background

The UK/ EU Trade Agreement

UK Construction Intelligence Report

How it affects the Construction Industry?


Finally the Brexit talks reached an ending with a free trade agreement being reached. The headline “no quota, no tariff” may have sounded positive but the outcome means that the industry will have face potential problems To reach the agreement some areas e.g. financial services have not been resolved. During the next few years we can expect clarification of grey areas.

The UK / EU trade agreement forms a typical free trade agreement. The result of this, the Office for Budgetary Responsibility (OBR) forecast in November 2020 that it will lead to a long-term loss of around 4% to the GDP in the long term compared to remaining in the EU.

Key Measures

  • Labour
    • Since the UK entered the EEC (as it was known in 1973) we have benefited from the free movement of labour. With Brexit has come “Taking Control of our Borders”, meaning restrictions on the freedom of movement of people enjoyed by many EU workers and this will be felt across many sectors including the construction industry.
    • It is suggested that there is a shortfall of 140,000 construction workers below the level needed for the output required. It is estimated that up to 15% of the construction labour force is of non-UK citizens raising to 35% of London’s construction workforce coming from EU countries.
    • Since our decision to leave the EU, many EU nationals have decided to leave the UK. Whilst residents may have applied for the EU Settlement Scheme to retain the right to remain in this country future migration of workers away from the country is inevitable.
    • The new points-based immigration system, with an emphasis on attracting higher paid professionals or where skills are known to be missing is likely to exclude roles such general labourers and lower paid jobs.
    • With the UK already suffering from skills shortages, project costs could be driven up, there are already reports of labour shortages with agencies suggesting that labour rates could rise by up to 10%.
    • In the next few years we could quietly see a loosing of controls regarding the positions deemed to need filling and construction could benefit from changes to the points-based system to encourage workers into the UK.
    • Domestically with London predicated to lose a quarter of its workforce with the impact of drawing workers from the rest of the UK with the temptation of its higher wages and the subsequent impact of potential delays from sourcing workers from a depleted workforce.
    • With the UK already suffering from skills shortages, project costs could be driven up, there are already reports of labour shortages with agencies suggesting that labour rates could rise by up to 10%.
  • Supply chains
    • It is estimated that between 20 – 25% of all construction materials and products are sourced from overseas with the EU providing two thirds of the total amount. However the trade agreement has introduced the need for customs declarations when importing or exporting which will cause delays caused by extra checks and expense because of the additional administration
    • With uncertainty over the availability of materials and products the from Chartered Institute of Procurement & Supply (CIPS) and the industry is the need for early engagement with the whole supply chain to anticipate and manage supply and demand.
    • Contractors, designers, and specifiers for projects must understand the materials supply chain, including where goods are manufactured, how they will be affected by changes in regulations (See Reciprocate Standards), and new custom checks for transport arrangements.
    • For example some product such as facades and cladding, are critical as they are usually made to order and there is little stock held in the UK. Projects requiring these products, particularly any which are specialist or bespoke, should be engaging with suppliers and manufacturers as early as possible, placing orders earlier than usual, importing products ahead of time, and storing them in the UK.
    • This approach is particularly recommended for 2021 when the new rules are still being established and delays or disruption in supply will negatively impact on the critical path of any programme.
  • Reciprocate standards
    • One of the most published and political aspects of the trade talks was the need to ensure a level playing field between the UK and the EU and with it the threat of retaliation by either party such as the placing of import tariffs.
    • The single market contains harmonised regulatory standards and mutual recognition of standards, contributing to frictionless trade.
    • With the UK leaving this behind raises the risk of inconsistency between the two trading blocs and the divergence in standards, as well as increased bureaucracy for businesses as discussed in supply chains.
    • The deal allows for the recognition of current EU standards under the term “designated standards”. Where the trade agreement falls down is that it doesn’t allow is for future acknowledge of future diverge of standards and procedures will need to be put into place for testing or determination of EU or worldwide products, not just by the UK but by overseas producers looking to achieve UK accreditation. In the short term the specification of UK products will enable projects to continue.
    • Going forward it should not be presumed that any imported goods will automatically meet the requirements set down by British Standards. There is the possibility that this could drive shortages in material supply and therefore cost increases or worse no supply.
    • The short-term measure will be to use valid UK products and ensure that imported goods carry recognised legal marks third party conformity assessment by an approved body to continue to be used within the UK.
  • Construction Pipeline
    • Following the ending of the transition period the UK was removed from the ‘Official Journal of the EU’ (OJEU) which provided access to contracts across the EU. To assist British contractors the UK Government has introduced the ‘Find a Tender Service’ portal.
    • Market access to European and worldwide jobs has been retained by entry into the WTO GPA (Government Procurement Agreement) scheme.
    • The GPA is a plurilateral agreement between 20 signatories, including 19 states globally and the European Union (which signed on behalf of its 27 member states). The purpose of the GPA is to ensure that governments allow public procurement opportunities to remain open to businesses from each other’s states. The GPA covers most (but not all) projects covered by the EU rules on procurement. Some, however, are not included (such as defence projects and contracts awarded by utility bodies).
    • The government have announced the creation of a new UK Infrastructure Bank to be set up to part fund alongside the private sector for new infrastructure work. During the March budget the Chancellor announced it would have initial capital of £12bn, with the aim to support £40bn of investment. Its primary focus will be on the economic infrastructure sectors covered in the National Infrastructure Strategy, including clean energy, transport, digital, water and waste.
    • In December 2020 the Government introduced the “Construction Playbook” which is a guidance note on sourcing and contracting public works and programmes with the aim to initiating changes in how public works are procured and managed. In addition to the usual aims of introducing MMC, creating win-win contracting arrangements and standardised designs and components the playbook intends to produce the right situation for promoting social value and the 2050 Net Zero Commitment. The link to the playbook: The Construction Playbook - GOV.UK (www.gov.uk) .