| KDM Group

Brexit’s Impact on Construction

24 January 2017

Theresa May has spoken and unless you have been living under an isolated rock, come to think of it bit like post-Brexit Britain, you will know the UK is going to leave the single market and push for a tariff-free trade agreement with Europe as part of the deal. Brexit and the macro environment in general affects our business procedures massively here at KDM. The recent hysteria and economic uncertainty that has been created by Brexit and Theresa May’s subsequent speech this week has provoked us to examine how Brexit and leaving the single market could affect us as a business and the construction industry. So let’s delve a little deeper and speculate about Brexit’s impact on the construction industry.

What Key Influencers Have To Say

 Our content staff at KDM decided to try and get a well-rounded view of how leaving the single market would affect our business and the construction industry in general. We could have just listened to Theresa May and believed that Britain was now “open for business” and we are going to be a leader in “a greater globalisation”.  But it is 2017 and politicians seem to living up to their truth, spinning stereotypes more than ever. So, we decided to see what other key influencers thought about Theresa Mays proposal to leave the free market. The majority of opinions did not quite align with Theresa Mays opinion, shock horror! And give some fearful home truths about Brexit’s impact on the construction industry.

Ann Francke the Chief Executive at the Charted Management Institute expressed:

“With the prime minister signalling today that the UK will make a clean break from the EU, it is inevitable that the number of foreign workers coming to the UK will fall after Brexit, so we need to invest heavily in home grown talent now, to ensure that we have the skilled workers capable of plugging the gaps”

This is a pressing issue we have already seen first-hand here at KDM. Already we have witnessed some of our highly skilled EU labour force based from Poland and Lithuania head back to mainland Europe due to the uncertainty of their working rights, the possibility of a £1000 EU immigrant levy which would cost businesses 1000’s of pounds and a general lack of job security.

We have seen this coming for a while but our worries were heightened with Mr Goodwills latest comments which proposed employers would have to pay £1000 a year fee for every EU skilled worker they bring in after Brexit. According to the London Chamber of Commerce 15% of the UK workforce are made up by EU nationals. A large majority of these workers are within the construction industry.  But as Frank Field ( Labour MP ) argues this could be a great move in the long term, as investment could be used to “ train natives”. This is a strong point and we firmly believe in having a strong UK workforce but our business and the construction industry are part of a constantly flowing business cycle that cannot just wait for the next generation of young Brits to be trained up. Unfortunately, we don’t live in a capitalist utopia, where demands are just magically supplied. The skills gap which has been created by losing skilled EU workers needs to be filled before the next generation of young British ‘natives’ are ready.

Alternative point of Views

Not all opinions have been negative towards leaving the free market and some even suggest Brexit’s impact on construction could be a positive one.  JCB’s Lord Bamford is supportive of Theresa May’s proposals exclaiming:

“ As the Prime Minister said, we are leaving the EU but we are not leaving Europe- it will remain an important market for British business but we need to be able to trade freely with the rest of the world as well”

At the moment it is hard to justify Lord Bamford’s optimism and maybe the cynics amongst would say it is linked to his Tory donor roots and purely personal business reasons such as JCB’s recent trend of making more money in the UK than Europe and rising sales in America. However, one company’s contextual situation does not reflect what is best for the entire construction in industry.

The Prime ministers and Lord Bamford’s opinion has been undercut by key EU politicians and figure heads. Guy Verhofstadt, the Europeans parliament’s Brexit negotiator explained that Britain should not expect continued tariff free trade while rejecting other aspects of the free market, including free movement.

The European mainland press have also been very disparaging towards Britain’s proposals to leave the single market. Germany’s Die Welt front page read “ Little Britain- May leads Britain into isolation”  while Italy’s La Repubblica penned “ Brexit: London puts up its wall- out of EU and Single Market”. If negotiators in Europe are rejecting the idea of Britain having tariff free trade if we leave the single market, Theresa Mays claims of getting a good Brexit deal may be shattered, which would have massive repercussions on the construction industry. Here at KDM we have already seen the affects. The lack of clarity of how the government will exit the EU and the common market has meant a slowdown in developments which in turn affects us as a main contractor as projects are put on hold or even delayed.

Increased Import Prices and the Pound Losing Value.

 The value of the pound has dropped due to Brexit and this has caused higher import costs. This has severe spin off affects for a company like ourselves who rely on laminates and metalwork from UK distributors who source their materials from the EU and if the pound continues to weaken this will get even worse.

This is an issue affecting a lot of companies in the construction trade and is confirmed by senior economist at IHS Markit who explains “the downsides of the weaker currency is becoming increasing evident, with import prices leading to one of the steepest rises in purchasing costs in the near 25-year survey history”.  Furthermore, small and medium sized businesses are reporting a 20% increase in timber and a 22% increase in Spanish slate. The root of the problems is in the undisputable fact that a quarter of all materials sourced by the UK construction industry are imported. Thus, the UK construction industry is extremely susceptible to currency fluctuations. Local Edinburgh plumbers have reported a steep increase in outsourced materials and as a result have had to cut back their apprentice programme. This shows Brexit is having a real effect on local Scottish businesses.

Finishing Note

 The implications of Brexit appears hard for the construction industry, as an experienced firm we understand macro environment factors which are out of our control come along from time to time. We are going to keep strategizing and work hard through this tough time. If you don’t laugh you cry and through all the uncertainty and media hysteria, we still managed to take pleasure from rambling Boris Johnson landing himself in hot water this week. Boris responded to French President Francois Hollande remarks with “ If Monsieur Hollande wants to administer punishment beatings to anyone who chooses to escape, rather in the manner of some World War Two movie, then I don’t think that is the way forward”. Boris caused quite the storm with these comments and was accused of liking the actions of Hollande to that of a Nazi guard. It would not be an era of national economic unrest and media frenzy if Boris Johnson did not throw in a few misjudged historical metaphors or as he calls them “theoretical comparisons”.  Only by letting the future unfold will we be able to see Brexits full impact on the construction industry.



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