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What a ‘no-deal’ Brexit means for builders

A ‘no deal’ Brexit could result in soaring material prices and lower workloads and enquiries, according to the latest research from the Federation of Master Builders (FMB).

When asked about the impact of a ‘no deal’ Brexit: Key results from the research include:

  • Over half (53%) say it would result in higher material prices;
  • Just under a third (29%) say it will lead to lower workloads and enquiries;
  • Just over a quarter (26%) say it would result in less access to skilled workers.

When asked how best the new PM could prevent an economic downturn later this year, the top five interventions cited by construction SMEs were the following:

  1. Reduce VAT on repair, maintenance and improvement (87%);
  2. Make more money available through Government funding schemes aimed at SME house builders, such as the Home Building Fund (36%);
  3. Reform the Apprenticeship Levy so more SMEs can train apprentices (36%);
  4. Invest funds in local authority planning departments to speed up the planning process (30%);
  5. Embark upon a national programme of social house building (25%).

Brian Berry, Chief Executive of the FMB, said “As the Conservative leadership contest rumbles on, construction SMEs are worried about the potential impact of a ‘no deal’ Brexit, which would have immediate and potentially disastrous consequences for the construction industry. Material prices are the biggest cause for concern – widely-used building materials such as timber are largely imported and any disruption to that would lead to soaring prices and delays to construction projects. More broadly, a significant proportion of construction SMEs think that a ‘no deal’ Brexit would result in lower workloads and enquiries as confidence in the economy might wobble as people abandon plans for new projects until the UK is on a steadier footing.”

“However, the next PM has it in his gift to guard against any potential economic downturn by stimulating activity in construction and house building as soon as he gets the keys to No.10. Construction SMEs believe that the best way to do this would be to slash VAT on housing, renovation and repair work from 20 per cent to 5 per cent, which would help tempt homeowners to finally commission the home improvement projects they’ve been putting off due to Brexit-related uncertainty. This would give a much-needed boost to the construction sector and the wider economy. The next PM should also make more money available to SME house builders through government funding schemes and stimulate apprenticeship training through fundamental reforms to the Apprenticeship Levy. Once elected, the new PM has a responsibility to steady the economy. There’s no better way to do that than investing in construction and house building, which would boost economy.”

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Industry must respond to Brexit skills challenge

Exclusive research from the Construction Industry Training Board (CITB) shows that one in three firms are already feeling the impact of Brexit. This creates an urgent need for industry and government to collaborate on Brexit-related skills challenges.

CITB’s Green Paper – Migration in the UK Construction and Built Environment Sector – found that while a growing number of employers are feeling the effects of Brexit like staff shortages and fewer clients, less than a third have taken action as it approaches, or even plan on doing so.

The report found that:

  • One in three construction employers are feeling the impact of Brexit, up 9% from last year
  • Nearly half expect the recruitment of skilled workers to become more difficult over the next two years. Just 4% expect this to get easier
  • Less than a third has taken action as Brexit approaches, or plan on doing so
  • Only 8% of surveyed employers who have started making Brexit contingency plans said they will increase training
  • Keeping hold of the workers they currently employ is the most important aim to employers in the run-up to Brexit

CITB’s data, collated from 244 migrant workers, 400 employers and 50 recruitment agents, follows recent Labour Force Survey data. It provides fresh evidence to help inform decision-making by the UK Government, the construction sector and CITB in the run up to, and following, Brexit.

The data will inform CITB’s work with employers, the Construction Leadership Council and Government in developing a plan to secure the skills the industry needs for the future.

Commenting on the Green Paper, Steve Radley, Policy Director at CITB, said “With Brexit approaching, construction employers are expecting the recruitment of skilled workers to get harder as they anticipate restrictions on access to migrant workers. However, few employers are making firm plans to address this and instead are focusing on retaining their existing migrant workforce.

“This Green Paper highlights the need for a twin-track strategy – investing in the domestic workforce while enabling employers to continue to secure the vital talent of migrant workers. With an estimated 158,000 construction jobs to be created between now and 2022, it is critical that industry works together to deliver its part of this strategy.”

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Over 50% need help to keep skilled workers post-Brexit

A OnePoll survey commissioned by the Royal Institution of Chartered Surveyors (RICS) found that while reception of the apprenticeship levy looks positive, findings indicate concern for the more immediate pipeline of skilled workers in the construction industry.

