Watching the minimal impact on the industry over the past two years, I’ve tried to be optimistic about Britain leaving the EU – but now the tide seems to be turning
During the long, hot summer, wasn’t it lovely to find brief respite during the World Cup, as conversations by the water cooler turned to something other than Brexit? Sadly, all too soon England was flying home, France was parading the trophy down the Champs-Élysées and prime minister Theresa May was endeavouring to sell a Brexit plan that was less popular within her own party than it was with some of the opposition. Strange times.
We are now at the worrying stage when the government feels it necessary to write to us on a monthly basis warning about what could happen if we crash out of the EU with no deal. In such an event Dominic Raab, the new Brexit supremo, apparently proposes to turn the M26 into a lorry park, force a quarter of a million small businesses to start preparing customs declarations for the first time, and ready the armed forces to move food and medicines round the country. This must be what “taking back control” and “strong and stable” mean.
The drip, drip, drip of negative news regarding the inability of those in power to see how economic confidence is inextricably linked to perceived political competence is astounding
In terms of our sector, labour and materials have been undoubtedly been adversely affected since the vote to leave, but not in the Armageddon-like fashion described by many of those who campaigned to stay in the EU. As someone who voted to remain, I was initially encouraged by this. Work has continued to come in, people are still building and I was beginning to wonder if this Brexit thing was a bit overblown. That has now changed and I notice that, like most of the UK’s major employers, senior figures at companies such as Berkeley Homes and Skanska are expressing concerns about the current situation in the strongest terms.
The constant drip, drip, drip of negative news regarding the inability of those in power to see how economic confidence is inextricably linked to perceived political competence is astounding. Two years from saying that we were due to leave the EU, the vacillation and leadership vacuum is affecting everything from accurately being able to predict build costs to planning our staffing requirements. At the macro level, the country now has its eighth housing minister in eight years – the latest, a casualty of the reshuffle brought about by a Cabinet riven by Brexit. Imagine a business where a director is replaced on a yearly basis – would you invest in a company that has such a high turnover in senior management?
It is not just housebuilding that is threatened. The proposed spending on road, rail and power are also under threat as the prime minister buys loyalty from her health secretary with a £20bn spending boost for the NHS, paid for with funds that will need to be stolen from other departments’ budgets. The outlook from the Infrastructure and Projects Authority’s latest annual report warns that one-third of new projects are either dead or in doubt owing to the impact of Brexit.
Over the past two years, we have lived through a phony war. Confidence was knocked but did not disappear – we are still hiring staff, for example. But I now sense a change in temperature
Looking at specifics, those I’ve spoken to who work in the built environment feel there is definitely a growing sense of insecurity that has been heightened in recent months. Projects will not go ahead unless they are pre-let and funders will not lend to clients on a speculative basis without cast-iron guarantees that buildings are going to be generating immediate income upon completion. There has also been a rise in refurb work as opposed to new-build, as firms renegotiate existing tenancy agreements to remain in their present commercial units rather than taking more space in a new unit or building from scratch. They do not want to risk the investment if they feel a downturn is coming following a hard or no-deal Brexit. Even if projects do go ahead, the cost of planning is much more challenging, with labour and material costs on the rise. The former is caused by the shortage of talent and the latter by the depreciation of sterling since the referendum.
Over the past two years, we have lived through a phony war. Confidence was knocked but did not disappear – we are still hiring staff, for example. But I now sense a change in temperature. The pipeline is blocked, as clients do not want to risk signing on the dotted line and are either looking outside the UK for a more stable economy in which to trade and build, or deciding to put up the shutters, ride out the storm and see what happens post-Brexit. This is not “Project Fear” as it has been termed by those excited by life outside the EU – it is a reality.
Some argue that London and the South-east of England are much more negative about the effects of Brexit than are others. Maybe this is true, but you cannot ignore the reality that London alone is worth about 22% of the UK’s GDP, while Scotland, the north-east of England and Yorkshire combined make up less than 16%. If London sneezes, we all catch the flu.
By nature I am an optimist, but also a realist. As the clock runs down until we leave the EU and the government appears unable to offer either credible management or any sense of empowerment over a situation of its own making, perhaps it’s best to be like Gareth Southgate and the England football team: hope for the best, but prepare for the worst.
Richard Steer is chair of Gleeds Worldwide