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Brexit and the construction industry – countdown to 23.6.16

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After more than 40 years being part of the European Union, is the UK heading for a parting of the ways? If there is a divorce, can an amicable settlement be negotiated? And what impact could it have on the construction industry?

Questions, questions…

Like all major political issues, there are myriad differing opinions and agendas from a vast array of parties, about the subject on everyone’s lips, the mot du jour, Brexit.

Top executives at JCB are quoted as being unconcerned about the impact on business if Britain was to leave the EU. JCB is the world’s largest manufacturer of construction equipment so theirs is a significant voice. On the other hand, Civils Chief David Balmforth, President of the Institute of Civil Engineers, recently told the New Civil Engineer that leaving the union would have a major impact on the civils sector.

A recent IoD survey found 60% of their members said staying in the EU depended on successful reform in key areas, notably employment regulations.

So, what are some of the many areas for consideration?

Being in the EU

Being in the EU brings the attractiveness of free trade within the union, where goods are able to move more freely with no border controls and no import VAT and duties.

The UK being in the EU keeps things simple for the rest of the world’s larger economies, such as the United States, China, India and Japan, from a compliance perspective, as well as the financial savings.

Many of these economies view the UK as their gateway into the EU.

Leaving the EU

Leaving the EU could shift business investment and production away from the UK towards the EU. Yet some argue that by leaving the EU, the UK could actually attract business as many of these large world economies may wish to avoid the troubled Eurozone environment.

The UK could make a clean break with the EU relying on its membership of the World Trade Organisation (WTO) as a basis for trade.

To trade in Europe the UK would still have to meet EU standards.

Being out of the EU could mean that the UK would have tariffs and other barriers imposed on their goods and services, making them less competitive.

If the UK negotiated an amicable divorce, it would need to retain strong trading links with EU nations and determine the boundaries of future relationships.

Although the British Chambers of Commerce has said it will not campaign for either side as its membership is split, the director general has said, in his opinion, that Britain’s long term economic future could be “brighter” outside the EU.

So, how does it currently work for Norway, Switzerland and Turkey?

The Norway Model

Norway joined the European Economic Area giving it access to the single market, except some financial services.

Norway is free from EU rules on agriculture, fisheries, justice, and home affairs.

It is a member of the European Free Trade Association.

Norway continues to substantially contribute to EU programmes and is bound by regulations with no say or voting power.

Norway is an influencer but not a lead player in decision making.

The Switzerland Model

Switzerland negotiates separate arrangements with the EU in a cherry-picking style.

This model may be preferable to the UK but would key members such as France and Germany allow this pick and mix approach to the rules? It is still reliant on the cooperation of Brussels.

Norway and Switzerland still have to abide by many EU rules without any influence over how they are implemented.

The UK could seek to negotiate a comprehensive Free Trade Agreement with the EU, similar to the Swiss model, but with better access for financial services and more say over how rules and standards are implemented.

The UK would have less political weight around the table making it more difficult to negotiate a good deal.

The Turkey Model

Based on this model, the UK could enter a customs union within the EU allowing access to the free market in manufactured goods but not financial services.

What About the Construction Industry?

Access to labour is a big issue for the construction industry and is a significant factor to many believing that it is unlikely to back a British exit.

Being in the EU has made it easier for the movement of tradespeople, skills and goods. Foreign workers have helped to fill the labour gap in the UK and British workers have worked on projects in Europe. It is believed that foreign workers would find emigration to the UK much more difficult after a Brexit.

As reported in UK Construction Week, house builders have warned that if the UK does leave the EU it could lead to a shortage of skilled construction labour, limit investment in new house building and exacerbate the UK’s housing shortage.

What could be the impact on the public sector in relation to UK infrastructure projects? It is envisaged that the UK public sector will remain subject to some form of public procurement regulations on the grounds that international trade rules (including public procurement agreements) tend to operate on the basis of reciprocal treatment. It is also envisaged that contracting authorities are likely to encourage a competitive tender process for any infrastructure project - to open up the pool of potential bidders in line with value for money considerations.

The EU State Aid rules may cease to apply, but the UK will remain bound by WTO rules relating to subsidies which are based on similar principles.

Construction in the UK benefits from EU grants but there is a general desire to curb red tape.

The Final Word (for now)

There have been rumours of millions of job losses should the UK leave the EU, but I’m leaving the final word to Ryan Bourne, Head of Public Policy at the Institute of Economic Affairs (IEA), who commented: “It can be said with certainty that three to four million jobs are not at risk in the event of a Brexit. It’s high time that politicians and commentators stopped scaremongering, and recognised that jobs are not associated with trade and not the membership of a political union. The UK enjoys a dynamic labour market, and a range of outcomes would be possible as it adapts to new policies outside of the EU. The public deserve a rational and informed debate.”

The IEA is a registered educational charity and independent of all political parties.

(Sources: The Guardian, Grant Thornton, BBC, IEA, Baker Consultants, Norton Rose Fulbright).

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