How will Brexit affect the construction industry?

Posted on: January 19th, 2017

Yesterday, in her speech, Theresa May made 12 points towards a successful Brexit. It is now clear that it will be a hard Brexit. This will have consequences for many sectors, including construction. May emphasised that she will be tough on immigration and this may affect the construction sector in several different ways.

Firstly, in terms of access to labour. There is no doubt that the UK construction industry does rely on the expertise that foreign workers can bring. The free movement of people is therefore important because it allows EU citizens to travel and work across other member states. The signs are that it may become harder for some of these workers to travel and work in the UK.

Secondly, if EU workers find immigration to the UK harder than immigration to other EU countries, they might go to the other EU states where free movement is not affected and that could drive up construction costs because of a shortage of labour.

And finally, many businesses employ EU labour because it is cheaper. Cheaper labour means better margins on projects. It also allows businesses to perhaps tender for work that they would not otherwise be able to. Thus, project margins could be hit as the labour workforce becomes more expensive. It might also reduce competition for projects, preventing some businesses from tendering at all because they will not earn sufficient margins to make it worthwhile.

There is potentially a positive side to the UK if this creates more jobs for UK citizens, but I say this with some caution because if margins are going to be squeezed on projects, this could in turn lead to businesses squeezing what they can out of their existing workforce, or even cutting back, as opposed to growing their workforce.

For the time being, it is still unclear how immigration will be controlled and we are yet to see whether it will be more difficult for EU workers to enter the UK job market, or not. To this extent, all of this may just be speculation.

Mark James is a Partner in Coffin Mew’s Dispute Resolution team.