With less than two months before 31 October 2019, the date by which Britain is slated to leave the EU, there is still a high degree of uncertainty over how Brexit will be implemented. There still remains an increasing possibility/probability of a no-deal Brexit, a thought which is causing many businesses across the UK to step up their preparations for that eventuality.
So, how will the UK’s departure from the EU affect the construction industry?
According to ONS’s Migrant Labour Force Report, August 2019, 8% of the UK construction workforce are EU nationals. This figure increases to 28% in London where a greater proportion of all UK residents are working in the construction of buildings sub-sector (21%) compared with the rest of the construction industry (13%).
With over a quarter of London construction workers migrating from the EU, it’s no secret that the national construction industry relies heavily on migrant labour. However, with the Government publishing its policy on no-deal immigration arrangements for EU citizens arriving after Brexit and considering the relatively encumbersome EU Settlement Scheme currently in place, it is possible to assume that current EU residents will lose their right to reside and work in the UK after Brexit and that fewer EU migrant workers will be allowed in the UK post Brexit. This will undoubtedly have a direct impact on London’s housing shortage and the construction industry workforce in general.
Reducing migrant workers numbers could also include a skills shortage that could lead to higher project costs, with the demand for labour outweighing the ability to supply.
Brexit will have an impact not only on the free movement of workers, but the free movement of goods between the UK and the EU will also come to an end. Supply chain difficulties and delays will constitute the biggest challenge after Britain leaves the EU.
According to the Department for Business, Innovation and Skills (which has now been replaced by the Department for Business, Energy & Industrial Strategy), almost two thirds of building materials in the automotive sector (one of four key manufacturing industries in the UK) were imported from Europe. As such, higher taxation rates and limits on quantities of imported materials post-Brexit could have a significantly negative effect on the construction industry.
Although this may boost a subsequent increased focus on the manufacturing of British goods, consequential tariffs imposed on British products across Europe could mean further trouble for British industry and UK enterprises.
With the supply of labour likely to be unable to meet its demand, it’s very likely there will be a knock-on effect, with house builders unable to meet government housing targets. Consequently, this would see a rise in house prices and project costs.
Infrastructure and Funding
In 2015, €7.8bn worth of investments in major infrastructure projects in the UK were sourced from the European Investment Bank and the European Investment Fund. In addition to this, these institutions lend over €500m to British SMEs every year.
The loss of these revenue streams could have a major impact on the construction industry, including the ability to deliver on large-scale infrastructure projects. There have been suggestions that this money could be replaced by that saved from EU membership fees. However, it is becoming increasingly unlikely that, in the face of consistent governmental cuts and budget reassessment across all sectors, infrastructure would see any significant investment.
Has your business planned for Brexit?
In reality, nobody is certain how Brexit will objectively affect the construction industry without first establishing a clear exit strategy. With the UK being worryingly far from a clear strategy less than two months ahead of Brexit, there are nevertheless some key issues for business owners to consider in order to prepare for the event of a no-deal scenario:
- Consider how changes in Data Protection law
might affect your business.
- If the UK leaves the EU without a deal, then the UK will become a third country for the purposes of EU data protection law. Helpfully, the UK government has stated that transfers of personal data from the UK to the EU will not be restricted immediately post-Brexit. However, the European Commission has confirmed that the process for carrying out an adequacy assessment of UK law will not commence until after exit day.
- EU ‘model clauses’ may be needed for personal data flows from the EU into your British business and (once here) for flow of that data from you to counterparties/subcontractors in the UK (the second bit of which is often overlooked), until such time that the UK data protection measures are granted “adequacy” by the European Commission.
- Whilst the UK has said that transfers of personal data from the UK to the EU will not be restricted immediately post-Brexit, it is also possible that UK laws relating to personal data transfers could change post-Brexit. This means that organisational and contractual arrangements around personal data transfers will need to be kept under review.
- Consider if your business (or the British part of your business) relies on the freedom of establishment rule in relation to the rest of the EU. If so, you might want to consider alternative visa and/or immigration plans for your contractors to be able to keep dropping in and work for your overseas clients on a freelance/self-employed basis.
- Consider if your business (or the British part of your business) relies on right to free movement of staff/workers between the UK and the rest of the EU and vice versa. If so, a no-deal Brexit may mean your key workers cannot easily be where they need to be for you to service clients. If this means that (for example) you cannot meet KPIs or other contractual obligations, will they need to be amended?
- Consider how your existing contract terms
might be affected by a no-deal Brexit.
- If you have contracts which refer to the EU, do they need to be amended? For example, if your contracts refer to the use of software in the EU, to EU geographical application or specific EU laws or if you have EU cross-border contracts incorporating physical delivery of goods/materials/supplies etc. or imposing responsibility for import or export costs.
- Do you need to clarify that Brexit is not a force majeure event or an event that gives rise to frustration, or contractual rights of termination etc.?
- You might need to identify provisions which may have some flexibility, such as the business being able shift responsibility or risk to the co-contracting party. For example, does your business have any discretionary rights or obligations?
- You might need to check your currency fluctuation risk and include clauses with your contractual chain which allow you to pass on any increased costs.
- Or, you might want to evaluate the rights that your business has to vary the terms of a contract, or how, and under what terms, can your business terminate the contract and exit the relationship.
- Consider any tax consequences of a non-deal Brexit, for example in relation to intra-group dividends, or the practicalities and cash-flow implications in relation to the payment of VAT.
- Consider your intellectual property rights and whether you need to protect trademarks across both the UK and EU.
- The British Chamber of Commerce has published a useful guide which aims to help British businesses prepare for Brexit. The guide can be found here: https://www.britishchambers.org.uk/page/business-brexit-checklist
If you have a question about how your business might be
affected by Brexit or what steps you can take now to prepare, you have only to
ask. I am here to help you: adriana.badescu@adrialegalservices
or on +34 642179206.