they deliver high quality provision that meets employer needs and use procurement and planning to drive investments.
Growth in construction has been stagnant, increasing just a fifth of the rate of the whole economy in the last 20 years. Brexit adds to the complexity and may have long term implications on how business operates and profitability. Construction has been through three recessions lately. It is a volatile, unpredictable environment.
Beyond a skills shortage is the added pressure of increase in material costs. Post referendum, sterling took a hit, contributing to a hike in prices. Delays at ports, processing customs documentation could drive costs higher. Such delays, added costs and shortage of materials will eventually impact on construction project timescales, attracting penalties. There is growing fear in the construction industry’s ‘just-in-time’ delivery models. Some have responded by stockpiling goods now, but the majority are sticking their head in the sand with no plan to tackle what is to come whether under a deal or no-deal scenario.
The potential threat of trade tariffs and customs delays is prompting businesses to review their supply chains, seeking to look closer to home. Spreading risk between several suppliers may benefit some supply chains, with some businesses attempting to renegotiate current or future contracts. As a minimum businesses should review their contracts with suppliers, adding clauses to renegotiate prices due to currency fluctuations or ability to renegotiate contract terms in the event of increase of trade tariffs.
Wait and see is no longer an option
Planning your way through the Brexit fog will benefit those who prepare today. Plan to succeed. Understand your risks and challenges in a worse case scenario and put realistic time frames in place to address these. A no-deal Brexit strategy should focus on how you can keep the water flowing in your business – an easy solution may be stockpiling. Work out what Brexit will cost your business and who should bare the cost – your business, customer or supplier? Make your business robust to change. Having an agile plan will resist the urge to make hasty, last minute decisions, often damaging and costly. Gain the competitive advantage.
Given the timeframe to no deal Brexit, business cannot solve every issue, even with a 21 month transition period. Regulated sectors may require a licence to operate. Engage with your workforce, customers and supply chain to reassure and communicate your business has a robust and protected supply chain.
The best deal for construction
Best deal for construction sector may be the current deal offered by the EU, but is not perfect. At the time of writing, a managed no-deal is most unlikely however there is no majority for an alternative. It is the current deal; no Brexit i.e. revocation of Article 50 or a second referendum or a no-deal Brexit. The crystal ball cracked a long time ago.
Let’s grab a coffee and mull over your strategy to overcome the challenges of the year ahead.