Is recent sharp fall in the growth in the number of EU nationals in work the calm before the storm?

As Theresa May begins formal talks with other EU leaders to leave the European Union, many employers will be crossing their fingers that the Prime Minister will secure positive trading arrangements and protection for the EU nationals they currently employ. However, the main concern for many employers lies in the Government’s policy objective to end free movement of labour for EU citizens in the UK, which could have large resourcing implications for some organisations in years to come.

However, while many people are fixated about the potential impact of government policy, it seems that Brexit has already had a discernible impact on the attractiveness of the UK economy as a place for EU nationals to come and live and work.

According to the most recent official statistics, the second half of last year saw no growth in the number of non-UK nationals from the EU in work in the UK, compared with a pre-referendum quarterly average increase of 60,000. As the CIPD’s recent examination of official data suggests, this may lead to a concentration of labour shortages in those sectors that employ a disproportionately large number of EU nationals that also account for a relatively large share of the near-record high number of vacancies in the UK economy. Over half (56%) of the 2.26 million of the non-UK nationals from the European Union that live and work in the UK are employed in retail, accommodation and food services, construction and manufacturing; which collectively account for almost half of the total number of current vacancies in the UK.

But as the data below illustrates, it would be misleading to interpret this as a ‘skills’ shortage’ time-bomb when so many EU nationals are employed in unskilled or low-skilled roles. As the CIPD warned last month in the national media (Labour Market Outlook survey), the risk of labour shortages in sectors such as hospitality are potentially hugely significant; especially given the underlying trend in unemployment and demand for labour.

Number and percentage of EU27 nationals in employment aged 16 years and over by occupation nationals; July 2015 to June 2016

Occupations | Count (%)

Managers, Directors and Senior Officials: 130,000 (4.0%)
Professional Occupations: 318,000 (5.1%)
Associate Professional and Technical occupations: 214,000 (4.8%)
Administrative and Secretarial occupations: 140,000 (4.2%)
Skilled Trade occupations: 249,000 (7.5%)
Caring, Leisure and other Service occupations: 167,000 (5.8%)
Sales and Customer Service occupations: 108,000 (4.5%)
Process, Plant and Machine Operatives: 258,000 (12.8%)
Elementary occupations: 483,000 (14.3%)

Total: 2,065,000 (6.6%)

Source: Labour Force Survey (ONS)

However, despite these concerns about labour shortages, the CIPD believes that the biggest danger and risk for the labour market in the future is with the loss of skilled labour, given that skilled EU migrants have more options and choices than unskilled labour. This seems to be reflected in the most recent inflow data, which suggests that the fall in the number of EU graduates coming to live and work in the UK is the biggest driver behind the fall. Given the modest rise in the number of skilled shortage vacancies in the past few years, there is a discernible risk of skills shortages becoming a bigger problem even before the introduction of migration restrictions.

All eyes will, therefore, be on the Home Office when it publishes its consultation paper on future policy later this summer. Early indications suggest that the Government will be seeking to adapt the current points-based system for non-EU workers, who require a job offer before they come to the UK; this is now that they have ruled out an Australian-style system, which would allow non-UK nationals to seek work in the UK without a job offer, provided that they meet a certain skills threshold.

If this system were adopted and adapted, it will also be interesting to see whether the Government will also require employers to have a sponsorship license that would inevitably increase the cost and administrative burden of employing EU migrants. To give some indication, employers that recruit non-UK nationals from outside the European Union would have to pay up to £1,500 for a licence and an additional £20-£200 for each non-EU national they employ. In addition, the non-EU national will incur the costs of paying for a visa.

A lighter-touch, alternative system is to adopt the former Worker Registration Scheme, which was last used for Accession countries such as Romania before they were given unrestricted access to the UK labour market in 2014. Under this system, the employer simply needs a letter of approval from the government before the non-UK national applies for an accession worker card.

Other potential ideas that the Government may wish to put forward include:

  • five-year visas for skilled workers
  • a one-year visa for many unskilled or low-skilled roles
  • an extension of the current shortage occupation list, which currently applies to non-EU workers
  • having to sit a Resident Labour Market Test, where an employer must advertise the post for 28 days before recruiting a non-UK national from overseas
  • the introduction of a salary and/or skills threshold
  • sectoral schemes that are subject to quotas in sectors such as social care, food processing and agriculture.

If some of these policies do end up on the statute book, many of them will have huge implications for employers, especially SMEs and public sector employers who either don’t have the financial resources or legal knowledge to navigate through the system, or don’t have the flexibility to raise pay to offset the impact of a reduction in the supply of EU workers.

The CIPD is currently undertaking a large research project into what a post-Brexit immigration policy should look like that ensures British businesses are able to access the talent they need to grow. Due to be launched on 7 June, it could not be better timed to help feed into the Government’s consultation and shape the government’s thinking on this highly significant issue. The report will include policy recommendations that are based on an examination of official data, more than 25 interviews with employers, half a dozen focus groups across the country and a survey of more than 1,000 employers.

We hope the evidence base in the report will provide a workable set of policies that serves all sectors of the UK economy and does not reduce the attractiveness of the UK as a place to live and work.

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