As we reflect on one of the most eventful political years in our history, one of the most notable features of the performance of the UK labour market since the referendum decision has been its resilience. However, as we enter 2017, the latest official data suggests that we may be entering a new phase; which will be complicated further by the formulation of changes to EU immigration policy as the negotiations between EU leaders progress. This article looks at what policy changes we can expect and what broader impact Brexit is already having on employer practice, especially in relation to recruitment.

Following several months of strong employment growth, the most recent statistics show a modest quarterly fall in employment growth for the first time in many years. This is perhaps unsurprising given the recent modest fall in employer investment intentions and increase in import costs since the referendum vote. Yes, exports have benefitted from a weaker pound, but the vast majority of businesses in the UK do not export. In addition, there are early indications that the flow of EU migrants has slowed substantially during the past quarter according to official statistics. This is consistent with discussions we have held with various employers about the early impact of Brexit, which suggest that the fall in the pound is the main factor behind the fall in EU nationals’ interest in moving to the UK to live and work. There are also anecdotal reports that 2017 could see the year when EU nationals return to their home countries in greater numbers.

Looking ahead therefore, there is a strong likelihood that the recruitment and retention challenges of employers will be exacerbated further when EU migration restrictions are introduced, which look set to affect low-skilled employers especially. Recent discussions with members highlight a frank admission that they have become too blinkered in their recruitment strategies during the past decade. As a result, many are now taking urgent action to explore all recruitment channels to offset the risk of looming labour shortages; especially among low-skilled industries. Key under-utilised groups of the labour market that are already being considered more actively include ex-offenders, women returners and students. The same discussions also reveal that pay rates and investment in skills may also increase to help staff progress and remain with the organisation. Recruitment difficulties are, after all, often the result of insufficient attention to staff retention. Therefore, there could be an under-reported benefit to Brexit against the backdrop of the widely documented weaker public finance and economic growth forecast.

An urgent reviewing recruitment and workforce development strategies is therefore sensible, especially given the strong indication that free movement of labour will end. Any future policy may therefore include some restriction on low-skilled employment. This may feature the return of short-term visas or the re-introduction of sectoral schemes as the Seasonal Agricultural Worker Scheme. At the same time, other highly-skilled sectors are also seeking to have separate arrangements, such as the financial services sector, which would give them quicker and easier access to EU migrant labour.

In the event of a harder Brexit outcome, we should not discount the introduction of a skill and/or salary threshold; although it would be a huge surprise if this threshold were anywhere near as high as the thresholds that currently face non-EU nationals. Additionally, there are softer options available to government. One idea of particular interest to the CIPD is to require employers that recruit migrant labour to demonstrate that they are investing in the skills of their workforce and making every effort to recruit from the potential domestic workforce. Indeed, the CIPD is about to undertake a study that explores the different EU immigration policy options available to government and its potential impact on employers and we would be keen to hear from you*.

On the upside, the government has ruled out the suggestion that employers will have to publish the proportion of non-UK nationals in their workforce. There are also strong signals that the government will not be looking to build on the existing points-based system for non-EU nationals, and all the cost and bureaucracy that goes with it. In addition, there is a strong political will behind protecting the employment status of EU nationals that already live and work in the UK; although no guarantees have understandably be given. It is perhaps important to bear this in mind alongside any legal advice your EU national colleagues may be given from third parties as part of your wider efforts to reassure and retain them.

Overall, 2017 therefore looks set to be an unpredictable year for the composition of the UK workforce. However, it seems inevitable that the supply of EU migrants over the past decade will fall compared with the pattern over the past years. This will require a change of mind set in relation to recruitment, training, pay and perhaps even employment conditions in some cases. And if all efforts fail, the organisation’s strategic objectives may also need to be reviewed if there is insufficient resource and capability within the organisation to deliver on them.

More on this topic

Labour Market Outlook

Read our latest Labour Market Outlook report for analysis on employers’ recruitment, redundancy and pay intentions

CIPD Viewpoint
Age-diverse workforces

Explore the CIPD’s point of view on age diversity in the workplace, including recommendations for employers and actions for the UK Government

Employing overseas workers in the UK

This factsheet looks at recruiting overseas workers, the categories of non-UK nationals able to enter and work in the UK, and the legal framework involved.

For Members

More thought leadership

Thought leadership
Are British employers making progress in reducing the gender pay gap?

Charles Cotton looks at trends and developments in gender pay gap reporting in Britain, highlights implications and makes recommendations for HR teams

Thought leadership
Prepare for new duty to prevent sexual harassment

Employers need to be ready to protect employees from sexual harassment under a new statutory obligation

Thought leadership
Navigating change with speed and agility is key for the C-suite

Peter Cheese, the CIPD's chief executive, looks at the challenges and opportunities faced by today’s business leaders and the strategic priorities needed to drive future success

Thought leadership
New employment legislation to come into effect on 6 April 2024

We outline the key pieces of legislation set to come into force in the UK and explain their implications for employers and employees