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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