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The impact of Brexit on Infrastructure and HR

As a company actively involved in providing HR services in the infrastructure and energy sectors we look at the potential impacts of the Brexit referendum.

Investment in UK Infrastructure

Organisations will face uncertainty until the UK’s ‘exit strategy’ is defined and trade negotiations with the EU are completed. These new arrangements will take some time to formulate making it hard for businesses to take investment decisions with confidence. This in turn is likely to lead to a slowing down of the overall economy as businesses and the market adjusts to the new reality.

The Brexit will hit economic confidence well beyond Britain, creating a further drag on the already slow economic recovery within the EU and globally, with an increased sensitively if other shocks occur. This may impact countries which have investment plans within the UK and may affect the UK’s high ranking as a destination for foreign investment which is often predicated on having access to the EU markets. We will also have to wait and see if multinationals will think it appropriate to have their European headquarters remain in the UK.

On the positive side the UK will be able to do free trade deals with other countries that may accelerate investment from areas outside of the EU. The fundamentals of the UK economy are relatively strong in comparison to many of its western neighbours, the banking system is much stronger than it was in 2008 and the central banks are in a position to prop up the economy in the near term. There is also the opportunity to stimulate the economy by passing laws, establishing regulations and setting taxes appropriate to the UK’s needs rather than a one size fits all approach required within the EU. There may be a temptation to move towards light touch regulation to keep the financial services sector on side, but that can bring deeper issues as seen in the last financial crises. The dropping value of the pound will help exports, so while jobs in certain sectors will be lost, other sectors will see job gains.

Investment in infrastructure will be a concern with the political turmoil leading to fears that attention could be turned away from critical infrastructure decisions. It has already been announced that the decision on London’s airport expansion will be delayed. The government will want to prove that despite all the upheaval, it is business as usual but with the possibility of a declining economy and the follow on impacts on government expenditure, cuts in infrastructure spending may occur.

Ongoing uncertainty could also affect private investor confidence in sectors like nuclear that has already been struggling to attract investment. This may impact key projects such as the Hinkley Point C nuclear plant. All this is occurring at a time when investment in energy infrastructure is becoming increasingly crucial to the UK in order to maintain supply. Energy independence will also need to receive greater attention as there may have to be less reliance on interconnectivity with European energy supplies.

For all its faults the EU has been seen as a positive influence on issues like air quality, waste management and climate change. A key driver for this has been taking environmental standards out of day-to-day UK politics, which is often pulled towards prioritising other areas that are seen to attract more votes. It is doubtful if as much environmental progress would have been made if it was left to individual governments. The opportunity to influence the EU’s environmental standards will be lost with the potential of still needing to comply with these regulations to maintain access to some EU markets. Brexit will leave the UK free to set its own course on energy and environmental policy, however, global challenges like climate change need cross border cooperation.

On balance it is fair to conclude that economic growth will be stunted and capital investment reduced to some degree. It is unlikely that the government will want to be seen increasing austerity to maintain a balanced budget at this point. In the short to medium term the effects on retirees pension pots and inflation may be the greatest impacts seen on the ground.

 

Brexit Impact on Human Resources

UK businesses which employ workers from Europe and non-British EU citizens living in the UK need not immediately be concerned as there is likely to be more than a 2 year timeline before any new regulations are imposed. It is likely that EU citizens currently working in the UK will retain their right to stay in the country, potentially through a worker registration scheme, but it is unclear how this will work in practice or whether any rights would be extended to those who enter the UK after this point. The current points-based system used for workers outside the EU could be implemented more widely although this would see the introduction of costly red tape for businesses. For those UK citizens working in Europe any attempt to implement restrictions on EU citizens movements into the UK may be met with reciprocal arrangements. 

The choices around immigration controls are complex. Trade agreements with the euro zone would likely be negotiated alongside minimum EU rules and immigration policies. For example a Norwegian model allows access to the economic area but requires compliance with EU regulations, without any representation to shape those rules, and would require more open borders than the redlines of the leave campaign would deem acceptable, so drawbridges will be drawn to some degree.

The impact on employment may include employers hiring for fewer full-time roles, relying instead on temporary workers, due to the uncertainties in market conditions. An obvious impact will be on businesses ability to attract top talent where the UK becomes less attractive for immigrants and the UK could experience a “brain drain” as European nationals return home. 

A significant proportion of the UK’s construction labour is sourced from Europe, but this may no longer be the safety-valve it has been, raising concerns that there will be enough people with the right skills. There will be a need to invest in training programmes to expand the skillset of its current workforce and it will be important to continue to promote the principles of diversity and inclusion continuing to seek candidates from the widest possible talent pool by attracting women and underrepresented sections of the community.

Other impacts could arise where the government decides to repeal or revise employment laws that are required as part of the UK’s membership of the EU, and the European Court of Justice (ECJ) will no longer be the ultimate law court and arbitrator of decisions affecting the UK.

 

Why Brexit and what’s next

The key issues resulting in the Brexit decision appear to have revolved around a sense of maintaining the UK’s identity and around issues of control with a feeling that British democracy was being undermined by the EU system. Anxieties about immigration, that the EU costs the country too much and wastes resources that could be spent domestically, and doubts over whether the EU lives up to its own ideals, also swayed voters.

Brexit was an emotional choice, not a purely logical one. There is a rise in populism at the hands of an anxious working class, driven by poor work or pay prospects, a fear that immigration is compromising their economic well-being, rising income inequality, and with a growing sense of their voice not being heard. There is no sense that the EU has delivered palpable benefits to them and a growing breakdown in trust with politicians.

The referendum has exposed societal divisions with economically ailing regions diverging away from better-off and cosmopolitan metropolitan areas. A feeling that older voters have locked in decisions that young voters reject. And unintended consequences including the possibility of a Scottish referendum on their membership of the UK. Politicians who look to prey on peoples insecurities to further their causes often fail to fully grasp the societal divides that they create.

Divorces are always messy affairs. The results of the referendum will cause alarm in an EU that has already been rocked over a financial and migrant crisis. The outcomes of negotiations will depend on the EU’s instinct to either have a smooth transition to a collaborative relationship or to dig in, taking a tough stance to show other EU countries that breaking up will not be pain-free. Different countries in Europe have varying levels of trade-dependency with the UK, which will complicate negotiations. The collaboration effect of EU leaders meeting regularly will be lost to the UK and there is a risk of an “us and them” mentality being formed.

Of course the vote could prompt the EU to look in the mirror and drive through reforms of its institutions and push UK politicians to make a real attempt to deal with the societal issues so evidentially highlighted by the referendum. 

Once the initial shock at the result has dissipated, the economy will stabilise. These are however unchartered waters making predictions on the long-term impact difficult to determine. The devil is in the detail and no one yet knows what that will look like. 

 

A2O People Ltd: The Croft, Burton, Stogursey
Bridgwater, Somerset TA5 1QB
Co Reg No: 8681479
Copyright: 2017 A2O People

Call us on: 01278 732073
Email us on: connect@a2opeople.co.uk

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