How will Brexit affect The Building Services Market?

INDUSTRY INSIGHT

THE BUILDINGSERVICESMARKET

HOW BREXIT WILL AFFECT

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Prior to the EU referendum, only 15% of UK construction executives supported Brexit.1 Now the vote has taken place and the dust is beginning to settle, how will the UK’s building industry be affected by the change?

Only 15% of UK construction execs supported Brexit

pre-referendum

Current conditions: the shortage of skilled labour

Even prior to the Brexit vote, the UK building sector faced a skills shortage. Recent research by the Royal Academy of Engineering found that there was a shortfall of 1.8million engineers in the UK.2

As a result, wages in the sector have been booming as companies fought to attract talent. Salaries were increasing by around 6% per year,

three times the average UK annual wage rise. Around 66% of industry professionals said labour shortages were their biggest barrier to growth.3

66% of construction professionals said labour

shortage was their biggest problem pre-Brexit. Will the

result make it worse?

Brexit and the free movement of labour

Immigration was a key issue in the EU referendum debates. The free movement of labour is a founding principle of the union, meaning all citizens have the right to live and work anywhere within the EU.

In 2015, around 270,000 EU citizens came to the UK; around 41% of these had a job offer and a

further 32% were looking for work4. The building industry benefitted from this flow of labour, particularly for niche roles such as fire engineering or noise vibration specialists. David Thomas, chief executive of Barratt Developments, estimated that 30-40% of the company’s workforce comes from mainland Europe.5

Chief exec of Barratt Developments estimates

30-40% of company’s workforce come from mainland Europe –

what now?

This source of labour could now be under threat, depending on the terms of the UK Brexit settlement. Politicians will be under pressure to restrict free movement in trade negotiations with the EU, but this could curtail growth in key sectors such as construction. If the UK seeks to retain access to the free market, the remaining EU countries are likely to insist on free movement of

HOW BREXIT WILL AFFECT THE BUILDING SERVICES MARKET

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workers as a condition, as recently happened with Switzerland.

The practical impact of a widening skills shortage

If the already challenging construction recruitment landscape becomes yet more difficult, there will be restriction on the sector’s ability to deliver and service demand. Building contractors may start to cherry-pick projects, favouring less complex or risky work, or opting to focus on expert analysis rather than new projects.

In a contracting sector, prices are also likely to rise. This will be partly due to higher labour costs as skills shortages push up wages, and partly because contractors will not be able to achieve the same economies of scale when they are buying goods and materials in smaller quantities. Firms may start to merge or acquire smaller businesses in order to remain stable.

Will Brexit lead to a surge in M&A activity for construction

industry?

Paul Manchester, director of Manchester Safety Services, a construction site supplier, said:

“Uncertainty surrounding the global economy, taxation and access to funding could remove a layer of security from the UK’s construction industry. This potentially could lead to an increase in conservatism practised by construction executives, unwilling to take risks in an unknown landscape.”6

Where did the infrastructure funding go?

In the referendum campaign, we heard a great deal about the money the UK hands over to the EU, but a good deal less about the money that flows back the other way. In 2015, the European Investment Bank (EIB) invested €7.8bn in the UK; 24% of this was spent on energy projects, 22% on transport and 21% on water infrastructure.7

The UK was due to benefit from a €315bn fund from the European Fund for Strategic Investments (EFSI) over the next three years. This fund already supported the roll out of seven million smart energy meters in the UK, with the EIB contributing £360m.8

Less developed areas of the UK such as Cornwall, Wales and parts of the North also received significant EU funding for infrastructure projects. For example, the Cornwall and Isles of Scilly Growth Programme is investing €100m per year in the area between 2014-2020.9

Of course, there is nothing to stop the government from providing the same level of funding for these large projects without EU assistance. The difficulty may be that political parties usually have a shorter perspective than large development bodies, focusing on one or two electoral cycles.

If funds pledged by the EU are withdrawn, the government is likely to find the money to replace them; whether there is the political will to replace the long-term development programmes that helped disadvantaged regions is another matter. For the construction industry, this means that major Crossrail-style infrastructure projects dry up; funding for HS2 and Heathrow/Gatwick airport expansion has come under question.

Opportunities arising from Brexit

This is not to say that leaving the EU is necessarily all doom and gloom for the construction industry. It may be that we can successfully negotiate staying in the European Economic Area (EEA) and find an immigration arrangement that services the needs of industry whilst reducing the current public anxiety about immigration.

Alternatively, it might be that recruitment from the EU reduces, but is counterbalanced by an easing of immigration rules for workers from elsewhere, such as India and Latin America.




It may be that some of the more onerous regulation issued by the EU is dropped or relaxed post-Brexit. Ambitious environmental targets such as the requirement to build houses with zero carbon emissions by 2020 may be discontinued. Rules around health and safety or working conditions may also change.

Could Brexit lead to increased de-regulation of the

construction industry?

Recruitment in the post-Brexit construction industry

Whatever structure is chosen for our relationship with Europe and the rest of the world post-Brexit, there will be strong demand for skilled, experienced candidates in construction. There may be increased movement within the industry as large firms offer attractive incentives to draw workers away from smaller players.

If you’re responsible for recruitment, you will need to develop a strategy to address the changes coming to the industry. As an experienced international recruitment agency, Laking Group has the contacts and the expertise you will need to access the top talent. Why not give us a call to discuss your needs?

1 http://www.designingbuildings.co.uk/wiki/What_does_Brexit_mean_for_construction%3F

2 http://www.thisismoney.co.uk/money/news/article-3592534/Britain-s-demand-jobs-revealed-pay.html

3 https://www.theguardian.com/business/2016/jan/14/uk-housebuilding-held-up-lack-bricklayers-report-rics

4 https://fullfact.org/immigration/eu-migration-and-uk/

5 https://www.theguardian.com/business/2016/may/11/brexit-shortage-construction-staff-barratt-housebuilding-uk-eu-referendum

6 http://www.builderandengineer.co.uk/feature/how-could-brexit-affect-uks-construction-industry

7 http://www.elexica.com/en/legal-topics/projects/01-brexit-the-implications-for-projects-and-project-financings





This guide has been brought to you by Laking Group, part of the Phaidon International group.

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How will Brexit affect The Building Services Market?

Engineering

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