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News | Published May 01 2019

OPINION: Construction funding, resources and regulations in a post-Brexit UK

The form that Brexit will take is unclear and this lack of clarity will inevitably continue for a significant period whatever decision is taken, with each configuration of the UK’s withdrawal opening different doors and market moods.

The construction industry, which is driven by both private and public investors, relies significantly on confidence and that in itself is generated by the establishment of certainty. It seems likely that the principle factors affected by the prevailing lack of certainty will be funding and availability of resources – both in the form of the quantity and quality of labour and materials – as well as current regulations.

At a macro level, the UK has benefited from EU funding on major public infrastructure projects and this could continue if non-member support is provided. Post-Brexit, the UK’s contribution to the EU’s financial pot will be retained in national coffers with the potential to funnel it into other projects within the UK. New funding opportunities may arise from outside the EU and devaluation of the pound may increase the country’s attractiveness to outside investors. It is critical for the UK to do a better job of selling itself to ensure it remains a positive platform for confident investment. Where the private sector holds back, the government will, no doubt, find ways of supporting initiatives that will bolster confidence. In the past, government-sponsored social housing initiatives have provided meaningful support to the industry during financial downturns, and we believe that this will continue to be the case during the upcoming period of uncertainty.

It is understood that nearly 30 per cent of construction workers on site come from the EU. Notwithstanding this, the availability of labour from the EU has seen a downtown since the 2016 referendum, in response to Brexit uncertainty and a weakening pound. The industry has significant dependence on EU migrant workers and demand may not be satisfied by alternative non-EU or local labour, thus increasing the cost of delivery in this area. The government initiative to focus on skilled workers post-Brexit will also limit the supply of non-skilled workers. Current projects contracted for delivery may struggle to deliver within agreed cost parameters which could lead to constructors going into administration, while new projects will see an increase in labour and project contract costs. We have experienced these failures at the end of previous downturns where main contractor prices agreed at contract stage are not compatible with the supply chain market.

A significant proportion of construction materials are imported from the EU, in the form of composite ‘products’ and ‘raw materials’ used to create the composite product. If the pound plummets against the Euro and Dollar, this will increase the costs of raw materials and product manufacturing. If manufacturers in the UK are pushed to buy raw materials from outside the EU, the additional transportation costs and differences in delivery and packaging of products may result in additional set up costs. Whilst some manufacturers in the UK are stockpiling, this has the consequence of increasing storage costs. There is also the potential that product and raw material suppliers will take advantage of the situation on the basis that they will increase prices and limit stockpiling to take advantage of potential future price increases. An additional risk is that the UK may lose its tariff-free access to the single market, potentially leading to increased tax duty costs and limitations on quantities, dependent on what form Brexit takes.

Changes will happen, but the extent of these changes is unknown and hinges on the form that Brexit takes. We expect that the UK industry will seek to stabilise regulation risks by standing with the current platform to allow possible changes to materialise slowly and reduce their impact in the short term.

Nigel Franklin is a partner at calfordseaden.


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Authored by

Nigel Franklin
Partner at calfordseaden
@calfordseaden
May 01 2019

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