The impact of Brexit on the infrastructure industry

Position Paper
September 2017

1. Introduction

• Balfour Beatty is a leading international infrastructure group. With 15,000 employees across the UK, Balfour Beatty finances, develops, delivers and maintains the increasingly complex infrastructure that underpins the UK’s daily life. Delivering projects across transportation, power and utility systems, social and commercial buildings: from Crossrail and the Channel Tunnel Rail link, Heathrow T2b to the M25, M60, M3 and M4/M5; Sellafield and soon Hinkley C nuclear facilities; to the Olympics Aquatic Centre and Olympic Stadium Transformation. We also have significant experience and understanding of the links between infrastructure investment and regeneration and economic growth.

• This paper sets out Balfour Beatty’s views on steps which could be taken to mitigate any negative impacts on the construction and infrastructure industry, and to enable it to take full advantage of opportunities as they arise.

2. What would an ideal Brexit look like?

• The UK must remain “open for business”. We welcome the Government’s Industrial Strategy Green Paper  and the fact that continued investment in economic infrastructure and developing skills have been placed at the centre of it. The Industrial Strategy should be so designed to ensure continued foreign investment in infrastructure. There must be also continued funding for infrastructure to replace the investment the country currently sees from, for example, the European Investment Bank, to help the economy grow and be rebalanced.

• Investment in the domestic work force should continue and be accelerated in order to address the national skills shortage. This should take various forms, for example, through continued promotion of earn and learn opportunities, increased support for lifelong learning and upskilling, increasing the diversity of the work force, retraining former armed forces personnel and ex-offenders and other schemes which help upskill and reskill the UK workforce. The Government should also continue to engage with industry regarding the Apprenticeship Levy, which will need to evolve to ensure it is delivering the maximum apprentices.

• Alongside investment in the domestic workforce, we believe that the Government should ensure a migration system that allows the construction industry to attract the talent it needs from the EU and beyond, in order to make up any shortfall as we continue to build the skilled domestic workforce we need. This calls for an immigration regime which is sufficiently open to address the full range of skills shortages in the construction sector and enables the sector to recruit key workers without fees or costly bureaucratic arrangements.

3. Skills

• Balfour Beatty believes that a strong and resilient construction industry needs a robust domestic skills base. As a British company with a hundred year legacy in the UK, Balfour Beatty is committed to addressing the skills shortages in the UK and investing in home grown talent. Balfour Beatty employs over 150 apprentices each year in the UK in addition to the 320 currently under training in a diverse range of roles across the business. We employ around 700 more young people on graduate and part-time higher education/degree schemes. Balfour Beatty is also a long standing member of The 5% Club, an employer led organization set up by our Chief Executive, Leo Quinn, three years ago, aiming to address the skills gap by getting more young people into earn to learn opportunities, encourage businesses to take the lead on training and promote apprenticeships as a positive career decision.

• However, developing the skills we need to build tomorrow’s infrastructure takes time. It can take a decade from starting an apprenticeship or training for someone to gain all the skills they need in specialist areas such as nuclear new build for example. With various large infrastructure projects in the pipeline, including mega projects such as HS2 and Hinkley Point C, our progress in addressing the skills gap needs to accelerate.

• Furthermore, while it is essential to invest in home grown skills, the increased volumes of workers the industry is expected to need, together with the ageing workforce, mean that it will be challenging to recruit the skilled workers the industry requires to build tomorrow’s infrastructure, even if we guarantee the right to stay of existing EU migrants in the industry. The projected need is for over 250,000 construction and over 150,000 engineering construction workers by 2020, driving a need to recruit and train nearly 100,000 additional skilled workers by the end of the decade . If the EU workers in the industry were to leave in the short-to-medium term, this figure would be undeliverably high.

• For the infrastructure industry, free movement of labour in the EU has allowed us to find the skilled staff we cannot currently find in the UK. Indeed, Royal Institution of Chartered Surveyors (RICS) data shows that 8% of the UK’s overall construction workforce is made up of EU nationals  and in November 2016:

o More than 10% of the Balfour Beatty workforce held non-British EU passports and around 11% of new recruits in 2016 held non-British EU passports.
o Around 100 of our 2016 recruits came to us via a pro-active campaign targeting Greece and Portugal with a further 40/50 expected in 2017.
o In our supply chain, the proportion of non-British EU workers is even higher.
o However, only 0.2% of our 2016 recruits come from outside the EU due to the complexity, cost, administrative burden and time delays required in managing the current points based sponsor licence system.

