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Bus driving through Brexit

Friday 31st January 2020 marked the day the UK left the European Union. While Brexit hasn’t dominated the news in the way we might have expected this year due to the Covid-19 pandemic, negotiations have still been taking place in the background. In many aspects we’ve been operating ‘business as usual’, but as we’re nearing the end of our transition period, we thought this would be a good opportunity to take a look at the impact leaving the EU could have on the transport, infrastructure and construction industries. 

Aviation

No-one could ever have predicted the devastation the aviation industry would suffer this year due to Covid-19. The pandemic has had a massive impact on this industry, but the process of recovery is beginning. Finding a proportionate way to steadily resume the number of flights while minimising the spread of coronavirus is a priority for the government. This is reflected in the new quarantine rules being brought in this month which allow people arriving into England to pay for a test after just five days, cutting the quarantine period to less than half and making air travel a more attractive option.

Aside from the effects of Covid-19 on this industry, Brexit could still have a profound effect on UK aviation. The appearance of budget airlines and cheap flights was made possible by the European Common Aviation Area (ECAA). Without a new arrangement in place by the new year, the UK will stop being a member of the ECAA. No deal has yet been agreed, however transport minister Grant Shapps has said he expects the EU to bring forward contingency measures, which London would reciprocate. Despite the end of the transition, many airlines say they’re not too worried due to the no-deal contingency measures drawn up between London and Brussels in March 2019 that would have ensured connectivity in the event of no agreement.

If we remained part of the ECAA, this would mean the UK is subject to EU aviation law. Similarly, the UK could agree a Switzerland-style deal that guarantees almost full access to the ECAA, but this would mean continuing influence of the Court of Justice and the European Union. A key argument for leaving the EU was to have control over our own laws so these may not be the ideal scenarios. 

Re-applying to the ECAA is dependent on EU members agreeing to allow it, and Spain has made it clear it won’t wave through such an agreement due to concern over Gibraltar’s airport. 

UK membership with the EU also benefits from 42 Air Service Agreements. If we do not re-join the ECAA, the Independent Transport Commission (ITC) state we will have to create new and independent agreements with these 42 countries. It also means air fares for passengers are likely to increase and budget airlines will become more expensive. 

The UK also benefits from air traffic rights that have been negotiated at EU level with third-party countries like the US and China. The ‘Open Skies Agreement’ allows EU/US airlines to fly between points in the EU and US. In 2018, a deal was reached between the UK and US to continue the agreement. Similarly, the UK is also party to the Single European Skies which manages air traffic control.  While no deal has been reached yet as to whether we will continue with this agreement, the EU’s draft negotiating mandate says it would be open to a new Open Skies Agreement with the UK, but with level playing field options to ensure Britain maintained current standards on state aid, labour laws, the environment and competition.

If, by the end of the transition period, we do not have a deal with the EU, the UK cannot operate in EU airspace until we reach a deal with individual countries. 

Shipping and Maritime 

Back in 2018, the Chairman of Maritime UK, David Dingle raised concerns over the seemingly lack of recognition over ports and the impact of Brexit by the UK government. 

According to the House of Commons Library briefing note on Brexit and Transport (2018), the UK has the second largest port industry in Europe, with 90% of UK trade being handled by ports. The industry employs around 120,000 people (with 36% of seafarers originating from Poland, Croatia, Latvia and Romania – as stated by the UK Chamber of Shipping Seafarer Statistics).  

The biggest issue has been around the Irish Sea, although the Northern Ireland Protocol has now been agreed meaning Northern Ireland will continue to apply EU Customs rules at its ports. This gives a practical solution to avoid a hard border with the Republic of Ireland whilst ensuring the UK, including Northern Ireland, leaves the EU as a whole. However, the National Audit Office has recently warned there is a very high risk the new Irish Sea border will not be fully operational by 1stJanuary. Irish Ministers have also expressed concern that businesses may not be ready and would require a phasing in period, whether there is a deal or not.

Although the UK shipping industry will remain subject to International Maritime Organisation regulations, we still have to decide how closely aligned with EU shipping standards we want to be, particularly in terms of trade and safety. Boris Johnson has said he wants to ‘take back control’ of British waters and conduct annual negotiations with the EU like Norway does, however no final decisions have been made yet.

UK ports have always been different from the rest of Europe as we have kept some autonomy in how our ports are run. However, leaving the EU will affect import and export tariffs as well as the volume and patterns of freight coming in and out of the UK, most likely causing some congestion. 

From 1st January 2021, if no trade agreement exists between the UK and another country, trade with that country will take place under World Trade Organisation (WTO) rules. The UK has already signed agreements with some countries, and is currently in negotiations with others, however these could still take some time to agree.

If agreements cannot be reached between ports at Dover, Folkestone and Calais, the government could look to utilise more east coast ports as one solution, but will also look to capitalise on the creation of freeports (allowing firms to import and re-export goods outside normal tax and custom rules). The government has currently committed to creating 10, but could increase this number depending on the number and quality of bids received from local authorities.’