Findings in brief

  • 42% of construction workers feel more confidence for the growing talent pool as a result of apprenticeship levy
  • 43% have felt a positive impact from apprenticeship levy
  • However, there are still concerns over skills available in UK as 56% think Government and construction workers should help skilled workers from abroad remain post-Brexit
  • 86% of construction workers agree that businesses should focus on skills and abilities for new hires

Is the levy working?

Though the apprenticeship levy only came into force in April 2017, indicators show that it has been well received so far. 43% of construction workers have noticed a positive impact and 42% say that they feel more confident in the growing talent pool as a result of the levy.

Since the introduction of the Levy, a third (36%) have noticed an increase in the number of apprentices employed, and 30% have also seen an increase in the number of apprenticeship applicants, although 15% said they now have more paperwork to fill in. And it would seem those in the south of England are the most positive about the levy, with more than the national average reporting positive impact. This rose to almost two thirds (63%) of construction workers in London and over half (52%) in the South West.
Are apprenticeships enough?

However, while the long-term talent pipeline outlook looks promising, there are concerns over home-grown talent being able to fulfil the demand for skills needed in the construction industry in the shorter term. Output in the construction market is expected to grow over the next 12 months, yet 53% of construction workers say that labour shortages are an issue for business.

With a predicted 8% of the UK’s construction workforce made up of European nationals[2], over half (56%) of construction workers across all levels feel that construction companies and Government should work together to ensure skilled workers in the sector can remain in the UK. This rises to over two thirds (66%) in London and is most keenly felt among senior and middle managers in construction (71% and 67%, respectively).

An RICS report found that 30% of construction professionals said that hiring non-UK workers was important to the success of their businesses. And this shows when it comes to priorities for hiring within the industry.

Barry Cullen, RICS Future Talent Director said “It is great to see such a positive reaction to the apprenticeship levy from the industry so early on and RICS is working with members and employers on schools programmes, to engage and inspire more young people into surveying, to fill a more diverse pipeline of talent. Encouraging the next generation and ensuring there is fresh and skilled talent to meet the demands of the future is vital to any industry’s success, and it’s clear that the construction industry is united in this belief.

“However, with Britain set to leave the European market we must ensure that we are not left in a skills vacuum. An estimated 176,000 EU citizens are employed in the construction business, so it is vital that government and businesses work together to ensure they are able to remain or risk leaving the industry short of the people they need.”

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Brexit uncertainty causes another drop in construction output

The Government and Parliament must break the Brexit deadlock and find a way forward warns the Federation of Master Builder (FMB), in response to the latest Construction PMI data, which shows another drop in construction output.

The March 2019 PMI data revealed an Index score of 49.7, up slightly from 49.5 in February, against the no change threshold of 50.0. This points to a sustained decline in construction output, representing the first back-to-back fall in construction output since 2016. While the residential building sector enjoyed an upturn, commercial construction was the worst performing area.

Commenting on the results, Sarah McMonagle, Director of Communications at the FMB, said “The construction industry is being seriously affected by Brexit uncertainty as evidenced by two very worrying sets of results for construction output in the first quarter of 2019. Businesses have been waiting for politicians to come to some resolution for far too long now, and it’s time that this deadlock was broken. It’s not surprising employers are finding it hard to plan for the future, when we don’t even know when, or indeed if, we’re leaving the EU. Today’s results are a reminder of just how vulnerable the construction industry is to political turmoil as confidence among consumers and contractors continues to wobble.”

“Brexit uncertainty and the construction skills shortage have created a perfect storm in our industry. Around 9 per cent of construction workers in the UK are from EU countries, but we know from speaking to small construction employers that many of these skilled workers are starting to return, whether that’s because of strengthening economies elsewhere, or that they simply don’t feel welcome anymore. This is compounding an already severe construction skills shortage, and I’m worried that the Government’s post-Brexit immigration system will make it even worse. For example, the system will not allow Level 2 tradespeople to live and work in the UK for more than 12 months at a time. At the same time, the Government’s figures last week show that the number of Level 2 apprenticeship starts among our domestic workforce is dropping. It’s quite simply not possible to build the homes and infrastructure we need without bricklayers, carpenters and plasterers. The Government and industry must work together to attract more people into the industry, by offering them high quality training with clear career pathways for progression but in the meantime we need sustained access to tradespeople of all skill levels for the industry to continue being open for business.”

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Theresa May’s offer to delay Brexit spells further uncertainty for construction

The prime minister has pledged that MPs will have three chances to vote on the next stages of the process to leave the EU.

