- Atkins CEO warns of “difficult situation” for entire industry if Britain votes out
- Arup London infrastructure head says Brexit would be “big blow” for UK construction
- Seven out of 10 infrastructure investors say investment will dry up for two to three years post-vote
- Cameron previously cautioned that High Speed 2 may face axe in event of out vote
- Atkins and Mott MacDonald bosses united in concern over access to skilled individuals
The impact on civil engineering of Thursday’s European Union (EU) referendum may be dramatic and civil engineers have an enormous stake in the outcome. New Civil Engineer assesses the key issues.
Many companies in the civil engineering sector will not speak out publicly because Brexit is such a political issue. But the impact on civil engineering may be dramatic. Attention is focused around four key areas: major projects and workloads; skills; environmental legislation; and procurement.
UK projects and workload
Prime minister David Cameron issued several warnings around major projects during the campaign, most recently while speaking at a Yorkshire Post event in central Leeds earlier this month.
Cameron, who heads the Remain campaign, warned that investment plans may be hit by a Brexit and that High Speed 2 (HS2) and HS3 could be vulnerable.
“If we stay in [the EU] all our plans are fully intact and that includes HS2, and what we have said about HS3, and the overall rail investment programme,” he said. “If we come out of course I’m sure we will want to try and maintain these important investments but when you hear nine out of 10 economists, the Bank of England, the Treasury, the IMF [International Monetary Fund] and now the National Institute [of Economic and Social Research], all saying our economy will be smaller and will generate less tax revenue, obviously that does threaten potentially some public spending programmes.”
Cameron’s warnings have been dismissed by the Vote Leave campaign as scaremongering, but New Civil Engineer understands that a number of civil engineering consultancies and contractors have briefed staff privately that this is a real risk.
Infrastructure investors are certainly worried. A survey of 94 investors active in the UK market carried out by credit ratings firm S&P Global Ratings, found that the vast majority believe that a Brexit would significantly hit investment for infrastructure.
The survey found that 71% believe investment would stall in the two to three years after the vote with 47% believing Brexit would still be having a negative impact three years after the vote.
And that private investment is important: based on the latest National Infrastructure Delivery Plan government has committed to an investment of £100bn by 2020/21. While that amount is not insignificant, the country’s overall funding needs in the same timescale is much larger, standing at £425bn, according to the latest National Infrastructure Pipeline report. That gap is planned to be filled from private investment and alternative funding.
Of that, a major source is expected to be the European Investment Bank (EIB). It has invested more than €42bn (£32bn) in the U.K. over the past eight years, of which £15bn went to infrastructure. Overall, the UK alone represented 11.2% of all EIB lending last year, or a record £6bn.
Only last month the EIB announced funding of £280M for the expansion of facilities at University College London and confirmed a £700M injection of finance for the Thames Tideway Tunnel. And the largest EIB investment in the UK last year came in the form of a £1bn loan to Transport for London to finance London Underground lines and stations upgrades, as well as construct a network of cycle paths.
The UK is the fourth-largest shareholder in the EIB, with about one-sixth of its equity. It is not entirely known what would happen to this relationship if the UK were to leave the EU. Constitutionally, EIB shareholders need to be EU member states, but funding can be granted to parties outside of the EU. It is not expected that the EIB would withdraw committed funding or call back existing loans, but the uncertainty is a concern.
There are other European funding streams that also vulnerable. The energy sector might also be affected by withdrawal of funding by the European Fund for Strategic Investments. And European Regional Development Fund cash that has benefited development in cities such as Manchester could disappear with no guarantee on what would take its place.
Most civils firms and their senior leaders are unwilling to go on the record regarding risks to investment programmes.
Atkins chief executive Uwe Krueger is one of the few who has, speaking out in announcing his firm’s annual results last week. “The whole British engineering industry would be in a much more difficult situation if Brexit were to happen,” said Krueger.
Arup London infrastructure head Tim Chapman has also spoken up in favour of staying in: “All the predictions that we see indicate a slowdown in both property and infrastructure spending should Brexit take place,” he said. “Just when our construction industry seems to be becoming less affected by wild swings of the economic pendulum, this would be a big blow to UK construction.”
S&P Global Ratings has no such qualms speaking out and goes further: “It is said that perception is reality, and based on what investors are telling us, the reality is that a Brexit scenario could put long-term funding for UK infrastructure at risk,” said S&P analyst Michael Wilkins.
“Given the significant infrastructure investment requirements the country faces, such sentiment is hard to ignore.”
Access to the EU and other overseas markets
“British engineering is deeply integrated with global markets and companies. If Britain votes to leave the EU, the period of uncertainty about the terms on which access to these markets would be granted would be a threat to the sector.” So warned a number of engineering heads including Mott MacDonald chairman Keith Howells in an open letter to The Telegraph last month.
Other signatories included Institution of Engineering and Technology president Naomi Climer and the UK bosses of Airbus, Caterpillar and Rolls-Royce.
