How Brexit is Undermining Fragile Confidence
As things stand, at 11.00pm on March 29, 2019 the UK will be leaving the EU. Astonishingly, two months priror to such a momentous event, we don’t know what the future relationship will look like at the end of the 2020 transition period. Let’s be honest, we don’t even know what happens between now and March.
As well as being highly averse to any kind of uncertainty, UK construction is heavily dependent on free movement of people and goods. Around two-thirds of the construction materials we use are imported from the EU. Even in a best-case scenario, where these imports continue at similar levels without punitive tariffs, any further fall in the value of Sterling will add cost pressures to projects.
Those cost pressures are already emerging as supply chains and contractors look to stockpile to avert shortages (and create shortages in the process). Some are reporting a 20% hike in material costs. Stockpiling also impacts the delicate cash flows of organisations that have become used to just in time deliveries.
Where Will the Workforce Come From?
Meanwhile, net migration from the EU is at a six-year low as people worry about their status following Brexit. The fall in the value of the Pound also makes a UK salary less competitive than other EU countries. None of this will help an already critical skills shortage. Any new visa system would make the UK even less attractive to EU workers. And who knows how long this will take to set up? The wage inflation created by such a skills shortage may make projects unviable.
Contracts are already coming under scrutiny, with the real risk that those not already committed may be delayed until the post-Brexit picture becomes clearer. And how secure can end dates be if we can’t be certain there will be enough people or materials to complete the job? Commercial decisions are likely to err on the side of caution if it looks like revenue streams to repay investments in building projects will be significantly delayed.
The other big risk that comes with Brexit is a potential loss of funding. The European Investment Bank is the source of funds for several major infrastructure projects and it’s not clear how those funds can be replaced
Is There a Way Forward?
What we can’t afford to do is seek to shift all of the risks onto other parties, whether that’s customers, contractors or supply chains. This approach will bring everything to a halt as, eventually, somebody will be loaded with a level of risk that they can’t accept. A collaborative approach is the best way to deliver the confidence needed to allow projects to move forward without anybody putting their business on the line.
Our industry already has more than enough uncertainty to deal with. Brexit magnifies this many times. Meanwhile, we wait to see whether there is any kind of deal that would be acceptable to the UK Parliament. The uncertainty is undermining the competitiveness and confidence of the whole sector, which could have dire consequences. But is anyone listening?