Impact of Brexit on the Construction Industry of the United Kingdom
2. Purpose or rationale
The global economy is fundamentally based on the construction industry, which also has a greater impact on economic expansion in any country. The primary purpose of this research is to evaluate, find out and analyse the political, legal and economic impact on the UK construction industry. Although it did not just have an impact on the nation's economy, the building sector also had an impact on how nations' infrastructures were developed. The sector is in charge of establishing the framework for the technological and physical advancement that enables nations to accomplish the aim of modern civilization. In the case of the United Kingdom, the construction industry contributed nearly £113 billion, which is nearly 7% of the total UK economy (Ons.gov.uk, 2021). Apart from that, before Brexit, there were nearly 2.4 million jobs in the construction sector along with 1 million construction companies (Buildsafe.co.uk, 2022). However, after Brexit, it is seen that nearly 240000 workers left the UK construction industry between the years 2019 to 2022 because the change in government regulation restricted the free movement of people and it eventually affected the industry (Constructionnews.co.uk, 2022). It is also found that more than 40% of employees who were working in the construction industry in the UK before Brexit were from other EU nations (Constructionnews.co.uk, 2022).
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As the UK has introduced a points-based immigration approach which is known as the Trade and Cooperation Agreement (TCA), where workers need to score 70 points in order to migrate for work in the country, such labour force are now unlikely to get a work visa in the nation (Buildsafe.co.uk, 2022). UK-based construction firms also require to sponsor employees who are coming from the “European Economic Area” and the UK government currently demands employers demonstrate that they have a legitimate opening opportunity from EEA (Buildsafe.co.uk, 2022). This has increased the cost of hiring skilled workers who are coming from other parts of EU nations but it is not imperative to resolve the issue of labour shortage. Due to this reason, the overall cost of labour in the UK increased by 30% and it is affecting construction expenses (Theguardian.com, 2023). This finding is indicating that politically unstable conditions are affecting the UK construction sector and the issue of skill shortage is rigging day to day. Another study has highlighted that after the Brexit referendum cost of construction materials increased steeply in the UK as compared to the EU countries which is one of the main reasons for construction supply chain disruption (Theguardian.com, 2023). Apart from that, it is seen that within the UK the cost of minarets used in construction activity rose by 35% whereas, the cost of cement, timber and steel rose by 60% which is 24 years high (Theguardian.com, 2023). Based on this background study it can be said that the Brexit referendum impacted the overall construction industry across the United Kingdom.
After background investigation, it is seen that the construction industry across the UK is facing an issue of talent shortage, and construction material shortage besides an increase in material price and labour cost after the Brexit referendum. Apart from that, regulatory changes and an unstable political environment disrupted construction supply chain activity which decreased the overall productivity of the construction sector. Hence, completion of this study would help to understand how Brexit is impacting the UK construction industry politically, legally and economically. Besides, it can be stated that after completion of this study, researchers would be able to find probable strategies which are helping construction firms to cope with labour shortage issues, material shortage issues and bureaucratic complexity.
3. Research goals
3.1 Aim
This study aims to find out the consequence of Brexit on the construction industry of the United Kingdom
3.2 Objectives
To investigate the issue of talent shortage and construction material shortage after Brexit on the UK construction industry
To analyse the main strategies taken by construction companies to cope with talent shortage and material shortage issues after Brexit
To assess changes in government protocol after Brexit and its negative influence on the construction industry supply chain across the United Kingdom
To examine the economic influence of Brexit on the UK construction industry
To compare and critically appraise key supply chain strategies that can help construction companies across the UK to overcome the negative impact caused by Brexit
3.3 Research questions
Q1. How is the talent shortage issue affecting the UK construction industry after Brexit?
Q2. What are the main strategies implemented by construction companies to deal with talent shortage issues after Brexit?
Q3. How have changes in government protocol after Brexit affected the operational process of the construction industry supply chain across the United Kingdom?
Q4. What are the existing and main economic impacts of Brexit on the UK construction industry?
Q5. What are probable supply chain strategies that can help construction companies to handle supply chain issues caused because of Brexit?
4. Initial Literature Review
4.1 Talent shortage issues in the construction industry after Brexit
The United Kingdom is a nation renowned for the potency of its associations with other countries and its level of tolerance in global foreign policy but this nation eventually decided to support the "Brexit" referendum, and finally voted to exit the EU (Smith, Ahmed & Saboor, 2020). After Brexit, the UK's overall trade with the EU is being impacted. Particularly changes in global economics and trade law after Brexit have provided evidence to support the potential repercussions the UK is experiencing, which include limitations over the activity of free trading across the globe, accessibility to any single market European market, as well as the imposition of aggravating taxes (Dent, 2020). However, it is seen that 15% of EU workers who were working with UK construction companies wanted to leave the nation immediately after Brexit (Theguardian.com, 2023). A similar report also highlighted that the result of stronger border controls pushed such a workforce into a complex situation and eventually it is impacting many UK businesses. Specifically, UK construction companies in particular because such companies were facing obstacles when trying to hire and move professionals and skilled labour from other EU member states (Smith, Ahmed & Saboor, 2020). Also, there is uncertainty around imports, as UK construction companies import nearly 59% of the total building material from the EU (Ons.gov.uk, 2021). This demonstrates the imaginable impact that started after the exit of the UK from the EU which is eventually affecting the overall operations process of the construction industry due to skilled labour shortage as well as material shortage.
