BREXIT: Post-Brexit restrictions on labour market will push up cost of UK infrastructure, experts say

Out-Law Analysis | 12 May 2016 | 10:05 am | 2 min. read

FOCUS: A vote to leave Europe would not impact on the main drivers of UK infrastructure investment - but the cost of upgrading our ailing infrastructure could be pushed up by post-Brexit restrictions on the labour market.

This is part of Out-Law's series of news and insights from Pinsent Masons lawyers and other experts on the impact of the UK's EU referendum. Sign up to receive our Brexit updates by email. 

The UK construction industry relies heavily on a migrant workforce, particularly in cities such as London where the cost of construction is already very high. Potential restrictions on the free movement of that workforce could drive up the costs of major infrastructure projects, which may prompt investors to question their long-term investment strategies in the UK.

Most of the large contractors which operate at the scale required to embark on major construction projects like Crossrail and HS2 are headquartered in Europe. These projects are also the ones most likely to be affected if demand for skilled labour outstrips supply. While British contractors could take on these projects, the reality is that neither they nor the UK's indigenous supply chain are currently equipped to deal with projects of this scale.

There are always quite extreme peaks and troughs in construction activity, and London development is currently experiencing a peak following market turbulence in the years immediately after the financial crisis. The most important issue for firms will be ensuring that the workforce remains flexible enough to weather those peaks and troughs - but this may not be possible if workers are no longer able to freely enter and leave the UK in search of work. The only way we can stop driving up costs for construction projects in a post-EU environment is by replicating the laws which enable migrants to work in the UK.

The UK's increasing population and urgent need to upgrade ailing infrastructure are the main drivers for growth in the infrastructure sector. If these stay constant it is difficult to see how international interest in the UK as a target for investment would change. But the conditions for that investment could be considerably impacted.

The main change if the UK voted to leave the EU would be the introduction of enormous uncertainty. Construction projects have a very long lag time, and so those currently underway won't see any immediate impact if the electorate votes to leave – but the same cannot be said for those projects on the horizon.

Investment flow could be affected. Companies around the world, but especially those in China, are looking to expand internationally. The Chinese economy is slowing down, and more Chinese companies are seeking to internationalise as an important part of their growth strategies - but if the UK is no longer part of Europe, will a Chinese business be as interested in the UK?

The UK has been an incredibly useful and lucrative hub for investment into Europe, but companies could be forced to look to other countries for their European headquarters if the UK no longer presents as compelling a proposition for investment.

Those backing an exit from the EU have said that it could lead to a reduction in regulation and red tape. However, it is not clear what 'red tape' the UK government would seek to remove in a construction context.

Health and safety regulations which protect workers, and employment rights which stem from EU legislation, are necessary to promote and support a thriving construction industry in which workers are protected and encouraged to stay in the industry - while minimum standards may be required in any event when UK businesses are seeking to do business in Europe.

Richard Laudy is an infrastructure expert and Fraser McMillan a construction law expert at Pinsent Masons, the law firm behind Out-Law.com.