• Figures  show that the number of EU-born workers in the UK has begun to decline following the vote to leave the EU. Nor are Brexit’s effects confined to individuals already residing in the UK. The Office for National Statistics recently published details that the number of EU nationals looking for work in Britain fell in the year to September 2016 – the first reduction since 2012. This highlights the uncertainty surrounding whether, and on what terms, EU citizens will be able to stay in the UK and indicates that the UK is already starting to lose its attractiveness to Europeans. Analysis by the Resolution Foundation think-tank shows that graduates were the biggest driver of the fall in numbers, with the construction industry seeing one of the steepest falls.

• Uncertainty around the free movement of labour in the EU could cause the industry recruitment and staffing difficulties, increasing costs where demand for labour outstrips supply, with the subsequent risk of project delays. As the costs of government-funded construction projects increase taxpayers will carry the burden. We therefore welcome the Government’s intention to reach an “early agreement” guaranteeing the status of Europeans living in the UK  and the Prime Minister’s proposal of a “transition period”.

• With these challenges in mind it is vital that efforts continue to address the skills gap in the UK and we need strong strategies from Government and industry to build the skills base in the UK. Innovative solutions such as retraining Armed Forces veterans and ex-offenders; “returnships” to increase gender balance; and schemes to increase diversity can help cut costs and address the skills shortage and we recognise that it is for the industry to step up to the plate and implement such measures.

• The Government should also continue to engage with industry regarding the Apprenticeship Levy, which will need to evolve to ensure it is delivering the maximum apprentices and a strong pipeline of talent. Balfour Beatty has welcomed the Apprenticeship Levy and the Government’s commitment to three million apprenticeship starts by 2020, as long as they are supported by a focus on completions and quality. However, we believe there are a number of ways in which the Levy could be refined, for example, by enabling large companies to pass more of the levy funding they are unable to use down their supply chain to ensure skills gaps in the industry are filled, rather than the money being redeployed to train apprentices in other sectors; and clarification of rules relating to the time apprentices are able to spend on off-the-job training.

• We also see digital technology, modular design and offsite construction as powerful ways to reduce the size of the construction industry workforce. The offsite construction sector currently accounts for around 10%  of total construction output in the UK, a figure which is increasing. These technologies have potential beyond addressing the skills shortage: they can help address the need for new housing and the low carbon agenda also. Balfour Beatty has a purpose built off-site manufacturing facility manufacturing products including packaged plant rooms, service modules, riser modules and modular electrical systems. Working in this way is safer (e.g. significantly fewer ‘at height’ hours), more productive, high quality with less waste, and provides customers with substantial savings in terms of time and money. 

• However, we believe that there is also a case for examining Home Office Shortage Occupation List in the short-term as an interim measure, to ensure that the industry has access to the talented, highly skilled individuals it needs to help fulfil the Government’s house building objectives and to deliver the UK’s predicted £500bn infrastructure pipeline. Additions to the list could include Site Engineers, Project Managers and Commissioning Engineers, which are all roles where the UK has a significant shortage of skilled workers. To this end, we welcome the Home Office’s commissioning of the Migration Advisory Committee (MAC) to report on the impact on the UK labour market of the UK’s exit from the European Union and how the UK’s immigration system should respond. We look forward to seeing the final report and hope that it is carried out thoroughly, but with enough pace to ensure solutions are in place before Brexit is implemented.

4. Procurement

• Depending on the outcome of negotiations on the UK’s exit from the EU, there could be implications for the infrastructure industry in terms of procurement of materials, machinery and equipment from the EU. Raw materials, such as cement and bitumen, could be subject to tariffs or taxes.

• Recent government data shows that 61% of imported building components and materials come from the EU, equating to a net total of £5.7bn, up from £4.9bn in 2015 .

• Costs have already increased since the vote to leave the EU, due to the weakening pound, and are likely to continue to rise. The Construction Products Association’s State of Trade Survey covering Q4 2016 found the strongest growth in raw material prices in five years.

• Large machinery is also imported and purchased from the EU intermittently, for example boring machines for use on major tunnelling projects such as HS2. Ultimately, higher prices will have an impact on end customers and taxpayers. Indeed, some of this impact is already being felt, as companies are beginning to price in risk to allow for day to day currency fluctuations, which impact import costs on a business as usual basis.