On the money

I will completely understand if you stop reading now. We are only a few weeks into the Brexit debate, and friends and colleagues are already showing signs of collective weariness at the omnipresence of the topic.

The papers are awash with it, eagerly relaying the ever more extreme political positioning on both sides, and every business meeting has its Brexit Break when, regardless of the main topic under discussion, everyone feels obliged to launch into an exchange of views on the issue. So I am getting my oar in now, before the noise in the debate becomes so deafening that we all resort to earplugs and sleeping pills.

And also because it does matter, arguably more to some businesses than to each of us as individuals who are entitled to vote. A Liberal Democrat MP said to me recently that while he was a passionate European, and it was a defining issue for his party, in all of his many years of discussions on doorsteps not one of his constituents had ever raised the issue with him. So ironically while the vote may lie with individuals, businesses which would be affected by a possible “Brexit”, may care more and, in the first instance, have more to gain or lose.

I would love to be able to argue that there is a “right” answer for companies in the UK construction sector, but I don’t think it is that simple. The fragmentation of the sector, and the huge diversity of businesses within it, means the pros and cons of EU membership vary from firm to firm.

Faster growing economies invest more. They buy more infrastructure. The construction industry benefits more than most other industries from higher growth

The sector has businesses whose parent companies are in other European countries, UK firms with significant overseas activity, and some with almost none at all. Large employers down to SMEs. Public quoted companies and family-owned businesses. Moreover, the similar fragmentation of clients mean that there is not a collective interest in the economic effect on a single or small number of supply chains, unlike, for example, in the automotive or aerospace sectors.

Cue cop-out, sit-on-fence, don’t-risk-annoying-any-of-my-clients article. No chance! While the costs and benefits of EU membership may vary for different construction companies, it is my view that in aggregate there is a clear right answer for the future of the UK economy and therefore our collective interest.

The UK ultimately is a business, with a social outcome. If we increase our productivity we can buy quality of life. This in-out decision will affect our economic growth trajectory. For me, there is a right answer and the right answer is the one which supports maximum economic growth. Numerous academic reports have been published on this subject over the last decade, and a significant majority of them conclude that being in the EU delivers a net economic benefit.

To take an example, the CBI’s 2013 report Our Global Future found that the net benefit to the UK of EU membership was 4 – 5% of GDP, up to £78bn, or more than £1,000 a head. Faster growing economies invest more. They buy more infrastructure. The construction industry benefits more than most other industries from higher growth.

Another consideration is interest rates. The UK outside the EU may be seen as a riskier place to invest. There is evidence of that already as investors have rushed to sell sterling, leading to a seven-year low in the sterling-dollar exchange rate. If long-term interest rates rise, that would impose a significant additional cost on businesses in the sector.

It is not just the long-term impact that influences my view however. It is as much, if not more so, the near-term disruption. Construction craves stability. I am already picking up a worry in the market that clients may delay commissioning jobs until the referendum outcome is clear. Construction output in the commercial and housebuilding markets correlates very closely to GDP growth and any nervousness around the economy does lead clients to hesitate in committing capital. A decision to exit the EU would lead to protracted and potentially messy divorce proceedings, and a lengthy negotiation in parallel around a new trade agreement. History suggests that the uncertainty through that period would negatively impact investment demand, and the construction industry would be one of the principal victims of that.

Ultimately it comes down to a vote. The argument may be capable of being won on the facts, but it will also depend on the passion and persuasiveness of the arguments. I am of the clear view that a separation from Europe would pose a real risk to the stability and long-term prosperity of the construction industry. Philip Green of Carillion and Mark Reynolds of Mace have also put their names to the argument to stay in the EU in a letter to the Times. It is now up to all of us to engage and vote to support the industry.

Richard Threlfall is head of infrastructure, building and construction at KPMG