The mayor of London has warned that 43,000 UK construction jobs are at risk if there is a “no deal” hard Brexit.
Sadiq Khan’s grim forecast is based on research from economic analyst Cambridge Econometrics, which indicates that Britain’s exit from the European Union could lead to a lost decade of lower employment and economic growth, with the country potentially having 500,000 fewer jobs in the worst-case scenario and nearly £50bn less investment by 2030.
London would be less affected, but there would still be 5,000 construction jobs affected, and as many as 87,000 fewer jobs overall. The capital’s economic output could be 3% lower, compared to between 3% and 3.3% for the rest of the country, according to the report commissioned by the mayor.
Khan said: “This independent analysis reveals the potential economic risks – and human costs – at stake in the negotiations. It should help guide the government to the best outcome for London and the UK.
The analysis concludes that the harder the Brexit we end up with, the bigger the potential impact on jobs, growth and living standards. A “no deal” hard Brexit is still a very real risk – the worst possible scenario.
Construction jobs forecasts from Khan’s Brexit report
Skills
One of the major issues facing the construction sector is the shortage of skills. The sector currently relies heavily on a foreign migrant labour force. Almost 13% of construction workers across the UK were born abroad, and in London and the South East, this proportion increases to 50%. In particular, 25% of employees in the sector in London were born in the EEA31.
Once the UK leaves the Single Market, it is likely that the skills shortage could get worse, if the new agreements don’t allow for free movement of people. This could result in even higher pressures on wages, as labour supply contracts, causing construction firms to face considerably higher project costs.
Additionally, this could reduce firms’ capacity to deliver new houses to meet the government’s housing targets, and further deepen the housing crisis, especially in London. The labour market issues the construction sector faces are reflected as an expected fall in productivity in the macro modelling assumptions.
Trade impact
Once the UK leaves the Single Market, the construction sector is also likely to be affected by trade impacts. A 2010 study by the Department for Business Skills and Innovation highlights how reliant the UK construction sector is on the rest of the EU, estimating that 64% of building materials were imported from the EU, and 63% were exported to the EU.
If the UK faces a reduction in access to the EU market following Brexit, construction firms could experience an increase in their costs or a shortage of building materials, as they face an increase in tariffs or limits on quantities imported, which is reflected in the trade assumptions applied to this sector.
Funding and investment
At the moment, the UK construction sector benefits from having access to the European Investment Bank (EIB) and the European Investment Fund (EIF), which have invested €7.8bn in major infrastructure projects, and lent €666m to SMEs in 201532.
A loss of these financial aids could significantly impact the ability of firms to deliver big infrastructure projects such as High-Speed 2 and reduce development opportunities for start-ups.
Additionally, foreign investment could dampen due to uncertainty over the UK economy following Brexit, and as investors delay making decisions on the future of projects. This loss of potential future investment has been reflected as a fall of up to €852m in investment in the sector by 2030, depending on the scenario and the severity of Brexit.
The full report can be accessed here