“A negative consequence of Brexit would be a loss of automatic access to the EU market,” they warned. “Negotiating new trade agreements would take time, during which our trade would be damaged.
“Given the considerable challenges already facing British engineering and technology, it is difficult to justify the transition risks the sector would face if we were to leave the EU.”
Krueger agreed: “The ease at which it can participate in largescale EU funding programmes would be limited,” he said. “And the complexity it would introduce into relationships, collaborations and partnerships with European firms would also certainly be detrimental.”
Skills and innovation
There are also concerns around maintaining access to the skilled individuals needed to maintain UK companies’ global reputations.
A specific risk associated with Brexit is an exacerbation of Britain’s engineering and technology skills shortage, as it would be more difficult for companies to recruit engineers from other EU countries. A fast-track visa process could be introduced, but this might be difficult given the tighter border controls anticipated following Brexit.
Engineering and science research could also be put at risk. Britain receives a great deal of EU funding for such research and it is not clear to what extent we would be able to access funding as a non-EU country. More importantly, the UK would lose the formal collaborative EU environment and the ability to influence the direction of EU research.
Brexit would also weaken the UK’s ability to influence global engineering standards. It is not credible for Britain to create its own standards, and in any case this would risk British businesses coming late to some vital new markets.
These were points also expressed by Howells and the others in the open letter.
Krueger also made the same point in announcing his firm’s annual results last week.
“The UK’s ability to attract European engineering talent would be limited,” he stated.
Thames Water has cited compliance with the Urban Waste Water Treatment Directive as a key reason behind the £4bn Thames super sewer scheme. That is just one example of how EU regulations have impacted on the UK and civil engineering.
EU environmental law has been a catalyst for improving environmental standards in the UK. And while non-compliance with EU urban waste water treatment standards was a catalyst for the multi-billion pound investment in the Thames Tideway wastewater project, in March 2015 the European Commission confirmed that it is referring the UK to the European Court of Justice over its failure to ensure that urban waste water is adequately treated in 17 towns/cities across the UK. Much work hinges on the UK’s continued compliance.
Most EU environmental legislation is in the form of Directives which are required to be implemented into national legislation and are therefore unlikely to be revoked automatically upon Brexit, but there are concerns there.
Irrespective of the nature of the relationship that will emerge between the UK and the EU following a Brexit, it is envisaged that the UK public sector will remain subject to some form of public procurement regulation on the grounds that international trade rules (including public procurement agreements) tend to operate on the basis of reciprocal treatment. And given the importance of value for money considerations for the UK public sector, contracting authorities are unlikely to dump competitive tendering processes for any infrastructure project.
In the event of Brexit, EU State Aid rules would cease to apply. Theoretically, this may enable the UK government to provide support to large scale infrastructure and other projects, for example, by way of a government guarantee or direct funding, where it was deemed necessary. In practice, however, the UK will remain bound by the World Trade Organization rules relating to subsidies, which are based on similar principles.
In or Out? Two engineering heads give their views
Few have spoken on the record on their position in the Brexit debate. Two that have are consultant Arup Infrastructure London Group leader and director Tim Chapman and JCB chairman Lord Bamford.
From my conversations with major developers, they have been seeing since last October an accelerating decline in the amount of foreign money arriving in the UK to be invested in property development.
We have been seeing a marked reduction in activity in the property market.
Whatever the sovereignty issues with Brexit, all the predictions that we see indicate a slowdown in both property and infrastructure spending should Brexit take place.
Just when our construction industry seems to be becoming less affected by wild swings of the economic pendulum, this would be a big blow to UK construction.
I also believe it would impair the wider UK economy and the EU itself would be poorer without the UK’s rational and pragmatic voice.
I find it surprising that the vote seems to be a scarily well balanced choice between economic vitality and growth or a reduction in environmental protection and human rights.
JCB is a global company selling to over 150 countries. Today, EU countries account for 22% of our turnover; the other 78% comes from the UK, India, the Americas, Russia, the Middle East, Africa, Asia Pacific and the Far East. In fact, as a nation, over 53% of all UK exports go to non-EU countries.
The UK is a trading nation and the fifth largest economy in the world. I am very confident that we can stand on our own two feet. I believe that JCB and the UK can prosper just as much outside the EU, so there is very little to fear if we do choose to leave.
I voted to stay in the Common Market in 1975. I did not vote for a political union. I did not expect us to hand over sovereignty to the EU. I certainly did not expect unaccountable leaders in Brussels to govern over us.
In 1973, when we joined as its eighth member, the EU accounted for 31% of world economic output. Today – with 28 member countries – the figure is just 17%, which underlines the shrinking role of the EU in the world economy.
So do I wish to remain in an EU of diminishing economic importance as it moves towards ever closer union? Or do I want us to pull out of the EU, reclaim our sovereignty and regain control of how we trade with Europe and the world?
After more than 40 years in the EU, I will be voting to leave Europe on 23 June.