Another report has highlighted that about a million workers are predicted to retire within ten years which is published in a survey conducted by the “Construction Skills Network of the Construction Industry Training Board” (CITB), which might worsen the labour shortage issue and it is one of the substantial influences of Brexit on the industry (Theguardian.com, 2023). However, the UK government has taken initiatives to minimise labour shortage issues by boosting the number of local workers in the construction sector because it might help to minimise hiring costs and meet the required demand for talent (Stride et al. 2023). However, experts have predicted that the required workforce might be affected by this strategic measure in the coming years. Most importantly, the UK's growing number of enterprising construction projects is making this issue rise and getting more difficult day to day. In most cases, employers are being forced to increase wages to prevent negative consequences caused by higher competition in the built environment of the UK (Ruslin et al. 2020).
4.2 Legal and political impact on the construction industry after Brexit
Figure 1: Productivity Growth in the Construction Industry, UK
Needless to say, the political and legal uncertainty has increased and it is affecting the operational process of business across national borders due to the potential change in free movement. For instance, studies have highlighted that the construction sector heavily relies on labour force and material availability which come with free trade movements across national borders but regulatory change is affecting the movement of skilled workforce and essential goods required for construction activity (Smith, Ahmed & Saboor, 2020). This signifies the significant impact on the legal framework and the retrieval of domination to the UK is becoming unrestricted, as well as the construction industry in particular, that legal challenges and concerns for firms that arise post-Brexit are expected to provoke. Especially, the incident of Brexit potentially making an impact on regulations which governs construction activity within the United Kingdom.
Apart from that, it is seen that after 31st December 2020 EU rules of health safety of construction labour have changed along with changes in UK employment law with some consideration with EU labour law (Ons.gov.uk, 2021). This situation put the labour force in uncertainty. Hence, it is indicating that change in legal procedure increases uncertainty across different industries and the construction industry is not an exception as it heavily relies on the availability of labour. As a result, the average productivity level in the UK construction industry decreased suddenly and it is consistently below the national average because productivity is growing more slowly than in the pre-Brexit period (Ons.gov.uk, 2021). The study also found that the civil engineering sector of the construction industry has been the most productive as demonstrated in Figure 1 but specialised construction activity was least productive due to skill shortage issues (Ons.gov.uk, 2021). In many cases, it is seen that housing development projects across the UK are not overseen by a construction company and proceed independently without any kind of direction. The government has set a stringent budget for large building projects, which needs to be handled by skilled and competent construction companies in order to be finished within the deadline while small businesses work on smaller house development projects (Stride et al. 2023). Yet, tight budgeting execution frequently reduces project flexibility and has an impact on the project's final outcome. Moreover, due to a lack of trained labour and manpower, and budgetary restrictions, large construction companies struggle to turn a profit and put off project completion and this situation worsens after Brexit.
4.3 Economic impact of Brexit on the construction industry
Figure 2: UK Construction Output
Reportedly, it is seen that the cost of materials used in construction activity has risen in a considerable manner. In recent studies, it is seen that due to the successive increases in mineral price, metal price and cement prices majority of large and small construction projects are dealing with budget overrun issues (Malik et al. 2019). This indicates that budget overrun is one of the common challenges faced by construction companies irrespective of project size. Apart from that, it is found that besides labour shortage and material shortage issues the sudden political change caused by Brexit slowed down the overall growth of the construction industry and many of the large construction projects are being delivered late from the prescribed timeline (Krzy?anowski, 2019). As a result, the overall growth of the construction industry by volume was very below the national standard. For instance, it is reported that new work on UK construction projects increased by only 0.5% but repair and maintenance projects witnessed a 0.7% fall and overall output was flat as estimated by the end of December 2022 (Ons.gov.uk, 2023). These findings clearly demonstrate that the Brexit incident impacted the construction project growth rate across the United Kingdom. Figure 2 demonstrates that all construction work monthly index touched the lowest point in the month of March 2020 and it is the same as the repair and maintenance project (Ons.gov.uk, 2023). In a similar context, it is observed that the overall output of Britain’s construction sector decreased by 4% and the import rate of construction material decreased by 15% in the long run after Brexit and the Covid-19 pandemic worsened the situation (Ons.gov.uk, 2023). However, after that, the industry started to recover from the shock but the overall output was still fluctuating.
