IR35 and low immigration could limit UK construction when demand rebounds, says Core Five

Immigration and demographic trends will limit the UK’s access to construction labour and hamper the market when demand rebounds, according to a report by Core Five. 

High taxes on self-employed workers, a failure to attract foreign workers and the potential draw of Ukrainian reconstruction were cited as factors conspiring to diminish the pool of workers available to British firms. 

The warning came in the consultant’s third quarter market update, which stuck by its tender price inflation forecasts of 2.5% for 2023 and 1% for 2024. 

Core Five’s report highlighted the imbalance in supply of and demand for labour in construction, with almost 50,000 construction vacancies opening per month – a 20-year record high. 

Total employment is 10% lower than in 2019 despite output recovering to pre-pandemic levels, a decline Core Five attribute to the near 20% drop in the number of self-employed workers over this period. 

The consultant pointed the finger at retiring freelancers and the higher tax burdens wrought by changes to IR35 legislation. 

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Labour shortages have been further exacerbated by the failure to attract foreign labour post-Brexit. 

While non-EU immigration has increased since April 2021, it has not filled the gap left by the decline in EU immigration as much as in the wider economy. 

“This is particularly concerning given the construction industry’s historical reliance on high growth rates of EU and non-EU labour,” the report said. 

It also highlighted the potential impact of a post-war Ukrainian reconstruction effort on the UK’s access to foreign construction labour. 

“Our research suggests that in the short term the industry’s labour challenges may be tempered by the softening of demand,” said Elisa Deffenu, a construction economist at Core Five.  

“However, as demand rebounds, immigration and demographic trends point to construction labour becoming a significant challenge.”  

According to the Construction Industry Training Board, the sector will need at least an extra 225,000 workers by 2027. 

Core Five identified several to mitigate the effects of labour shortages, including an increased focus on offsite manufacturing, a focus on labour during tendering and incentives for retirees to return to work.