Rail, Roads and Freight 

In 2018, the Rail Delivery Group (RDG) asked Government for ‘smooth cross-border transport, reciprocal market access, access to skills and clear applications of railway standards.’ 

The European Commission has issued a proposal for a regulation to the European Parliament and the Council regarding the cross-border railway infrastructure between the European Union and the United Kingdom and the applicability of train licences issued by United Kingdom after 31st December 2020. This would see an interim agreement of two months to give France and the UK time to conclude an agreement on the safety and interoperability rules of the Channel Tunnel infrastructure, and a nine-month extension to the validity of train licences issued by the United Kingdom for railway undertakings operating in the Channel Tunnel.

Important matters of protocol and safety will need revision if the Tunnel is to remain a legally administered conduit for people and goods between Europe and the newly independent UK. It is not clear yet how that will be achieved in the remaining timescale. 

UK rail operators will be able to retain their ability to participate in tenders for EU rail franchises. In November 2018, the UK reached an agreement to accede to the Government Procurement Agreement post-Brexit as an independent member. This was a significant development for the UK rail industry as it means most publicly tendered contracts must be open to companies from the other 19 GPA economies. Conversely, UK companies will retain the ability to tender for public contracts in other GPA countries, even in a ‘no deal’ scenario.

Currently, the Office of Rail and Road (ORR) is responsible for economic and safety regulations relating to rail– this is derived from the European Union Agency for Railways (ERA) laws and auditing. It is possible, once we leave the EU, that ORR will want to modify regulations that are better suited to the UK network – but this has yet to be decided. The ORR has offered assurance that further guidance will be provided before the end of the transition period.

It does not appear Brexit will have much effect on UK roads. For the public, the main issues will be around purchasing an international driving licence when driving around Europe and congestion around major ports. Many freight organisations have expressed concern over a lack of preparedness. A recent trial of post-Brexit border checks in France caused a five-mile queue of lorries to unexpectedly build up at the Eurotunnel terminal in Folkestone. And the lorry queues building up around Dover in recent days show what might be to come.

There is more uncertainty for haulage companies in areas of employment, drivers’ rules and hours, and access to European markets.  Details were published earlier this year by the government on how cross-border trade with Europe will work after the transition period, but clear information in some areas is still unavailable. From January, everything going in or out of the UK will require some form of customs declaration, and further controls will be phased in throughout the year. Hauliers will need to ensure their drivers have the correct documentation, for example, an International Driving Permit. The European Health Insurance Card is likely to become redundant for UK nationals, therefore private health insurance will also need to be considered.

Construction: EU Migrant labour

Perhaps one of the key issues of Brexit is the possible affect it will have on migrant workers, a key part of the workforce for both the transport and construction industries. 

According to an Office of National Statistics (ONS) report in 2018, 8% of UK construction labourers were from the EU. This was substantially higher in London at 28%. Research from the Construction Industry Training Board entitled ‘Migration and Construction’ found just 3% of construction workers would be able to manage the bureaucracy around the EU Visa Settlement Scheme. 

In addition, recent data from the ONS and the Construction Products Association shows the number of EU-born construction workers in London has already dropped sharply since the start of the pandemic.

The new points-based immigration system is very limiting for ‘unskilled’ workers who aren’t paid above the wage threshold. Few jobs have a ‘going rate’ which passes the threshold in construction, therefore would prevent EU workers from entering the UK for work. 

What does this mean for the industry? Well, worst case scenario, the construction industry could face issues with labour supply, which could have a direct impact on the delivery of major infrastructure projects as well as the housing crisis. Currently, there aren’t enough UK workers to fill the positions but the industry and government are working together to tackle these issues.

Construction: Materials 

Build UK states that £10 billion worth of construction materials are imported from the EU, which equates to around 60% of all building materials in the UK. Companies are now likely to lose tariff-free access on materials and face higher taxation rates increasing the cost of materials. Moreover, the European Investment Bank and European Investment Fund which has contributed €7.5billion to our major projects, will no longer be available to the UK. 

Andy Mitchell, co-chair of the Construction Leadership Council, has expressed concern over this, stating that due to the nature of construction projects working on a ‘just in time’ delivery basis, keeping construction sites operational and productive will depend on the ability of businesses to efficiently move these goods across the border and through our ports. As a result, business are currently unable to adequately predict the prices, costs and availability of materials that originate from the EU after 1st January. This will impact all aspects of business including planning, site operations, and project completion dates. 

What next?

Britain’s departure from the European Union will dominate politics and government for the coming months and is a critical issue for business.

Alongside this crucial moment for business, the Government’s drive to make the UK more competitive and open to new trade opportunities, as well as its pledge to ‘build, build, build’ our way out of the post-pandemic recession, puts the transport, infrastructure and construction industries at the heart of the post-Brexit world.

As specialists in public affairs and the transport, infrastructure and construction sectors, we want to help you get the best from this situation and identify the ongoing impacts that Brexit will have on your business. We can help you have the conversations to prepare your business for the opportunities and challenges ahead, and set you apart from your competitors.