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'Brexodus' pressure on construction wage costs, says T&T

6 July 2018 | By Neil Gerrard

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UK construction firms are struggling with wage bills as EU migrant workers begin to leave ahead of Brexit, a new report from Turner & Townsend has warned.

The so-called 'Brexodus', which has seen the number of EU-born workers as a share of the construction workforce fall by one percentage point between the time of the EU referendum and the end of 2017, combined with an ageing workforce, is set to push labour cost inflation up by 4% over the next 12 months, the consultant warned.

The professional services firm said that the departure of EU workers came at a time when UK construction businesses were operating at 86.2% of their full capacity in Q1 2018, which was up 1.9 percentage from Q1 2017.

Meanwhile construction firms are operating at a higher capacity despite ONS data showing a fall in total construction output by 0.8% in the first three months of 2018 – the sharpest decline since 2012.

Turner & Townsend’s predicted that the infrastructure sector will see the fastest tender price inflation this year (3.8%), with more measured growth (1.7%) anticipated for building projects. 

However, that growth would be tempered by labour cost inflation, risking contractor margins as projects compete for limited labour, it warned.

The London market is particularly exposed to migrant labour. 

At the time of the EU referendum, 49.6% of the capital’s construction workforce had been born abroad. This has since plunged by seven percentage points – the fastest 18-month decline seen in 15 years.

UK regions are relatively less exposed to the 'Brexodus', Turner & Townsend said, but nonetheless face a separate skills challenge from an ageing workforce. While the North East only has a migrant workforce of 5.9%, 53.9% of workers are aged 45 or over.

Paul Connolly, managing director of cost management at Turner & Townsend, said: "Mounting a successful recruitment fightback has never been so important, but to do this the sector needs full-throated support from employers – beyond existing contributions through initiatives such as the apprenticeship levy.  Contractors need to ensure that the skills initiatives and incentives are in place to attract a modern construction workforce and make sure we have the capacity and talent in the right areas.

"But it’s going to take time to tackle this demographic timebomb. At a project level, the industry needs to be arming itself with strategies to mitigate wage inflation and drive maximum productivity from a diminishing labour pool.  We need to be following a pre-emptive approach, adopting lean thinking to streamline project processes from design through to delivery, and leveraging the full benefits of technologies such as off-site construction.  Only by increasing productivity, protecting margins and attracting new talent will the construction industry be able to deliver the game-changing infrastructure projects and housing the UK needs.”

To read the full report, click here

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