EU Referendum – Affect on the Construction Industry

With one of the biggest votes in British history taking place this week, we take a look at the affect it will have on the construction industry.

In 2014, the UK construction industry directly employed 2.1 million people and contributed £103 billion to the UK economy. This equated to 6.3% of all UK jobs, and 6.5% of total economic output.

Infrastructure

As a member of the EU, the UK has access to European Investment Bank (EIB) and European Investment Fund (EIF), who have invested €7.8 billion for major infrastructure projects, and lended €665.8 million to SMEs, respectively, in 2015.

These are significant sums of money that have driven infrastructure forward in the UK, and as an EU member state, the UK is eligible for bank financing operations.

A loss of both funding streams could have a significant impact on project delivery and start-ups across the UK, so they would need to be replaced in some capacity.

Imports and exports

China is the only non-EU state in the top five UK import markets, and EU imports accounted for 59% of total construction material imports.

The loss of free movement of goods, coupled with the potential introduction of tariffs, could either push construction sector firms to look inward and purchase domestic materials, or increase the cost of production through imported materials.

The free movement of goods benefits UK exporters selling their product(s) to EU member states when compared to non-EU states (without a pre-existing trade agreement in place).

In the event of Brexit, strict EU regulations, whilst not applying to the UK, would still have to be adhered to when exporting to an EU state.

On the flip side the UK would be able to develop and negotiate its own trade agreements with the EU and other large importing countries, such as China and the USA.

Labour

RICS’ Construction Market Survey indicated UK-wide increases in workloads, but decreasing number of skilled workers.

Construction firms have been looking to other EU member states to fill the gap.

If immigration is limited, particularly for skilled workers, the UK will witness higher project expenditures where labour demand outstrips supply.

Alternatively, a UK-set migration system could allow the UK to pinpoint the skilled workers it requires.

However, with the quantity of programmes and projects, the UK may not have an adequate level of investment and development that would necessitate a high(er) number of construction staff.

Procurement

EU procurement is now a stringent and obligatory framework of directives and regulations which inhibits bribery and corruption, and increases competition through the provision of best value for money.

All EU firms can bid for EU member state public procurement contracts free from discrimination.

A Brexit could allow UK public procurement to stipulate the use of “UK firms and materials only”, thus being a tool to support UK-based and enterprises.

VAT

EU statute imposes a VAT on the consumption of goods and services, with UK reduced rates relating to the built environment include 5% VAT on residential energy, insulation and renovations, and 0% VAT for new building construction.

VAT acts as a disincentive for works to be considered, with a cut aiding local SMEs and the wider UK economy: evidenced by additional jobs and economic stimulus it could provide between 2015 and 2020.

A post-Brexit Government could alter VAT arrangements to encourage purchase and investment – from a small to large scale – in specific goods and services.

*All stats and figures for this article come from a post by RICS.

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Labour party set out its plans for housing and infrastructure

At its annual conference in Brighton, the Labour party has added detail to its plans to reinvigorate social house building, take more state control of infrastructure projects and offer employees additional rights.

Newly-appointed shadow housing minister John Healey launched a paper outlining Labour’s alternative proposals for increasing output in this Parliament, 2015-20. It believes that output from the social sector – although including units for sale – can be scaled up to reach up to 100,000 extra units a year by 2020.

The report proposes five measures:

Giving councils the freedom to borrow against their assets, creating up to 60,000 additional homes over five years.
Tightening the obligations of commercial developers to fund more new social homes through the planning system, restoring the number of homes delivered through this method to enable 16,000 new homes a year.
Reform of Right to Buy to actually deliver one-for-one replacements, bringing in 6,000 additional replacement homes per year compared to the status quo.
Using the power of the government balance sheet to bring down the cost of finance for housing associations by extending the guarantee scheme, creating an additional 2,000 homes per year.
Funding a significant HCA grant programme to allow councils and housing associations to build at scale, and lever in private finance. Calculating the grant needed at £60,000 per unit, the same level offered in 2008-11, would enable an average of 30,000 additional units per year.

Healey’s report also proposes looking at ideas from France, “where the introduction of popular tax-free savings accounts now provides the source for a good deal of the country’s social housing finance”, and Denmark, “where there is a national mechanism for pooling and recycling housing association surpluses”.

The speech by John McDonnell, the new shadow chancellor, was billed as a “rejection of austerity politics”. He set out a plan to transform the Department for Business, Innovation and Skills, creating “a powerful economic development department, in charge of public investment, infrastructure planning and setting new standards at work for all employees”.

This would also involve creating “an effectively resourced and empowered national investment bank”.

McDonnell announced that Sir Bob Kerslake, formerly head of the civil service in 2012-14 under the coalition, chairman of the Peabody Trust and also a former chief executive of the Homes and Communities Agency, has been appointed to conduct a review of the Treasury as part of a wider look at the role of the state in economic life.

Meanwhile, Angela Eagle, shadow first secretary of state and shadow secretary of state for business, innovation and skills, described a “race to the top” driven by more R&D investment and innovation, and supported by government-backed industrial strategies.

She referred to a “skills emergency” in construction, manufacturing, science, engineering and technology.

The conference also passed a motion calling for a “new deal” for workers that would include a new Ministry of Labour, extending employment rights to the first day of employment, and a “genuine” Living Wage.

Brian Rye, acting general secretary of UCATT, who seconded the motion, said: “For the majority of private sector construction workers, employment tends to be nasty, brutish and short. Most workers do not have a permanent employer. Most large construction companies barely employ a single construction worker.”

This story is from construction-manager.co.uk

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