5. Research Methodology
5.1 Introduction
Research methodology is described as the unique procedure used to identify, examine, process, and assess a particular study based on its general validity and reliability. This section will discuss the methodology used to assess the primary effects of the UK’s exit from the EU and its probable impact on the construction endeavour. Also, it is expected this section of the proposal will be able to present a sound research methodology structure which will be suitable for analysing the many aspects of the construction industry in the UK.
5.2 Philosophy
Research philosophy is an approach to thinking that feels connected to the research, the origin of data and the growth of factual knowledge through which researchers develop various ideas and concepts to solve research problems. Research philosophy comes in a variety of including interpretivism, pragmatism, positivism, and realistic research philosophy (Singh, 2019). According to studies, pragmatic research philosophy helps to deal with research problems in a systematic manner because it incorporates decision-making based on findings and investigation of key data in a real-world situation (Takawira, 2019). In contrast, studies have highlighted that interpretivism research philosophy is subjective in character and can result in biased output after the completion of the study (Malik et al. 2019). Hence, the interpretivism philosophical approach will not be selected for the investigation of Brexit’s impact on the construction enterprise of the United Kingdom. For the completion of this study and to comprehend the relationships among various influences, such as political factors, economic causes, legal restraints, and environmental issues on UK construction projects after Brexit, a pragmatic research philosophy will be used.
5.3 Research design and method
The research design guides the development of a particular framework or blueprint of scientific technique which assists in integrating different components of sturdy in a coherent way. Levitt (2021) stated that research design helps in the identification and assessment of research problems which come to the fore during the research methodology and the activity of data analysis. Hence, the selection of research design would help to find out how construction companies within the UK are being bothered after the Brexit referendum and how the growth rate has shrunk over the period. In general, researchers use four primary classifications of research design which include descriptive research design, correlational design, experimental design and diagnostic design research (Takawira, 2019). Descriptive research design allows researchers to systematically obtain information so that researchers get an opportunity to describe the population, phenomena and situation behind the identified problem (Levitt, 2021). Hence, for the evaluation of the economic, political and legal impact of the Brexit construction sector of the chosen country the descriptive research design will be suitable. The experimental research design will not be determined for this study because, at the end of the study, researchers can encounter experimental errors and other limitations. Apart from that, both qualitative as well as quantitative research techniques will be followed to collect the necessary data to analyse and investigate the wreck of Brexit on the UK construction sector. Besides, it will help to compare and contrast strategies taken by construction firms to handle those issues faced after Brexit.
5.4 Data collection
The method of collecting data and calculating it using specific variables on a predetermined system in order to assess better results is known as data collection. The two different types of data collection processes are primary and secondary which researchers generally use. According to studies, the primary data collection process is time-consuming but helps to gather first-hand information without missing any specific purpose of one specific study (Alam, 2021). Considering this fact, to understand actual issues of skill shortage after Brexit and to develop an initial understanding of the supply chain issues in the construction industry primary data will be collected from a survey of 51 employees of the construction sector and 4 construction projects and supply chain managers who are probable interview participants. For this purpose, semi-structured telephonic interviews will be conducted and survey responses from participants will be collected by using Google Forms. On the other hand, secondary data collection helps to validate such information which is readily available in books, journals, peer-reviewed articles, newspapers and magazines (Pandey & Pandey, 2021). Moreover, the secondary data collection process is less time-consuming and cost-effective but provides authentic information and eventually solves research problems. Hence, in this research researcher will investigate the political and economic impact of Brexit on the UK construction sector through secondary data collection that will be suitable for the literature review chapter of the main study. Moreover, the entire study will be completed by using mixed data collection approaches by combining qualitative, and quantitative data.
5.5 Data analysis
Data analysis refers to the particular evaluation approach which systematically applies statistical or logical techniques which is suitable for the illustration and evaluation of data (Huang, Wang & Liu, 2021). However, the same study also pointed out that the defined question, the presence of clean data improves the authenticity of data analysis and helps to share final results easily. According to studies, thematic analysis is the most common form of qualitative data analysis because it easily identifies, and interprets qualitative data (Dusi & Stevens, 2020). On the other hand, statistical analysis helps to interpret structured, and semi-structured quantitative data (Ruslin et al. 2020). As researchers are collecting qualitative and quantitative data then this research will conduct a thematic analysis for qualitative data collected from interviews and statistical analysis will be conducted for quantitative data collected from surveys.
5.6 Research ethics
During carrying out the entire research study, the researcher will keep their anonymity, honesty, and integrity. The Data Protection Act of 2018 and GDPR principles must be taken into account for the researcher to collect reliable data sources (Ico.org.uk, 2023). No primary data or personal information will be collected without consent from survey and interview participants to abide by GDPR principles. The researcher will not go against an ethical code of conduct by copyrighting the already published works of other academics and researchers. The primary and secondary information generated from the textual evidence, survey and interview will be kept in a secure digital vault that will only allow access from approved researchers. Besides, lawfulness, fairness, and transparency will be carried out throughout the research which will eventually help to maintain the integrity and confidentiality of all collected information.
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