The effect of BREXIT on UK construction

The UK and EU’s announcement of a trade deal from 1st January 2021 imposes no direct charges on construction or construction products but there are administrative burdens that will add to cost and inhibit the functioning of the UK construction industry.

However, it will come as welcome relief, not just to the construction industry but to the global economy. The agreements reached will enable construction companies to continue to forecast the cost and availability of products and materials imported from the EU or comprising components made in the EU.

The UK immigration scheme that came into operation at the same time will affect the supply of labour to the construction industry.

The changes will take some time to settle down as the industry grapples with a whole host of new rules and regulations affecting almost every aspect of the procurement and delivery of projects in the UK and across the EU.

Movement of people

Free movement ended on 31st December 2020 and from 1st January 2021 the UK has a new global immigration system. This system requires employers to register as sponsors in order to recruit from abroad and in order to employ someone from outside of the UK the individual must meet job, salary and language requirements.

While the economic effects of the Covid-19 crisis will lead to a number of job losses, which will likely increase the available domestic supply of labour in the short term, in the longer term, we will continue to need access to foreign labour.

The Office of National Statistics’ latest figures indicate that 10% of all workers within the industry are EU nationals. Within the London construction industry this proportion increases to 33%. Much will depend on how many of the existing UK based EU workforce chooses to stay.

As these rules have been known for some time, we can only hope that the larger contractors, at least, will have made plans.

Movement of goods

Under the UK-EU Trade and Co-operation Agreement most traders moving goods between UK and EU will not have to pay tariffs but will have to meet relevant Rules of Origin for their products and make declarations to that effect.

Despite the removal of import tariffs, the price of goods moving across the border is expected to increase due to the additional border checks and administrative work, which will be burdensome and expensive. However, the agreement includes a 12-month grace period on some elements of ‘rules of origin’ declarations, offering some temporary relief on the volume of paperwork required.

The implementation of the agreement may lead to some short-term shortages and price increases but should not have a long-term effect.

Marking of manufactured products

From 1st of January 2021 there will be three different product marks that manufacturers, and others in the supply chain, may need to apply, depending on where the products are intended to be used:

• The EU’s mark for product conformity – CE mark
• The United Kingdom Conformity Assessed mark – UKCA mark
• The United Kingdom Northern Ireland mark – UK(NI) mark

This will increase overheads for manufacturers and possibly reduce choice but is unlikely to be significant.

Service industries

UK organisations that provide services, consultancy etc., in the EU.

Comprehensive provisions on services were not included in the trade agreement.

The UK’s services sector including construction consultancy is heavily interlinked with the EU and the absence of provisions in the trade deal will mean restrictions – less EU market access for the UK’s services industry. UK professional qualifications may not be recognised in the EU (and vice versa)¹. UK services firms will also face additional barriers to establishment in the EU. They will have to comply with usually more onerous third country rules of establishment (such as rules on the nationality or residency of directors or caps on foreign-held equity). The precise rules on market access vary between EU member states and could effectively bar some UK services firms from the EU market. The UK Government will continue negotiating with the EU to add more industries and sectors to the trade agreement over time to overcome these significant restrictions.

BCIS forecasts

The trade deal is most closely reflected in the central scenario in our recent forecast.

Our forecast for the building sector will be updated in January 2021 and we will be reviewing our civil engineering and facilities management sector forecasts.

The Building forecast and Civil Engineering forecast is published in BCIS CapX, and the Facilities Management forecasts in BCIS OpX.