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News » UK » Construction industry digests implications of a hung parliament » published 12 Jun 2017

Construction industry digests implications of a hung parliament

Construction industry representatives and commentators have been swift to offer their insight and wisdom into the implications of the 2017 general election result, which returned Theresa May’s Conservative Party with the most seats but no overall majority.

The implications of a Conservative government propped up on an ad hoc basis by 10 Democratic Unionist Party MPs from Northern Ireland provoke uncertainty among many, which is something business and investors never like.

Major projects could face political delays, or worse.

There is also the suggestion that the result makes a complete break from the European Union less likely, not least because of the difficulties introducing border controls between the UK and its only land border with the European Union.

Marie-Claude Hemming, director of external affairs at the Civil Engineering Contractors Association, said: “With the shape of any future government hanging in the balance, we worry that this may create further delays to vital decisions that were put on hold due to the election.

"Our most recent member survey showed orders dropping for infrastructure contractors for the first quarter since 2013. A lack of clear leadership in Westminster creates a real risk that this potential future downturn will become entrenched due to an inability to get vital decisions over the line.

"We hope that there will be an early resolution to the current uncertainty over the shape of any new government, allowing decisions on projects such as HS2 to be made and work to get underway on building the infrastructure that the UK needs.”

Suzannah Nichol, chief executive of Build UK, said: “We would hope that politicians recognise that their priority is to organise an effective government to provide confidence and certainty both at home and abroad.  Forging ahead with an industrial strategy which includes the delivery of the country’s housing, economic, social and business infrastructure to meet the needs of the nation will enable our industry to deliver growth and prosperity. 

“Greater and more effective collaboration within the construction supply chain is already ensuring that the industry is tackling its own challenges on skills, procurement and innovation, and we must continue to do that. Regardless of the politics of the day, we all rely on the business community to create and maintain a strong economy.

Carolyn Fairbairn, director-general of the Confederation of British Industry, said: “With a new government, there has never been a more important time to refocus on the economy and plan with confidence and ambition. The next government needs to deliver an open, competitive and fair post-Brexit economy that works for everyone across all our nations and regions. This can only be achieved if the next government doesn’t put the brakes on business, remains open to the world and sets out a pro-enterprise vision.

“We need to move much faster to fix the foundations of the UK economy and our productivity problem. We need meaningful progress on a modern industrial strategy by the end of the year, with real change on the ground on skills, infrastructure and innovation. 

“With only 10 days before Brexit talks begin, the UK needs to be fast out of the blocks. Agreeing transition arrangements and guaranteeing EU citizens’ rights should be early priorities to get the talks off to a good start and show to the world that trade and people come first.

“Firms will support the UK develop our inclusive, innovative and open economy. More than ever, the new government must work together with business to make the most of the opportunities ahead. Firms can provide the evidence, ideas and solutions from the shop, office and factory floor to secure our future prosperity.” 

David Savage, partner and head of the construction and infrastructure at law firm Charles Russell Speechlys, said: “The upshot of the general election result is that, regrettably, a vote that was intended to give clarity to our political position has instead produced an increased number of unknowns and additional political issues to resolve.

“These uncertainties include: whether the Conservative Party will be able to form a strong enough government to deliver a budget; whether the UK can meaningfully negotiate with the EU without a strong domestic platform; whether the Conservative Party will need to debate its leadership; whether, as a result, there will be ministerial changes and whether proposed policy will stand; and whether, if the Conservatives fail to create a government, The Labour Party attempts to do so in its place.

“For the construction industry, these issues present a number of concerns. Predominantly:

“ - Changing political personnel and priorities in key areas. Gavin Barwell, the now-former housing minister, lost his Croydon seat in a tightly contested campaign, at a crucial juncture for UK housing. The construction industry will undoubtedly want reassurances, too, for posts such as transport and energy. These portfolios are critical because of the range of domestic issues that will be on the desks of ministers at the Departments of Energy and Transport once the post-election government has been confirmed: the future of Heathrow, and our approach to replacing our ageing energy infrastructure.

“ - The need for clarity on publically funded projects: the vote delays the government from giving certainty to an ambitious infrastructure programme that is crucial to both the economy and construction pipeline. Contractors thrive on certainty; on planning how a team might move from one project to the next; and how prices in materials and labour will fluctuate. This is now more difficult than it would have been with a more definitive outcome from the vote. Public sector pipelines for health, education, policing and culture will also need to be clarified.

“ - Prolonging the uncertainty and lack of confidence from potential investors into the commercial office market, and other private sector areas that provide construction work such as data centres, and private housing.

“ - And finally delays in providing clarity to the immigration system, which is paramount for providing skilled workers – not least as we face the prospect of losing 400,000 skilled workers over the next two parliaments as the existing workforce retires. This will no doubt be central to any negotiations with the EU. But the prospect of any talks starting by 19 June seems faint.

“These concerns are best seen as a delay in addressing longstanding issues that are already well known to the industry, rather than new problems created directly by the outcome of the election. However it is nonetheless frustrating for an industry with a pre-existing list of issues for government to resolve. If there is a silver lining, it may be that the result means a less hard Brexit, and consequently a less immediate pressure on immigration and the supply of workers to UK projects. Indeed, in the aftermath of the result, the markets seemed encouraged by the absence of a mandate for the government to negotiate with the EU on hard-line terms.

