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‘No-deal’ Brexit could see soaring material prices and lower workloads

Published: 3 July 2019 - Fiona Garcia
Construction SMEs want the new Prime Minister to slash VAT on housing, renovation and repair work to help tempt homeowners to finally commission the home improvement projects they’ve been putting off due to Brexit-related uncertainty.
Construction SMEs want the new Prime Minister to slash VAT on housing, renovation and repair work to help tempt homeowners to finally commission the home improvement projects they’ve been putting off due to Brexit-related uncertainty.

New research from the Federation of Master Builders (FMB) has warned today that the UK crashing out of the EU could result in soaring material prices and lower workloads and enquiries, adding that the Government needs to look at reducing VAT on repair, maintenance and improvement.

When asked about the impact of a ‘no deal’ Brexit, 53% of construction SMEs say it would result in higher material prices, 29% say it will lead to lower workloads and enquiries, and 26% say it would result in less access to skilled workers.

When asked how best the new prime minister could prevent an economic downturn later this year, the top five interventions cited by construction SMEs were:

1) Reduce VAT on repair, maintenance and improvement (87%);

2) Make more money available through Government funding schemes aimed at SME house builders, such as the Home Building Fund (36%);

3) Reform the Apprenticeship Levy so more SMEs can train apprentices (36%);

4) Invest funds in local authority planning departments to speed up the planning process (30%);

5) Embark upon a national programme of social house building (25%).

FMB chief executive Brian Berry said: “As the Conservative leadership contest rumbles on, construction SMEs are worried about the potential impact of a ‘no deal’ Brexit, which would have immediate and potentially disastrous consequences for the construction industry. Material prices are the biggest cause for concern – widely-used building materials such as timber are largely imported and any disruption to that would lead to soaring prices and delays to construction projects.

“More broadly, a significant proportion of construction SMEs think that a ‘no deal’ Brexit would result in lower workloads and enquiries as confidence in the economy might wobble as people abandon plans for new projects until the UK is on a steadier footing.”

He concluded: “However, the next PM has it in his gift to guard against any potential economic downturn by stimulating activity in construction and house building as soon as he gets the keys to No.10. Construction SMEs believe that the best way to do this would be to slash VAT on housing, renovation and repair work from 20% to 5%, which would help tempt homeowners to finally commission the home improvement projects they’ve been putting off due to Brexit-related uncertainty.

“This would give a much-needed boost to the construction sector and the wider economy. The next PM should also make more money available to SME house builders through government funding schemes and stimulate apprenticeship training through fundamental reforms to the Apprenticeship Levy. Once elected, the new PM has a responsibility to steady the economy. There’s no better way to do that than investing in construction and house building, which would boost economy.”

Meanwhile, the UK Construction Purchasing Managers’ Index (PMI) IHS Markit/CIPS UK Construction PMI plunged to 43.1 in June 2019 from 48.6 in the previous month and well below market expectations of 49.3.

It is the biggest slide in output in the construction sector since April 2009, amid heightened political and economic uncertainty. House building dropped the most in three years, amid weaker demand conditions and concerns about the outlook for residential sales.

In addition, commercial building projects recorded the steepest fall since December 2009 due to Brexit uncertainty and subsequent delays to project starts. Total new work received by UK construction companies decreased the most for just over 10 years, while demand for construction products and materials fell at the sharpest pace since January 2010

Mark Dyason, managing director of specialist UK development finance provider, Thistle Finance commented: “For some time the construction sector has been on the ropes, but now it is flat on the canvas. In the 30 days of June the UK construction sector delivered its worst performance for a decade.

“If you want proof that Brexit is hitting builders and developers hard, you’ve just had it, and unequivocally so.

“Even the one ray of light, residential housing, has been extinguished by the radical uncertainty of Brexit.

“2019 is shaping up to be a brutal year for construction, and if the prospects of a no-deal Brexit increase, as appears likely, there is room for further deterioration.”

 

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