Brexit - the impact on the construction sector six months on
As productivity has increased this year in construction projects, the UK demand for construction materials from the EU is outweighing supply.
The construction industry, like many other sectors, released a huge sigh of relief when the Prime Minister, Boris Johnson announced in December 2020 that a trade agreement had been reached with the EU. The Trade and Cooperation Agreement promised tariff and quota free trade between the UK and EU from 1 January 2021 to facilitate uninterrupted trade. Six months on, it is not smooth sailing and being at the heart of the UK economic recovery is a challenging place to be for the construction industry as it battles to understand and overcome the impact of Brexit.
The Construction Leadership Council established the Products Availability Taskforce (“PAT”) earlier this year at the request of the Government. It aims (amongst other things) to monitor UK supply and demand of materials required for the construction industry. PAT’s update for May 2021 highlighted a number of concerns (summarised below).
As productivity has increased this year in commercial and domestic construction and infrastructure projects, the UK demand for construction materials from the EU (and beyond) is far outweighing supply. This is for a raft of reasons:
- A rise in material prices due to unexpected customs duties and additional paperwork at the border. To avoid additional administration, EU suppliers are supplying their EU neighbours before exporting to the UK;
- Production constraints caused by COVID and workforces remaining at home – heightened by annual maintenance ‘shut downs’ for some manufacturers;
- Significant shortage of haulier drivers to transport materials - EU citizens not meeting the new criteria for skilled work visas under the new UK immigration rules. The rules give priority to high skilled roles which does not include HGV drivers. The Road Haulage Association say there are approximately 60,000 driver shortages and the industry will not be able to maintain the integrated supply chains should this continue;
- Delays in delivery of materials to suppliers or projects due to delays at ports caused by additional paperwork required under the terms of the Trade and Cooperation Agreement;
- Monopolisation of imported materials by the larger construction businesses able to meet the higher prices, to the detriment of smaller construction businesses/projects;
- Project delays due to a shortage of UK based EU workers in UK construction. The deadline for Pre-Settled Status and Settled Status applications is 30 June 2021. As a result of Brexit, applications for Pre-Settled Status and Settled Status under the EU Settlement Scheme have been received by the Home Office from the inception of the Scheme on 29 March 2019. The Scheme permits applications from EU, EEA or Swiss citizens who wish to continue living and working in the UK after 30 June 2021. If granted, applicants can remain living and working in the UK and have the right to access housing, healthcare, benefits and education. However, the Independent Monitoring Authority for the Citizens’ Rights Agreements (“IMA”) has reported significant delays in Home Office approval process and in excess of 320,000 applications outstanding. The IMA has warned that applicants without a certificate of application acknowledging their application on 1 July 2021 may not be viewed as legal residents and may, therefore, fall foul of immigration status checks
As the COVID restrictions begin to ease and more projects get underway at pace, the Brexit effect is likely to have an increasing impact on the construction industry e.g. project delays, labour and materials shortages and resulting disputes. The shortfall in construction materials is forecast to continue along with price increases and battles in the supply chain to secure a share of those imported materials. Also, the Government is scrutinising procurement rules and the Procurement Bill is expected in September 2021. Clearly, the Brexit impact did not stop with the arrival of the Trade and Cooperation Agreement. The resilience and adaptability of the construction industry is being (and will continue to be) tested by the Brexit effect. We have a team of experts ready to assist you and your business tackle the changes and challenges ahead.
If you wish to discuss construction contracts and procurement, please contact Colette Morgan-Ford.
For assistance on immigration law issues (e.g. shortage of EU workers and the EU Settlement Scheme) you can contact Mandy Higgins.
Contact our expert construction solicitors who can provide further specialist advice.