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Janice morphet

Professor Janice Morphet 

This blog is written as a letter to Mr Oliver Letwin MP who is heading the Cabinet Office team to prepare a paper on the options for Brexit for the new Prime Minister.

Dear Mr Letwin,

As you prepare your report on the options for Brexit for the new Prime Minister you will no doubt have many priorities to consider including financial stability and the markets. However, high on your agenda must be the issues relating to the planning, development and property industry which plays an important part in the UK’s economy. It brings investment to the country while many UK companies are involved in consulting and the delivery of planning and property services in the EU and beyond.

As you will be aware, the development industry has been one under extreme pressure since the EU referendum results were announced. This has been through the early loss of value in the shares of volume house builders and also the pressure for withdrawals on a number of property funds leading to their closure. So there is a need to address the operation of the planning and property industry as your team examines the implications of all the options in the preparation of your forthcoming report.

It is also the case that planning, infrastructure and housing have been identified as the main UK macroprudential weaknesses by the EU in their six monthly reviews of member state economies since 2010. However, when the UK leaves the EU this judgement will remain and influence the macroeconomic policy of the Treasury as this view of the UK’s weaknesses is shared by the IMF and the OECD. The UK is also shown as being 24th in the 2015/6 Global Competitiveness Survey of infrastructure in the assessments made by the World Economic Forum.

Apart from remain, which is not an option that you are considering, all options have fundamental implications for planning and development and will need to be addressed specifically. If you intend to recommend the Norway (EEA) option, then this would stabilise the regulatory environment of the planning and development industry and still allow these companies to operate in the EU and as well as beyond. However, the Norway option will need other significant interventions to maintain confidence in planning and property investment. This relates not just from the loss of EU capital funding for major infrastructure, energy and R and D projects that would result through this option but also it would lead to the loss of the legal basis for these projects including HS2, the A14 improvements, the Northern Rail Hub and others. There are many major projects in this category for transport infrastructure. These projects will need new legislation through Parliament to confirm their future role. The UK’s membership of the European Energy grid will also need to be specifically negotiated and agreed.

These matters are not impossible to take through Parliament but they would need to be dealt with as soon as possible to maintain investor confidence and the ability of the construction industry to retain their labour force. On the other hand, if there are delays, then EU migrants in the construction industry who have been in the UK for less than five years would need special leave to remain and may decide to return to the EU where there may be a construction boom to deal with the relocation of the UK businesses seeking to operate within the EU’s jurisdiction, as some have already announced.

A further issue for the Norway option would be the loss of the Cohesion funding which is important to the delivery of the Government’s policy for the Northern Powerhouse and local growth deals together with R and D funding, rural development and other environmental and energy measures. Parts of the country like Cornwall and Northumberland, where the population supported Brexit, have already asked for reassurances from the Government and the EU for the maintenance of EU funding for their projects. This may be able to be funded from the savings in EU contributions if this is not spent on the NHS or rural farm payments.

However the funding is not the only consideration. There is also no legal basis on which to fund Cornwall, Northumberland and elsewhere in the UK unless the cohesion regulation is replaced directly. This would require an examination of policy and economic and social objectives and it is likely to be a great interest to all these in local government as well as Scotland, Wales and Northern Ireland. This may be a particular issue given that it is reported that one in sixteen members of the Conservative Party is in local government.

The arguments for planning and development to be a high priority in the Norway option will be the same in the Canadian and Swiss options but also these carry the potential uncertainty to development finance. Further, although the Swiss option will include free movement of labour that would maintain the current position for construction and professional workers, this would not be the case with a Canadian trade deal that is likely to be focussed primarily on goods rather than services and will not include free movement. Assuming that our development and planning industries remain important to the economy and their markets are buoyant then there may be the need for special permits or increased migrations from Australia, New Zealand and South Africa where professional with similar legal systems are in operation and transferable qualifications can help to meet any gaps.

When you consider the free trade option, then the planning and development industry wishing to retain business within the EU will need to consider employing more EU staff to ensure that they are familiar with EU standards or may need to relocate at least art of the business within the EU. These approaches may require special labour permits within migration allocations.

When you evaluate the reverse Greenland option or the new approach for government within the UK proposed by Lord Salisbury’s Constitution Reform Group, this might create some issues of a binary approach in the UK. However, this would mean that the those parts deciding to opt out (like Greenland in 1982, but still remains part of Denmark which is a member state) could still receive some EU cohesion funding through the establishment of a European Grouping of Territorial Cooperation (EGTC) but could otherwise devise their own standards, legislation and funding priorities. This option enables London, Scotland, Gibraltar and Northern Ireland to continue their relationship with the EU as they wish and would focus Parliamentary attention to fill in the legislative framework elsewhere.

Finally there is a concern about the access to development finance for the public and the private sectors. The role of the European Investment Bank in funding public sector development is significant including for many of the government’s own projects. Replacing this funding, will be difficult and potentially more costly not least following the downgrading of the UK’s status by international agencies including Moodies and S and P. Alternative forms of finance at similar princes and terms are an urgent necessity if the development industry is to maintain its programme and confidence in the UK.

The uncertainty concerning the likely option to be pursued in the negotiations with the EU is having a very immediate effect on the property and planning sector and this may be greater than others at the moment. We also have to remember that capital investment in housing, property and infrastructure take some time to fund and implement and that a hiatus in investment confidence could have a long term effect. This would compound the already weak delivery of infrastructure in the UK as assessed by global economic institutions. The development and planning industry together with public sector colleagues would welcome an early clarification of the likely negotiating option to be taken so that it can plan its future investment and development projects accordingly.

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