United Kingdom | Publication | March 2021
In the UK, there is a significant reliance on EU nationals to fill posts in the domestic infrastructure sector (supported by the construction industry), its food and beverage manufacturing sector and in the majority of businesses in agriculture and horticulture. These sectors are characterised by the number of temporary workers they employ in addition to the year-round workforce, but seasonal labour should not be considered in isolation as it is the entire supply chain that is affected by seasonal uplift, and stakeholders are heavily dependent on the stages before and after.
Infrastructure is one of the five foundations of the Government’s Industrial Strategy: Construction Sector Deal. Construction is a diverse industry that includes activities ranging from mining, quarrying and forestry to the construction of infrastructure and buildings, the manufacture and supply of products, as well as maintenance, operation and disposal. Prior to the pandemic, the industry employed almost 3 million people, 8% of the total workforce and contributed 7% of UK GDP. Construction also underpins the Government’s plans for a Green Industrial Revolution.
A very major concern for the industry is its ability to recruit EU nationals. Prior to the referendum, the sector employed a significant number of both skilled and unskilled foreign workers, thought to account for almost 15% of the workforce (and, in London alone, almost a third of construction workers were EU nationals). Significant numbers of European workers are used in the agriculture and food processing sector, with an estimated 75,000 temporary migrant workers in agriculture every summer in the UK. This access to labour is essential as it underpins the UK food chain’s timely delivery of high quality affordable food to consumers.
The free movement of people between the EU and the UK came to an end at the end of last year. The UK’s new approach to immigration treats EU and non-EU citizens equally, with the exception of Irish citizens. Anyone coming to the UK to work, excluding Irish citizens, needs to apply for permission in advance of entering the UK. The new system does not, however, apply to EU citizens who were living in the UK as at the end of 2020; they and their family members are eligible to apply to the EU Settlement Scheme and have until 30 June this year to make an application.
The focus of the UK's post-Brexit immigration policy is on high-skilled workers. Under the new points-based system, anyone coming to the UK for work must meet a specific set of requirements for which they will score points. A minimum of 70 points is needed in order to apply for a visa and visas are awarded to those who gain sufficient points.
The new system represents a significant change for employers recruiting from outside the UK labour market, notably those in the construction, agriculture and food supply sectors and the various manufacturing and processing industries that support them which rely heavily on both highly skilled specialists and so-called 'low skilled' labour.
With effect from the beginning of this year, a company wanting to recruit skilled workers from outside the UK's resident labour market needs to be a Home Office licensed sponsor and the skilled worker needs to secure a visa (in advance of travel) which is only be awarded to those with specific skills, qualifications, salaries and professions. This will enable the company to recruit skilled workers from anywhere in the world under the Skilled Worker route. When sponsoring workers from both the EU and from non-EU countries, companies now need to pay an Immigration Skills Charge which is £5,000 per worker for a 5 year visa. This is in addition to the other costs associated with holding a sponsor license and sponsoring a non UK citizen which are significant.
A skilled worker coming to the UK needs to demonstrate that he or she has a job offer from a Home Office licensed sponsor, that the offer is for skills at the required level (‘RQF 3’ or above, which is broadly A Level equivalent) and he/ she speaks English to the required standard. These criteria are mandatory.
Some of the relatively late changes made to the system, prior to it coming into effect, such as the suspension of the cap on migration, the abolition of the resident labour market test, the reduction in salary and skills thresholds and the expansion of the shortage occupation list to include more construction industry jobs were welcomed. However, the fact that there is no route for unskilled workers (which extends to general labourers) is a serious concern and one that may hamper the construction industry's capacity to deliver on key projects within the built environment that include major civil engineering works, housing (and post-Grenfell recladding), office refurbishment, healthcare and social infrastructure, especially post-Covid-19.
Across the construction, agriculture, food and processing sectors, concerns were raised that the definition of “skilled labour” in the new immigration policy does not appear to encompass the requirements of certain roles within the supply chains or recognise the on-the-job training that is often provided. Going forward, “low skill" workers will need to look to other potential work routes into the UK, such as, for example, the Youth Mobility Scheme and the Seasonal Workers Pilot for agriculture. This scheme has been extended into and expanded for 2021, with 30,000 visas available for those wanting to come and work on UK farms for a period of up to six months (although, in recent years, agricultural businesses have had to bring in more than double this number of non-UK workers each summer to help growers pick and package their produce).
Looking to the future, automation across the sectors is high on the government’s list. DEFRA is planning a review into automation in horticulture, which will report on ways to increase automation in the sector and meet the government’s aim of reducing the need for migrant seasonal labour. However, until the UK develops and implements new domestic talent pipelines, which include apprenticeships across the sectors and industry focused training, and the new work permit rules and arrangements are in place, where demand for labour outstrips the supply and the cost of employing non-UK workers, the shortage of workers and required skills is likely to result in increased costs.