Theresa May promised the House of Commons to hold a meaningful vote on the withdrawal agreement on 12 March. If the deal fails, the Government will ask MPs on 13 March whether they support a ‘no-deal Brexit’. If the House of Commons rejects no-deal, MPs will have the opportunity to vote on 14 March on postponing Brexit until at least 30 June.

The National Federation of Builders (NFB) continues to think that the construction industry needs an orderly withdrawal from the EU, ending uncertainty for businesses. Although the prime minister’s announcement could postpone the imminent prospect of leaving without a deal, it does nothing to dispel uncertainty among construction businesses about the future.

Richard Beresford, chief executive of the NFB, said “While the prime minister appears to be lining up the votes to make no-deal more unlikely, those pushing for a harder Brexit may just decide to cast their unchanged votes at a later date.

“Far from delivering certainty to thousands of construction companies, the prime minister’s announcement may end up delaying a no-deal Brexit by three months.”

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English councils to receive over £50 million for Brexit preparations

Local authorities across England will receive a share of £56.5 million to help support their preparations for Brexit.

The Treasury announced in December that MHCLG would receive £35 million to prepare for Brexit. MHCLG has now added an extra £21.5 million funding using finance from its 2018 to 2019 budget.

Councils will receive £20 million this financial year (2018 to 2019) and £20 million in 2019 to 2020 to spend on planning and strengthening their resources.

A further £10 million will be available in the next financial year (2019 to 2020). This funding is intended to help local authorities with specific costs which may arise following Brexit.

£1.5 million will be allocated in 2018 to 2019 only to local authorities facing immediate impacts from local ports, with the decision on the allocation and distribution of that funding to be announced shortly.

A further £5 million will be split by teams in the Ministry of Housing, Communities and Local Government, local authorities, and Local Resilience Forums for specific purposes such as strengthening preparations and supporting communities.

The funding will help councils to adapt to the changes caused by Brexit, ensuring their local authority is prepared ahead of 29 March, whilst also protecting vital local services.

Councils will decide how to allocate their funding. It is expected that money will be spent on resources like recruiting extra staff to ensure councils have the capacity to provide timely and accurate information to residents who have questions on how Brexit will affect them.

Communities Secretary Rt Hon James Brokenshire MP, said “Local authorities have a critical role to play in making a success of Brexit in their areas.

“I’m determined to ensure councils have the resources they need, which is why I’m releasing £56.5 million of extra finance to help them to deliver essential services and keep residents well-informed.

“I will continue to work closely with local leaders to ensure they are prepared to respond to any Brexit scenario.

“This funding will not be the only resource councils receive from central government to fund Brexit costs. The government has been clear that departments will assess and, if appropriate, fund any potential new requirements of councils as part of EU Exit work they are undertaking.”

The Secretary of State will also continue to engage with the sector through the EU Exit Local Government Delivery Board and regular communications with stakeholders across the sector.

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A blow to the UK’s construction industry?

A potential exit from the European customs union and the single market without a transitional period could have a significant impact on supply chains say leading accounting, tax and advisory firm Blick Rothenberg.

Alex Altmann, Partner and head of the German desk at Blick Rothenberg, said “The construction industry in the UK is dependent on foreign investment, overseas suppliers and European workers.

“Over 60% of all building materials used in the UK are imported from the EU. If the UK ceases its membership of the customs union, the cost of bringing building materials, machinery and other goods from the European mainland would significantly increase due to lengthy import procedures, potential duties and the administration of import VAT to be paid.”

“Not being a member of the single market could see free movement of workers being compromised and a shortage of the workforce would be the result, leading to higher costs for companies hiring workers on UK construction sites. Nationwide, European nationals account for around 10% of the UK construction industry’s workforce. On building projects in London this figure stands at around 40%.”

The UK Government plans to invest significantly into infrastructure in the next 20 years, with projects such as HS2, Crossrail 2 and a new runway at Heathrow airport. The UK has also a dramatic housing shortage and as reported in the media England alone requires about 3 million new homes by 2040.

“The UK’s construction market is very competitive with major European construction and project management companies bidding for building work, with Germany being one of the strongest international market participants. An exit from the European customs union and the single market could have a challenging effect for the UK’s construction industry”

“Many building projects in the UK are European ventures. From clients, investors and design teams to main contractors and specialised craftspeople – the UK’s construction industry is largely based on the EU membership. Ultimately the loss off access to the single market could result in the UK being a less competitive player in the international construction industry.”

