With 29 March coming towards us at pace and no current sign of the Prime Minister securing a deal acceptable to both the EU and parliament, what is on the horizon for the construction industry?
Firstly, what if the Prime Minister’s deal is actually approved by parliament and ratified?
We will enter a transition period until the end of 2020 at the earliest, but capable of extension to as late as December 2022 if both sides agree. During this period, current trading arrangements between the EU and the UK will continue. The UK will continue to abide by EU rules and be subject to the jurisdiction of the European Court of Justice. Free movement of people and goods will continue and the withdrawal agreement will enable EU citizens living in the UK at the end of the transition period to remain in the UK. No customs duties or additional customs checks will be imposed during the transition period, unless enacted EU-wide. Effectively it will be business as usual during the transition period.
But what will the landscape look like if the UK exits the EU without a deal on 29 March and how is this likely to impact upon the industry?
According to Build UK, the UK imports just over £10bn of construction products from the EU each year and exports approximately £4bn of construction products to the EU. At present, operating within the single market, there is free movement of goods within the EU, meaning there are no customs duties, there is mutual recognition of goods and there are no physical or technical barriers to the movement of goods.
If there were to be a hard or disorderly Brexit, tariffs may well be imposed on the import of goods. As has been discussed at length in the media, the starting point is that the UK will default to trading under WTO rules if there is no deal. These rules would sit alongside the Taxation (Cross-Border Trade) Act 2018 under which the government has the ability to set its own import tariffs. Whilst the CBI estimates tariffs on construction products under WTO rules to average out at about 5.7% we do not yet know what tariffs the UK is likely to impose on the import of construction materials and as a result the final possible tariffs. The delay in publication of these tariffs obviously adds to the current uncertainty in the industry.
Import tariffs are not the only concern. So-called non-tariff barriers could also have a negative impact on the industry. In its publication of 6 February, “EU Partnership Pack: preparing for changes at the UK border after a no deal EU exit”, the government explains its approach to the import of goods and materials for use in construction.
The good news is that goods and products already placed in the market which meet EU requirements can continue to be placed on the UK market without any need for retesting or remarking, including where they have demonstrated compliance with EU requirements after exit day. The government has indicated that these arrangements will only apply for a time-limited period and there is no indication of how long the period will be, although the paper states that “sufficient notice will be given to business before the period ends”.
The same will not however apply to the export of construction materials if there is no-deal. Products tested by UK-based accreditation bodies will need to be retested by an EU body before being placed on the EU market.
Whilst there may not be additional testing or marking on imports for a period of time, if there is no deal certain rules and procedures will apply to imports from the EU which currently only apply to imports from outside the EU. These include the completion of customs declarations for goods and materials entering the UK and additional customs checks. These are likely to lead to delays at the UK border.
The government has, however, set up a transitional simplified procedure which is intended to make it easier for businesses to import goods from the EU at roll on roll off locations, including ports and the channel tunnel. This should effectively allow businesses to simplify the declaration process at the actual port of entry and defer payment of import duties. The government has said that this procedure will be in place at least until April 2020. Notwithstanding this new procedure, the government’s own estimate (contained in its publication of 26 February 2019 “Implications for Business and Trade of a No Deal Exit on 29 March 2019”) is that the administrative burden on UK businesses as whole from customs declarations alone could be around £13bn per annum.
For the above reasons we are currently seeing the stockpiling of construction materials in order to minimise disruption in the event of no-deal or a disorderly Brexit.
Whether or not there is a deal, we know there will be changes to immigration policy, assuming we leave the EU. The government has put forward its proposals in the Immigration White Paper published last December. These proposals include:
1 scrapping the current cap on the number of skilled migrants from the EU and elsewhere;
2 a consultation on a minimum salary requirement of £30,000 for skilled migrants seeking five year visas; and
3 the introduction of a temporary 12 month visa category for migrants at all skill levels from certain countries deemed to be low risk.
The latter is intended, in particular, to fill vacancies in construction and social care, where there are obvious concerns about labour shortages once freedom of movement ends. The programme would not however enable successful applicants to settle permanently and would require them to leave for a period of at least 12 months before being able to apply for a further 12 month visa under this category. It is also the intention that this will only be a temporary category, designed to give employers time to find alternatives to using migrant labour, such as by training up local workers or finding technological solutions to reduce, as the government sees it, the industry’s dependence on low skilled workers.
Many people in the industry have concerns about the practicalities of such a system. Construction News reported in the past fortnight that one third of EU nationals working in the construction industry are already considering leaving the country over Brexit uncertainty. Although uncertainty about projects, funding and job availability were cited as the main cause of concern, uncertainty over trade deals and visas were also significant contributing factors. The drop in the value of sterling also reduces the allure of the UK market to migrant labour. If existing workers leave and a new system does not encourage new migrant labour, concerns about labour availability may come to fruition.
How do we deal with this uncertainty?
So how do we deal with this uncertainty in the industry? Due to the legal uncertainty, practical considerations really need to be at the fore, particularly in the immediate aftermath of a hard or disorderly Brexit at the end of March.
Clients and their advisors need to consider the following questions. How are works being programmed and what steps are being taken to ensure that delays in supplies or orders can be avoided or mitigated? What contingency plans do contractors have in place in the event of materials from the EU are not available or if there are significant delays? Has consideration been given to using domestic suppliers as a fall back for critical path items? Are contractors placing orders soon enough? Do clients have enough information about the steps contractors and their supply chains are taking in order to prevent avoidable delay?
It is important to note that, in the midst of this uncertainty, the government has confirmed that, in both a deal and no-deal scenario, EU nationals who are currently in the UK will be able to remain in the UK indefinitely under the EU Settlement Scheme. Clients may therefore wish to encourage their EU employees and contractors to consider making applications under the Scheme as soon as possible so that they are able to secure their long term future in the UK.
Whilst a no-deal or disorderly Brexit is certain to create disruption, as much planning as possible needs to be done around this by clients, their contractors and supply chains. It is never too late to start preparing.