The Public Procurement (Amendment etc.) (EU Exit) Regulations 2020 (the “EU PP Exit Regs”) were made in November one month prior to the EU and the UK reaching agreement on the EU-UK Trade and Cooperation Agreement (the “TCA”). The EU PP Exit Regs were designed to ensure alignment and a smooth changeover at the end of the implementation period and they amend specific EU references within the UK legislation.
UK procuring entities are now required to publish notices on a new UK e-notification service, the Find a Tender service (‘FTS’), instead of in the Official Journal of the European Union (OJEU). The EU PP Exit Regs also confirm that any amendments made to the UK public procurement regime will not affect a procurement procedure commenced prior to the expiry of the implementation period, including procurements for framework agreements (and call off contracts awarded under those agreements), which will continue to be bound by EU procurement law as transposed into UK law.
The UK acceded to the World Trade Organisation Government Procurement Agreement (the “GPA”) as a member in its own right, at the beginning of this year, at the same time as the TCA came into force. The GPA is an agreement between some (but not all) WTO members to mutually open up their markets for selling goods and services to governments, often including regional and local governments. The freedom of UK companies to tender for EU and EEA public sector infrastructure projects has been secured by the UK being accepted as a member of the GPA. The TCA extends the types of contracts to which UK and EU businesses have reciprocal access beyond the scope of the GPA and includes additional rules (beyond those in the GPA) to all procurements that are covered in the UK and the EU.
As the UK procurement regime is now governed by the TCA and the GPA, EU companies that wish to bid for UK publicly procured work have fewer and less extensive rights than before. For UK corporates, access to the markets of non-EU GPA countries remains unaffected. Access to EU markets under the TCA is wider than reliance upon the GPA alone, but UK companies are likely to experience challenges beyond procurement as a result of changes to import and export rules (as to which, see below).
As far as the UK is concerned, there is little change to the public procurement regime following the end of the implementation period; the rules are set out in a number of statutory instruments (the Public Contracts Regulations 2015, the Utilities Contracts Regulations 2016, the Concession Contracts Regulations 2016 and the corresponding legislation in Scotland and Northern Ireland) which, when passed, transposed the European EU procurement directives into UK law. The UK Regulations continue to have the same effect but include certain technical amendments as well as the changes mentioned above. The financial thresholds above which the UK Regulations apply have not changed and will be revised next year.
As far as UK public sector contracts are concerned, the main practical change is that notices of new opportunities and subsequent contract awards now uploaded to a new FTS system. Opportunities that are below the financial thresholds will continue to be advertised on Contracts Finder, and the new system does not replace Public Contracts Scotland/ Sell2Wales/ eTendersNI. Opportunities within the EU continue to be advertised as before via OJEU.
Looking ahead, just before Christmas, the government published a consultation document, Transforming Public Procurement, which is intended to help shape the future of public procurement in the UK. In fact, in the Foreward, Lord Agnew, the Minister of State for the Cabinet Office, states that “The end of the Transition Period provides an historic opportunity to overhaul our outdated public procurement regime”. The Green Paper expresses the clear view that public procurement in the UK has been “bogged down in bureaucratic, process-driven procedures” and there is a need to abandon “complicated and stifling rules”. The paper contains radical proposals for reform that include combining the existing procurement rules into a single set of regulations. It should be noted that freedom from EU procurement regime does not mean that the UK will be able to reform its procurement legislation completely as it wishes; the GPA and TCA impose some limitations on what can be changed. Consultation on the government’s Green Paper closes in March.
EU state aid law prohibits member states from granting state aid (subsidies) in a manner that distorts competition within the European internal market. The rationale is to prevent companies from gaining an unfair competitive advantage through government support. The EU’s restrictions go further than comparable rules that bind other members of the WTO and also the rules of other economic blocs. The WTO rules apply to goods and not services, ban subsidies that are dependent on how much a company exports or the use of domestic goods over imports and provide a mechanism to resolve disputes between countries for all other subsidies. They are substantially narrower in scope than the EU state aid rules.
The State Aid (Revocations and Amendments) (EU Exit) Regulations 2020 (the “EU SA Exit Regs”) were passed on 1 January 2021. The UK’s new regime should now to be described as “Subsidy Control”. Except in relation to Northern Ireland, the EU state aid rules fell away and the UK is now subject to less rigorous obligations under the WTO rules. From the beginning of this year, the EU state aid rules only apply to trade between Northern Ireland and the EU which is within the scope of the Protocol on Ireland/Northern Ireland, commonly abbreviated as Northern Ireland Protocol.