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Construction output rises despite Brexit uncertainty

The Government must not be complacent about the damage a ‘no deal’ Brexit would cause amid positive signs of growth in the UK construction industry, says the Federation of Master Builders (FMB).

Commenting on the construction output figures for November 2018, published by the Office for National Statistics, Sarah McMonagle, Director of External Affairs at the FMB, said “The UK construction sector grew by 2.1 per cent during September to November 2018 compared with the previous three months. This is despite unparalleled levels of political uncertainty around the very real prospect of a ‘no deal’ scenario. However, we are urging the Government not to allow these results to create a false sense of security. Since November, political uncertainty has cranked up and is increasing every day. A growing and prosperous construction sector will be a distant memory if the Government allows the UK to crash out of the EU without a deal in place.”

“The construction industry is also extremely concerned about the Government’s proposed post-Brexit immigration system. In the Immigration White Paper, published at the end of last year, the Government revealed that they will make few allowances for low skilled workers to enter the UK post-Brexit. Most tradespeople will be defined as low skilled and therefore will not be permitted to enter the UK, regardless of whether they are from the EU or further afield. It is crucial that the Government introduces a post-Brexit immigration system that continues to allow us to draw on essential migrant workers or else their house building and infrastructure targets will be totally unachievable.”

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Construction bosses fear EU workers won’t return to UK after Christmas

The UK construction industry is asking its highly valued EU workers, who might be travelling home for Christmas, to please come back after the Christmas break, according to the Federation of Master Builders (FMB).

Research focusing on how the bosses of small and medium-sized (SME) construction firms view their EU workers concluded that:

  • 85% of construction SME employers that employ EU workers say that these workers are important in allowing their business to maintain and expand its workforce
  • 76% of these firms say it would have a negative impact on the health of their business if any of the EU workers they employ returned to their country of origin, now or post-Brexit
  • 94% of firms describe the quality of EU workers they employ as ‘good’ or ‘very good’

Brian Berry, Chief Executive of the FMB, said “Our research shows that EU workers are vital to the success of the UK construction industry and our message to these individuals is clear – you are highly valued and we need you. Christmas is now upon us and there’s a risk that those EU migrant workers who go home to their home countries for the festive period might not come back. With Brexit looming large on the horizon, EU workers in the UK are facing high levels of uncertainty over their future. Furthermore, since the depreciation of sterling, their wages aren’t worth as much as they were previously. Construction employers are genuinely concerned that this mixture of uncertainty about the future and less money in their pockets will make the UK a much less attractive proposition that it was pre-referendum.”

“Ministers haven’t done enough to reassure EU workers that they have a future in the UK. In our ‘Construction Industry Brexit Manifesto’, seven of the major trade bodies have called on the Government to embark upon a communications campaign that makes clear to our EU workers that they’ll have no serious impediments to gaining settled status. Indeed, both the Government and the industry need to do all that they can to put a positive message across. In the medium term, the construction industry can and should do more to attract and train a greater proportion of domestic workers. However, such is the extent of the current construction skills shortages, we’ll continue to need to draw upon a high number of EU migrant workers post-Brexit if the Government wants to meet its target for new homes and infrastructure projects.”

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Sharp fall in migrant workers shows UK is already changing ahead of Brexit

The UK labour market is already changing ahead of its exit from the EU as the number of EU migrant workers fell rapidly over the last year, according to the latest labour market figures compiled by The Resolution Foundation

The figures show that the number of EU migrant workers in Britain fell by 4.5 per cent (107,000 workers) in the year to September 2018 – the sharpest fall since records began in 1997.

Britain’s pay recovery is gathering momentum too, with nominal pay growing by 3.2 per cent in the three months to September. This is the strongest growth since December 2008, though still well below the pre-crisis average of over 4 per cent. Above-target inflation means that real pay grew by just 0.9 per cent.

Stephen Clarke, Senior Economic Analyst at the Resolution Foundation, told buildingspecifier: “The sharp fall in EU migrant workers over the last year shows that Britain’s labour market is already changing ahead of its exit from the EU, and long before its post-Brexit migration plan is in place.

“Firms who employ a large share of migrant workers need to think now about adjusting to a lower migration environment, in terms of the workers they employ, what they produce and how they operate.

“The other big labour market shift that is still to come is a proper pay recovery. Yet we see further encouraging signs off the back of a tightening labour market. Nominal pay growth reached its highest level in a decade.

“However, a sustained pay recovery rests on stronger productivity and today’s sobering growth of just 0.1 per cent shows that this is still some way off.”

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