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What happens when freedom of movement ends

22 August 2018 | By Pip Brooking

With skills shortages already biting, will a new immigration system help Britain after Brexit?

When the UK exits the EU, freedom of movement will come to an end. It means the country needs a new migration system – but as yet there is little indication of what that will look like.

“The stakes couldn’t be higher,” says CBI Deputy Director-General Josh Hardie. “Get it wrong, and the UK risks having too few people to run the NHS, pick fruit or deliver products to stores around the country. This would hurt us all – from the money in our pockets to our access to public services.”

Most credible economic studies show that immigration delivers net economic benefits for the UK. Foreign workers put in more than they take out. Their taxes – which pay for schools, hospitals and roads – outweigh the benefits they receive. 

There should be no doubt of EU workers’ value to the economy when they currently make up 17 per cent of the workforce in the tech sector, 20 per cent in the railway industry and 25 per cent in warehouses. In London, one in four employees in banking and finance are non-UK citizens, as are half the capital’s construction workforce.

Earlier this year, businesses from Northern Ireland to the East of England were vocal in expressing their concerns to Business Voice about losing access to these workers.

And as time passes, their fears are only growing.

Uncertainty over future arrangements has already kept EU nationals away – fuelling endemic skills shortages. In the year to March 2018, there was an 87 per cent fall in the number of nurses from the EU joining the Nursing and Midwifery Council register. And in recruiter ManpowerGroup’s latest Annual Talent Shortage Survey, of the 2,000 respondents, 30 per cent were seeing more than 30 per cent fewer applicants for jobs.

“We’ve never seen a statistic like that in the 12 years we’ve done this kind of research,” says UK Managing Director James Hick. “It’s a massive issue, across the board, affecting both entry level positions and higher level, specialist skills.”

So what’s the solution?

Filling the gap left by delays in the publication of the government’s immigration white paper, the CBI has come up with a set of recommendations in its own report, Open and Controlled: A new approach to immigration after Brexit.

Produced through consultation with 129,000 businesses across 18 industry sectors, it reflects companies’ desire to see a new approach that remains open enough to grow the UK economy, while providing the right controls to build public trust and confidence.

Included in its recommendations are calls for net migration targets to be scrapped and the existing non-EU immigration system to be reformed, so that firms can better access people and skills from around the world, not just the EU. And to send the right signals that the UK remains open and welcoming to the world, migration should be on the table in trade talks to get a better deal, first with the EU and then with other countries.

Importantly, it argues the focus of the new immigration system needs to shift away from numbers – and high earners in graduate level roles – to one that assesses the economic contribution of workers across all skill levels.

As things stand, if EU workers were incorporated into the existing visa system applied to foreign nationals from outside the EU, 96 per cent of those currently working within the UK hospitality industry would not meet the salary threshold, and would therefore not gain entry.

“The hospitality sector is particularly in need of a future policy that provides employers with access to talent to support continued investment and growth,” says Kate Nicholls, Chief Executive of UK Hospitality. “This means acknowledging the need for a variety of workers across the sector at many levels, not just those who are deemed highly skilled.”

Likewise in the food industry, Steve Corby, CEO of Kanes Food, emphasises the contribution of the 1,100 EU citizens it employs. “Each and every one of them contributes to the overall success of the food industry.”

He continues: “We, alongside many of our competitors, are already experiencing a significant impact in shortages of staff, so there is a pressing need for a policy which will restore access to much needed skills.”

Ease, speed and mobility

As Suzannah Nichol MBE, CEO of Build UK, says: “UK construction must have access to skilled people to create the infrastructure and homes that build communities.”

But Simon Rawlinson, Partner at construction consultancy Arcadis points to shortages of project managers, quantity surveyors and engineers. And in an industry that contracts and expands with the economy, there often aren’t the number of people with the right experience that projects require.

“Consultancy businesses are very dependent on the ability to recruit overseas to be able to fill those gaps,” he explains.

Rawlinson refers to the difficulty in using the existing non-EU labour route – both in the complexities of getting work permits and dealing with the cap on numbers. He also agrees with the CBI’s emphasis on the importance of mobility within organisations.

“We have an increasingly integrated European business and we rely on being able to bring European skillsets in support of some of the work we’re doing for clients in the UK,” he says.

Advanced signalling work for UK rail benefits from the skills of those in the Netherlands, where that work has already been done, while the ability to ramp teams up at short notice is often required on large infrastructure projects, he explains.

“We were recently required to ramp up a team of 2-300 engineers very quickly. You’re never going to have that number of people sitting on the bench.”

He worries about the consequences of reducing access to a flexible pool of workers.

Two years ago, Arcadis’ Talent Scale report modelled what would happen if EU workers leaving the UK were not replaced. When current industry estimates already put the shortfall at 200,000 workers by 2024, this report highlights a potential net loss of 136,000 EU workers in the case of a soft Brexit, and nearly 215,000 in the event of a no deal.

Contractors are already starting to take into account their ability to supply labour post Brexit, Rawlinson adds. “Clients are already paying a post-Brexit premium because of the expected tighter labour market. And if it becomes harder to deliver construction projects, the volume of output might fall a little bit too.”

But why can’t firms just train more and pay more for UK employees?

Rawlinson points to structural issues in the construction industry, where the vast majority are self-employed or work for micro-SMEs that employ less than 10 people. “There’s a disincentive for many people to train or be trained,” he says.

Nevertheless, he points to efforts by the Construction Industry Training Board and how the wider industry is working in partnership with government to make a difference, adding that Brexit has been a trigger “to get everybody to improve the way we do things”. 

“Nobody would disagree with the argument that employers must invest more in training,” says ManpowerGroup’s James Hick. “But it can only ever be part of the picture. The number of people unemployed in total does not match the number of vacancies we have available. Whatever position you take we need more skilled workers to come into our economy.”

Firms such as Siamo Group, which provides flexible workers to the manufacturing, logistics and retail sectors, already talk about interviewing people “they wouldn’t have looked at three years ago” because of existing labour shortages – even before Brexit.

And while global businesses have the option to move capabilities out of the UK to where the labour market is deemed more competitive, smaller companies can only stretch themselves so far when it comes to what they pay their employees.

Speaking on Radio 4’s Today programme as the CBI’s report was launched, Charles Malcolm-Brown, Managing Director at Cambridgeshire manufacturer Dixon International Group said: “We try to pay more and train better, but we can only do so within our means.”

And highlighting just how vital the question of immigration can be for businesses up and down the country, Malcolm-Brown added: “I honestly don’t know how we’ll cope. I can’t see a future if they [the government] put further barriers in our way.”

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