Under the TCA, the UK is now obliged to create a new state aid regime that prevents unlawful competition between the UK and EU countries. The TCA sets out the principles (broadly mirrored in BEIS guidance: Complying with the UK’s international obligations on subsidy control, guidance for public authorities) with which the new subsidy regime must comply, part of the EU’s efforts to make sure Brexit does not create a heavily subsidised competitor on its doorstep. The Government will, in due course, create a new independent “Subsidy Control Authority”, which is to be backed up by enforcement in the Courts. In the interim period, however, there is no enforcement regime in place.
In February, the Government published Subsidy Control: Designing a new approach for the UK and is gathering views on the form the new subsidy control system might take. In the Foreward, The Rt Hon Kwasi Kwarteng MP, Secretary of State for Business, Energy and Industrial Strategy, argues that a more flexible and less bureaucratic regime will allow the UK to foster growth industries, small businesses and research and development. The plan is for the new system to devolve control of subsidies to local public authorities and to Wales, Scotland and Northern Ireland. The consultation closes in March.
Based in Luxembourg, the European Investment Bank (EIB), the European Union’s bank, is the largest multilateral lender in the world. Founded in 1958 under the terms of the Treaty of Rome, its primary purpose is to raise finance on the world’s capital markets for long-term projects in member states. More than 90% of its lending has gone to countries within the EU, but it also back projects outside the EU, provided they are in line with the bank’s policy goals.
The UK has paid in €3.5 billion in capital to the EIB, 16% of the total. Now that the UK has left the EU, this will be returned to the UK in annual instalments over a number of years. Since the UK joined the (then) European Community in 1973, the EIB has lent nearly €120 billion for projects in the UK, which represents a little over 8% of the total lent. EIB loans have been present in every important sector of the UK economy. Recent examples of UK projects that have benefited from EIB investment include the Thames Tideway project and the London Array offshore wind farm.
‘Pre-Brexit’ UK projects and programmes will continue to receive financing. New projects will not be eligible automatically; now that it has left the EU, the UK is no longer part of the bank’s governance and is not eligible for loans on the same terms as when it was an EU member state. Despite leaving the EU (and therefore supposedly being released from the remaining legal responsibilities to the EIB), the UK remains liable to the EU for financial operations approved by the EIB before the departure date, which include its contributions to the 2019 and 2020 budget (with its share percentage calculated as if it had remained an EU member state). The UK’s relationship with the EIB will continue and will be tied to the bank’s loan repayment system for many years to come.
In November, the Government published its National Infrastructure Strategy. This advocated the creation of a new national infrastructure bank. Scotland notably opened its own National Investment Bank with a net-zero remit towards the end of last year. In March, the Chancellor of the Exchequer, the Rt Hon Rishi Sunak MP, pledged an initial £12bn to set up the UK’s first infrastructure bank. The new institution will launch after Easter, support projects across the UK, draw private sector finance into local authorities as well as energy, water, waste, transport and digital projects and help finance the Government’s Green Industrial Revolution. The intention is that the new institution will operate alongside and not in place of the private sector in the delivery of key infrastructure projects and structure lending opportunities in new sectors. The government hopes to attract £40bn of private investment into projects that can help it meet its target of net zero carbon emissions by 2050. In accordance with the Government’s plans to “level up” prosperity across the UK, the new bank will be based in Leeds and help redraw the economic map of the country.
The combined effects of the pandemic and Brexit on the construction industry and infrastructure in the UK have been significant. The temporary shut-down of factories and the closure of construction sites (particularly during the first lockdown) resulted in delay and disruption to projects. Firms also stockpiled materials and there has been a shortage in supply with rising costs being a critical issue firms face. In addition, the value of construction imports into the UK is now more than double the value of exports, with the trade deficit in construction materials and components continuing to widen. Currency fluctuations are likely to make the purchase of goods and materials more expensive and drive up project costs.
Despite huge production levels, the UK remains a net importer of materials. Approximately 60% of materials imported into the UK come from the EU. However, even with a quota-free and tariff-free trade deal now in place, there are still challenges and obstacles which will result in disruption, delay and additional costs in the form of increased administrative costs, new customs checks, double product conformity assessments and restrictions on products which do not originate from the UK or the EU. 2021 will be a tricky year for the industry and its various supply chains with more scrutiny of import/export operations and the consequent congestion at the UK’s major ports.
The combined effects of the pandemic and Brexit are also likely to result in supply chains being reviewed for perceived vulnerabilities. A supply chain is only as strong as its weakest link. Traditionally, the industry has prioritised cost and efficiency over flexibility and responsiveness. Redressing that balance is likely to mean a ‘localisation’ of supply chains, being closer to the market, and also a review of contractual provisions particularly in relation to payment terms.
