Sector - Finance & Legislation
Preparing for the unknown: how the construction sector will be affected by Brexit
Des Duddy, Director at Protrade Ltd, discusses the challenges and opportunities that the construction sector faces with Brexit in mind.
It is undeniable that construction industry, in much the same way as the nation as a whole, will be faced with both challenges and opportunities in a post-Brexit Britain. With that being said, it is currently difficult for any business leader to put themselves in a position to precisely take advantage of any opportunities which present themselves, due to the lack of clarity coming from central government.
The only thing C-suites in the construction industry can do is make a number of assumptions and provisions based on the comments and posturing of our Prime Minister. However, it’s difficult to know whether certain comments and news are an expectation of reality, which is causing political uncertainty. Unfortunately, this puts everyone in the position of having to prepare for multiple scenarios and essentially preparing for the unknown. From material manufacturers to housebuilders, no segment of the industry will come out unscathed.
One of the most concerning possibilities construction professionals should be considering, is that in the advent of the cessation of freedom of movement, the UK could lose around 200,000 skilled, willing and able construction workers. This will cause a knock-on effect as the industry is already facing a problematic skills shortage, despite making movements to create a more diverse sector. With an ageing workforce, a lack of interest from young people, and uncertainty about the outcome of Brexit, the construction industry looks certain to face a skills crisis in the next decade, with 1 in 5 roles currently left unfilled in the sector.
Investment will need to be made in training the workers of the future, and to make construction a more appealing industry in order to tempt school leavers. In addition to promoting the opportunities of a career in construction to school leavers – with plenty of them offering progression – the importance of promoting career diversity is pivotal, too. Making young girls aware of the benefits and opportunities within these roles is important, and by 2020, it is predicted that 26% of positions in the industry are expected to be filled by women.
In the immediate short term, the loss of EU workers will drive up the costs of construction as employers will be fighting for workers from a smaller pool of people, who will all be in high demand. The outcome of Brexit could have the potential to destroy a cost-effective and competitively priced workforce, resulting in established businesses having to relocate their HQ to a location that offers a more comprehensive and effective solution to both their employment and infrastructure needs. The availability and choice of business development land and premises are both essential factors when it comes to maintaining local and regional business competitiveness.
Another way to overcome staff shortages is to ensure efficiency and encourage the streamlining of work. For example; if construction companies can assist in making tasks 20% more efficient across five workers, that will effectively create one additional person. Companies should look to adopt web-based solutions that will provide accurate and timely project costing and multisite consolidation reporting. These cloud-based solutions can help track plant and equipment, manage maintenance contracts renewal dates, schedule engineer visits, respond to reactive calls and help workers with back-office tasks such as timesheets and expenses, freeing up more time for them to carry out their core tasks.
Another issue that should be considered and prepared for is the fact that at least 25% (approximately £10.2Bn of materials) of all materials, tools and fixings used in construction in the UK are imported. Whether that be from the EU or from third-countries, it is expected that tariffs of some sort will be applied which, combined with a weaker sterling, will drive costs up further as well as slow down the supply chain.
Delivery time of materials will also be delayed, so it is essential to include this in forward planning and ensure you have a sustainable supply to carry out relevant work. Some – but not all – construction merchants can mitigate for these extra costs by buying in large quantities and while tariffs can’t be avoided, additional costs like shipping and profit margin can be negotiated with greater ease. Things like long-term agreements with the supply chain, which guarantees prices for 12 months will help in being able to forward plan with greater accuracy. Another consideration to account for is the possibility of paying VAT upfront, which will certainly have an instant impact on cash flow and revenue.
Despite the negatives, light is being shed on opportunities within the sector. The government has pledged to invest in infrastructure projects up and down the country, investing £600Bn in infrastructure development in the next decade, providing a welcome stimulus to the industry. Infrastructure investment is typically more resilient and will likely become a key part of the market as the government attempts to smooth out peaks and troughs of demand in the near and medium term future.
Work has already been started on transforming the M26 in Kent into a potential lorry park, whilst the Department for Transport is developing plans to handle the massive queues of trucks likely to appear in the event that freight be unable to progress swiftly through the ports when the UK leaves the EU.
Furthermore, various sectors of the construction industry could see particular growth. For example, off-site construction is an area which is gaining a strong foothold already. In addition to investing billions into infrastructure development, the government has also been outlining proposals to use offsite manufacturing to modernise construction processes. Both of these initiatives will make a huge difference to productivity across the industry, with circa 700 other projects, programmes and investments in the pipeline.
With the Government making plans to modernise construction within the UK and invest within areas such as transport, energy, social and digital infrastructure and flood and coastal erosion, the future may still be bright for the construction sector, no matter what the outcome of Brexit may be.
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