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The Construction Industry’s Crystal Ball for 2023: What Lies Ahead

After the tumultuous year that was 2022, with Russia invading Ukraine, double-figure inflation, soaring energy prices and interest rates at a 14-year high, every aspect of the UK economy has been affected, not least the construction industry.  So what more could 2023 possibly have in store for us? Construction specialist, Sarah Lidgett, shares her top issues likely to affect the construction industry this year.

Building Safety

  1. With the hearings and statements in phase two of the Grenfell Tower public inquiry now over, the next step is for Sir Martin Moore-Bick and the inquiry panel to publish their phase two report, expected at some point this year. No one quite knows at this stage what will happen next, including what will happen to the tower and its site.
  2. Further secondary legislation arising out of the Building Safety Act 2022 (‘BSA 2022’) is anticipated, including the new gateway regime (expected between April and October 2023) with other subordinate legislation relating to the new duty holder obligations, the golden thread of information and construction products expected throughout 2023 and 2024.  We also expect to see more claims arising out of the BSA 2022 making their way through the courts.  The BSA 2022’s one year “initial period”, which gave parties some extra time if they were close to the limitation deadline when it came into force, ends on 28 June 2023, so there may be a flurry of activity around then.  The retrospective 30-year limitation period for claims under the Defective Premises Act 1972 is likely to be the trigger of most claims and we may also start to see class actions as those impacted by building defects (such as leaseholders) join together against their landlord or freeholder.  So far, only Martlet Homes Ltd v Mulalley & Co Ltd [2022] EWHC 1813 (TCC) (see our previous case report here) and St James’s Oncology SPC Ltd v Lendlease Construction (Europe) Ltd and another [2022] EWHC 2504 (TCC) have made waves in this area so it will be interesting to see what other issues make the headlines.

Environment

  1. The UK’s increasingly ambitious environmental targets, together with the huge impact of construction on its net emissions, has seen climate change continue to rise up the industry’s agenda. It is already reflected in the government’s infrastructure strategy and procurement policy, and industry standards. There are currently around 29 million homes in the UK that need to have energy efficiency measures, low carbon heating, and solar installed by 2050. That is going to require a very large workforce and, so far, the Department for Business, Energy and Industrial Strategy has announced just £9.6m in funding for 8,900 training courses in heat pump and energy efficiency installations.
  2. There is likely to be greater scrutiny of environmental claims by both regulators and other stakeholders with a particular focus on the environmental credentials of materials and sustainability claims with a greater potential for action to be taken in the event of “greenwashing”.  The Financial Conduct Authority (FCA) is currently consulting on a new ‘anti-greenwashing rule’ as part of its Sustainability Disclosure Requirements. Their proposal reiterates the requirement for all regulated firms that sustainability-related claims must be clear, fair and not misleading, as well as consistent with the sustainability profile of the product or service.  It will reinforce the FCA’s ability to challenge firms that it considers to be potentially greenwashing in respect of their products or services, including inconsistencies between what firms are saying and what firms are doing with respect to sustainability, and to take appropriate enforcement action against them. The new rule will come into effect immediately on publication of the FCA’s Policy Statement, which is due in the first half of 2023.
  3. The Biodiversity Net Gain Requirement brought in by the Environment Act 2021 aims to protect existing habitats and ecosystems in new developments by ensuring at least a 10% improvement on predevelopment biodiversity. The BNG site register and statutory credits sales platform is to go live in spring 2023. By then developers must have the biodiversity gain condition discharged before any works can begin.

Wider Industry

  1. Many are predicting the return of “stagflation”: a combination of stagnant growth, negligible productivity gains and high inflation.  Whilst materials costs are said in some cases to be nowhere near the level they were in the summer, the instability still makes the industry nervous which doesn’t help the property pipeline. Debt finance will continue to be a big issue, with current inflation and rising interest rates making high street lenders uncomfortable about investing in the built environment, causing developers to look for new private equity income sources instead.
  2. The Joint Contracts Tribunal (JCT) is expected to publish the much-awaited 2022 editions of its suite of contracts in 2023.  The detail of many of the changes is currently unknown, so it will be interesting to see if they have taken on board and sought to resolve any of the hotly contested issues since 2016.
  3. From 1 April 2023, the Finance Bill 2023 proposes to amend the current exemptions for unmixed aggregate levy (which include certain exemptions connected with building sites). Those operating building sites should be aware of the changes to make sure they are not caught out by additional charges which may apply.

Overall, a fairly mixed bag with some positive changes despite the fairly bleak economic situation.  The environment and climate change seems to be the focus of this year, which we hugely welcome at Greenwoods. As Head of the firm’s Charity Committee, I am deeply passionate about these issues.

As ever, let’s watch this space! If you need assistance with any construction dispute related concerns, please reach out to myself or Lorna Carter.

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