As an EU member state, the UK benefited from access to the single market (with its free movement of goods) and a customs union (with tariffs on non-EU products set through preferential trade agreements with other countries or through the World Trade Organisation (WTO)).
Businesses exporting and importing goods to and from the EU are now required to apply the same excise rules as they do to goods moving between the UK and countries outside the EU. This means that an import declaration will be required and potentially significant customs duties will need to be paid. Detailed information on the impact of businesses trading with the EU can be found on the Government’s website section on importing and exporting.
One of the EU’s most criticised policies (and its longest prevailing one) is the Common Agricultural Policy (CAP) which governs agricultural subsidies across the bloc. The CAP only applies to EU member states; prior to leaving the EU, UK farmers received around €4 billion per year under the CAP. Given the importance of agribusiness in the UK and also the UK’s extensive and diverse food-processing industry, which relies on raw agricultural product, there has been considerable concern that UK farmers may be deterred from making long-term investment decisions and improvements as, prior to the end of the implementation period, the CAP made up 55 - 60% of farm incomes in England (a larger proportion in the other parts of the UK), which will need to be filled by the financial support that is put in place to replace the CAP.
Over the decades, the CAP received criticism from various stakeholder groups for hampering competition, favouring larger farms (and industry giants) and holding back development in poorer countries outside the EU (by imposing import tariffs on their agricultural products) and creating food waste. As CAP payments are made for land in “agricultural condition”, the system created an incentive to clear areas, even those unsuitable for farming, to produce the empty ground that qualifies for public money. It has therefore been charged with having adverse environmental effects, including the overuse of water resources.
In November, the Agriculture Act 2020 hit the statute books and with its advent come high hopes that withdrawal from the CAP will create an opportunity to build a more efficient and innovative farming sector tailored to the UK’s priorities and farming systems. The Government’s stated intention is to champion food production by improving the transparency and fairness in the supply chain “from farm to fork” and make it competitive and innovative by investing in the latest technology and research. The NFU has described the passing of the new legislation as a “landmark moment for Post-Brexit farming”.
The ‘Environmental Land Management Scheme’ is the Government’s new agricultural policy centred on the principle of public money for “public goods”. DEFRA is currently running tests and trials before the planned complete roll-out of the scheme in 2024. After more than 100 hours of parliamentary scrutiny, including intense debate over certain issues (such as import standards), the new Act represents a dramatic shift away from the CAP system of payments correlating directly with the total amount of land farmed; instead, farmers and land managers in England will receive public money to deliver public goods, such as better air and water quality, higher animal welfare standards, thriving wildlife, soil health, improved access to the countryside, measures to reduce flooding and tackle the effects of climate change.
Farmers now have a seven-year transition period within which to adapt; between now and 2027, the Government will phase out direct CAP payments in favour of the new system of public money for public goods.
Much of the UK’s waste policy is derived from the EU Waste Framework Directive which sets a common definition of waste and aims to ensure it is recovered or disposed of responsibly through permitting, registration and inspection requirements. The framework has been a key driver for the waste management and recycling industries in the UK and led to the reduction of landfill, change in consumer behaviour and the development of energy from waste plants.
For the first time in decades, the UK is now responsible for setting its direction of travel on waste policy. The Waste (Miscellaneous Amendments) (EU Exit) (No.2) Regulations 2019 amended 12 statutory instruments to correct deficiencies in the domestic legislation arising as a result of the UK’s exit from the EU and to ensure that the UK’s waste policy continues to operate effectively after 1 January 2021.
Coinciding with the publication of the amending regulations, DEFRA issued its Our Waste, Our Resources: A strategy for England report, based on its Resources and Waste Strategy, which were launched just months after another lengthy government strategy report – A Green Future: Our 25 Year Plan to Improve the Environment. Together, these documents promise to deliver a ‘Green Brexit’ and drive forward improvements in a number of specific areas. Not only is the report the first significant waste strategy in a decade, but it is also the first-ever comprehensive waste and resources strategy; environmental protections will be enhanced by placing the onus on businesses and manufacturers who are responsible for producing damaging waste to take greater responsibility, and cover the cost of recycling or disposing of it.
In its 25 Year Environment Plan, the Government pledged to leave the environment in a better condition for the next generation. Its aims are to create a more circular economy in which resources are kept in use for as long as possible, products and materials are recovered and regenerated whenever possible, avoidable waste is eliminated and damage caused to our natural environment is minimised.
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EU Member States may allow companies from countries that have not concluded an agreement guaranteeing equal and reciprocal access to public procurement (public procurement agreement) with the EU to participate in public tenders, provided there is no EU act excluding the relevant country.
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