“So what about when the dust settles? Construction has been told to ‘Modernise or Die’ by the Farmer Review and – from the activity that we have seen – has responded in spades with an increased focus on innovation, attracting and training talent, and focusing on better collaboration across the board. Political parties must reciprocate by forming a cohesive government as quickly as possible, and providing business with the stability it needs to succeed and compete on the global stage.”

Brian Berry, chief executive of the Federation of Master Builders, echoed fears of uncertainty but welcomed the apparently greater prospect of a ‘soft’ Brexit.  He said: “The surprise general election result has left key business sectors nervous with no one political party securing enough seats to form a majority government. The construction sector is particularly vulnerable to dips in consumer confidence brought about by political uncertainty and therefore it’s crucial that this uncertainty is minimised.

“In the longer term, there could be a potential silver lining for the business community as the prospect of a hard Brexit now seems less likely. Theresa May stood on a hard Brexit platform and she has clearly not been given a mandate to approach the negotiations in this way. Brexit is inevitable but the election result will surely have a significant impact on the shape of the Brexit deal we end up with. This could be a positive for business leaders who are concerned about a broad range of issues – for the construction sector, our greatest concern is that the flow of migrant workers might be reduced too quickly and before we are able to put in place a framework for training sufficient UK workers to replace them.”

The Freight Transport Association also hoped it might mean a ‘soft’ Brexit, with the UK remaining inside the EU Customs Union. 

James Hookham, the FTA’s deputy chief executive, said:  ““Exiting the customs union threatens the imposition of tariffs, border checks, Customs declarations and huge amounts of bureaucracy for the significant number of UK businesses that trade in the EU, and the logistics organisations that deliver it for them.  Negotiating a replacement trade deal that avoids these would require a strong and convincing mandate, which the Election has now put into doubt.  The importance of frictionless arrangements for UK trade with the EU, particularly with Ireland, means that the decision to leave the customs union should be reviewed as a matter of urgency, and other ways of achieving a positive outcome for Brexit should now be considered.”

Approximately 44% of the UK’s exports in goods and services were transported to the EU in 2016, valued at £240bn out of £550bn of the country’s total exports.  Mr Hookham continued: “In order to ‘Keep Britain Trading’, exporters and importers and the international logistics sector need trading conditions which are as seamless and easy to navigate as possible.  The decision to leave the EU Customs Union was always going to make this tough to deliver, and without a strong and convincing mandate, the government will find fulfilling its promise to do so almost impossible.  The delivery of a seamless trading process between Northern Ireland and the Republic of Ireland, in particular has confounded even the best trade and legal experts, and needs to be an urgent priority for government ahead of the start of Brexit negotiations.

“FTA is the leading voice for logistics on Brexit and is urging government to place the sector at the heart of the country’s asks when the talks begin in 10 days time.  Our members agree that the government’s aim of delivering a frictionless trade deal for British business outside of the Customs Union has now become much more difficult than before the Election. We are therefore calling for a rethink of that decision, and for other options to be considered in which Brexit can be delivered whilst reducing the impact on British exporters and importers and the international logistics businesses that deliver the UK economy.  Logistics is key to the successful delivery of the nation’s ongoing economic success and must be front and centre as the talks get under way.” 

Others, however, felt this was no time for backsliding and retaining ties to the mainland.

Simon Boyd, managing director of Dorset-based structural steel engineering contractor John Reid & Sons (Reidsteel), campaigned for Brexit in the 2016 referendum as southwest regional chairman of Business for Britain.

He said: “While I respect the election result, a hung parliament weakens our country and this does not bode well for strengthening our position in the upcoming Brexit negotiations. In fact my fear is that Brussels will be emboldened by this and make it harder for us to negotiate a good deal.

“However, this election result does not take away the British people’s decision to leave the EU and our members of parliament, Labour and Conservatives, alike must now throw their combined support behind our government and Brexit negotiating team.

“To not do this would show contempt for the British people who mostly support the need to get on with the leaving process, and do much damage to the future prospects for the UK.

“This election result must not be allowed to be used as an excuse to give up, we must be positive and move forward.

“Talk of a ‘soft’ Brexit is no more than code for staying in the EU, whilst ‘hard’ is a deceptive negative word used to frighten people by opponents of Brexit.  A clean Brexit will deliver a great prize for our country; but to win it we must be outside the single market and customs union, which will allow us the freedom to take control of our own laws and trading arrangements.”

He added: “I will be writing to every MP asking them to respect the EU referendum result and spell out why Brexit must mean clean Brexit.”

Others, however, may see a cleaner solution lies in Britain seeking to rejoin the European Free Trade Association (EFTA), which it left in 1972 to join the European Economic Community (EEC).

It is a move that has been advocated by former Treasury Secretary Liam (“there’s no money left”) Byrne, among others.

The 1994 Agreement on the European Economic Area brings together the European Union member states and EFTA (Iceland, Liechtenstein and Norway, but not Switzerland, which opted out) in a single market, often referred to as the internal market.

The EEA Agreement significantly excludes many of the hot topics that matter most to UK Brexiteers, namely:

  • Common agriculture and fisheries policies
  • Customs Union
  • Common trade policy
  • Common foreign and security policy
  • Justice and home affairs Monetary Union (EMU).

However, the three EFTA countries are part of the Schengen area, which would solve the Irish issue but could be a deal-breaker for those who want a totally 'walls up' independent UK.

 

 

MPU

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This article was published on 12 Jun 2017 (last updated on 14 Jun 2017).

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