Brexit - 2019 and beyond

News Posted 12/10/18
The construction industry must be prepared for whatever Brexit brings in six months’ time, say three experts in their field

2019 and beyond

Thinking ahead is the key in being ready for whatever Brexit brings, says a senior executive in the construction industry.

Allan Willen, economics director at Glenigan, chaired a panel at the South East Construction Expo held at the Ardingly Showground in Sussex on 13 September, opening the discussion by outlining his three areas of concern around how Brexit would affect the industry.

“First, there is heightened uncertainty about the impact it will have generally, then concern about the weakened state of the UK market and finally how the supply of overseas workforce and the import of materials will pan out.”

Senior director of the financial services Brexit team at KPMG, Richard Bernau, says the importance of planning for outcomes relied on ensuring working capital and liquidity, so that businesses could get over any issues arising from Brexit. Here, banks were “well down the track,” he said, but other sectors were not as well prepared. Some, like supermarkets, relied on up to 100,000 different suppliers and yet were in no way preparing themselves for the outcome after March, 2019.

Director of Beard Construction, Guy Hannell, told the audience his medium-sized business, with a turnover of £150 million, had been trading for 126 years and weathered many “booms, busts and wars”, but he regarded Brexit as the biggest challenge yet.

Sixty per cent of Beard’s business was within the education sector, said Guy, and it was clear there would now be more competition for contracts, as companies saw it as a source of regular work.

A “chronic” shortage of managers within the construction industry over a number of years was going to be crucial after Brexit, Guy believed. He was concerned a large number of immigrant workers would choose to leave, because job prospects would not prove as attractive post-Brexit as they do now. He was unsure what a “no deal” outcome would bring for the industry.

Allan Willen pointed out that a high percentage of the workforce within the construction industry was made up of immigrant workers – up to 25% in London and the South East. He predicted that after Brexit, London would continue to “suck in” labour from elsewhere, because of higher pay rates, creating shortages elsewhere.

“These are all factors which put a strain on the industry,” he said. “The government wants to see investment in infrastructure, but will the capital be there?”

Richard Bernau pointed out that the European Investment Bank contributed £30 billion to the UK construction industry, but that would no longer be available post-Brexit. “What will replace it? It’s not clear,” he said.

The import of materials for the construction sector would also be badly hit by Brexit, said Guy Hannell. Businesses would have to take into account longer delivery times, with more complicated, lengthy negotiations at British ports. However, this did offer opportunities to manufacturers in the UK to up their game, he added.

Allan urged construction companies to “plan ahead and get the early design stage right” in order to overcome possible import difficulties. Guy agreed, saying his company was already finding it had to order specialist bricks early to meet contract deadlines. This was particularly true in the education sector, which is bound by school term dates.

Richard said it was vital to check contracts for timing clauses and his message for the audience was: “Do something to mitigate the worst scenario, but don’t wait. Do it now.”

Confidence review

Exclusive research into British investor confidence has been undertaken by SME investment firm IW Capital, as the UK enters the final six months of the run-up to Brexit.

With the prime minister under attack for failing to tie down a firm deal on the UK’s withdrawal from the EU, the survey revealed:

Three in ten said that securing a good deal with the EU was crucial to them continuing to invest into UK SMEs.

Forty-three per cent feel that the government’s actions now affect their investment decisions more than ever.

Three in ten said that while Brexit in itself had not affected their investment decisions, the government’s handling of the negotiations did negatively affect their investment decisions.

More than a third (36%) of British investors believe that the UK will be a wealthier country, boosting their investment profile, post-Brexit.

CEO and founder of IW Capital Luke Davis said: “Brexit is an opportune moment for many UK businesses, however the government’s handling of it appears to be more a stumbling block for investors than leaving the EU. Despite this, the sentiment is largely positive, with millions of investors optimistic about opportunities after we officially leave.

“The weight of responsibility falls on politicians on both sides of the Channel to ensure that SMEs in the UK are supported through this potentially turbulent time.”

Mr Davis advised businesses to draw up a definitive Brexit strategy, to be prepared for whatever happened.

Southern optimism

Business leaders in the south are split over the UK government’s prospects of delivering a good Brexit deal, a survey by audit, tax and consulting firm RSM has revealed.

Half of respondents in the south who responded to the survey, conducted by YouGov before the Salzburg Brexit meeting, said they were confident in the government’s ability to achieve a “good” deal. This is up slightly on the previous quarter and higher than the national average of 39%, which dipped to its lowest quarterly level since the survey was first carried out in the second quarter of 2017.

For the first time, the survey also canvassed business opinions towards a second referendum, revealing that a majority of respondents in the south said they were in favour.

Sixty-seven per cent of middle market business leaders in the region said they were either fully in favour of, or would broadly welcome, a second referendum on the terms of the UK’s exit from the European Union. Meanwhile, just seven per cent said they would either not welcome, or would strongly oppose a second referendum.

The survey found that support for a second referendum was equally high in London, but in Scotland it was just 47% in favour.

RSM’s southern regional managing partner John Taylor said: “Despite the political impasse, companies in the south are more optimistic than other regions about the prospects of the UK government securing a good deal. However, many are also in favour of having a say on the terms of the deal, with two-thirds expressing support for a second referendum. At present the government’s position suggests that a second referendum on the terms of departure is not an option that’s currently on the table.

“All eyes will now be on the EU summit in mid-October, described by Donald Tusk as ‘the moment of truth’. Many businesses will be hoping for some much-need progress from both the EU and the UK.”

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