Brexit: Looking beyond the deal

The Brexit endgame is upon us. The clock is ticking, the politicians are finally engaged, and the insults are being hurled. Even as European capitals batten down the hatches in response to another round of covid-19, the long-running drama that is Brexit has entered its last act.

The political and economic stakes are huge. Missteps on both sides threaten a no-deal outcome that most rational people would have considered unthinkable even a few months ago. However, at this stage, the most positive outcome is likely to be a deal so skinny and so unambitious, that we will be left wondering why there was so much fuss. Big changes to UK politics and economics will inevitably follow. Where there is change, investment follow. That is why we should take the long view to look beyond the deal.

Long queues of lorries outside Dover and Calais will be serious enough, but in reality, the most serious risks associated with Brexit are political. A breakdown of trust between UK and European leaders or a heightened risk of UK devolution could be the much more durable and painful consequences of a botched deal. Given the stakes, clearly the UK side believes that there is enough upside in this alternative future to be worthwhile “breaking things”. The next question is inevitably what these opportunities might be.

This is where it gets tricky. Michael Gove, regularly accused of boosterism, has likened Brexit disruption to the short-term upheaval of a house move. At the time, it’s hell, but in the long run, the extra space and view are worth it.

That’s quite an understatement. As an industry, we are only too aware of the risks that Brexit could bring, and the CLC is doing great work to raise awareness. The new points-based migration system could exacerbate the UK’s skills crisis just when we need access to more competent and skilled people in the industry. Similarly, post covid-19, we know that the UK’s materials supply-chain is not resilient, and that a Brexit-induced shock could trigger further shortages. Looking further ahead there could be substantial costs caused by regulatory divergence as UK and EU standards evolve over time.

Michael Gove is right that we need to start thinking about what else will change and where the opportunities might come from

But Michael Gove is right that we need to start thinking about what else will change and where the opportunities might come from – how good the view might be. Going back to my point about the scale of the risk that the UK is running, we should also hope that the potential upside is at least as big. Clearly we are still waiting for the big post-Brexit strategy reveal, and I would like to think that the UK’s future will be built on innovation in digital, life-sciences and low carbon, in line with the long-term investments that Google, Merck and others are already making.

Whatever the outcome, we can be sure that there will be changes to the UK economy and there will be post-Brexit rebuilding. So, what changes should we be planning for?

One likely development will see the UK taking on a more global role, trading on its status in the UN and NATO. There is talk of the UK joining the Trans-Pacific Partnership, a free-trade zone that includes Australia, Canada, Japan, and Mexico. Membership is unlikely to lead in the short-term to increased construction exports, but the implied tilt is towards where growth will be in the future, rather than where it has been in the past. Building on existing BIM cooperation agreements with Japan, Mexico, Chile, and others, it could be that the UK’s digital leadership is our most globally marketable construction capability, and that the Pacific Region is the best growth market – turbo-charged by newly-honed skills in remote working.

It could be that the UK’s digital leadership is our most globally marketable construction capability, and that the Pacific Region is the best growth market

Another area is regulatory divergence. This is a development that both home-grown industry and the EU rightly fear. Important basic industries like petro-chemicals that operate as a pan-European integrated supply chain face huge costs replicating existing regulatory systems. On the other hand, smart, digital regulation regimes for services business could potentially make the UK a very competitive business location. The lesson from Singapore for example, is not that it has undercut competing regulatory regimes to become a global business hub, but that it has created business advantage through the digitisation of high standards. Should the UK follow a similar lead – applying the same principles to bio-medical research, digital markets, financial services, and others – then another Big Bang could follow with all of the investment that entails. We should not give up on cities and the workplace yet.

But the most immediate opportunities are likely to follow from a more prosaic source. The UK is a very large consumer market, and the manufacturing organisations that can serve the market locally will be more competitive. The near-shoring and re-shoring of manufacture and assembly to serve the UK domestic market is likely to trigger another phase of the re-tooling of the UK consumer economy, this time on the lines of the fourth industrial revolution rather than the first and second. Freeports, for which competitive bids are now being sought, are only one manifestation of changes to UK plc, which will take place whether there is a deal or not. When the UK reconfigures its industrial base, it will be high-tech and our sector will have a critical role in its delivery.

As Brexit negotiations go to the wire, focus will inevitably turn to the consequences of a no-deal misstep as well as the disruption that will inevitably follow the end of the transition. Given the state of the economy and the challenge from covid-19, this is the right tactical response, but not the only response. Brexit will drive change and investment. These changes will not be comfortable, but they will surely create opportunity. Change and the opportunities from change is why we should be looking beyond the deal.

Simon Rawlinson is a partner at Arcadis and a member of the Construction Leadership Council