House of Commons - Trade and Industry

Select Committee on Trade and Industry Eleventh Report

2 Migration

8. Coverage in the British media of the impact of European enlargement on the UK has focused overwhelmingly on A8/A2 nationals coming to the UK to live and work. A study published in January 2007 into media coverage of the A2 accession found that the issues of immigration and labour featured in 45% and 44% respectively of related newspaper articles.[9] This reflects the importance given to the issue by, in particular, the British Chambers of Commerce and also by the Government in evidence to us.[10]

9. Nationals of A8 countries wishing to take up employment in the UK for more than a month are generally required to register on the Workers' Registration Scheme (WRS). Between May 2004 and March 2007 630,255 A8 nationals had registered on the scheme. The WRS figure is a gross measure of the number of first applications made; individuals are not required to de-register if they leave the country and the figures exclude the self-employed, students and the economically inactive, none of whom is required to register under the scheme.[11] It is also limited by those who choose not to register; a survey of 505 Polish nationals conducted by the University of Surrey for the BBC's 'Newsnight' programme found that only 64% of those interviewed had registered on the scheme.[12] Worker Registration Scheme data are not a net measure of A8 migration nor are they a measure of the number of A8 nationals currently living in the UK. It is therefore a matter of serious concern to us that the Department of Work and Pensions has no better statistical source from which to gauge the impact of A8 migration to the UK.[13]

10. Labour Force Survey figures give the total number of economically active A8/A2 nationals resident in the UK during the period January-March 2007 as 372,000. This would mean that A8 nationals accounted for 1.2% of the UK workforce during this period and 17.5% of all economically active foreign nationals.[14] Concerns have been raised that these figures significantly underestimate the numbers of migrants in work.[15] The Department for Work and Pensions accepted in their oral evidence to us that the Labour Force Survey figures were "not perfect"; weaknesses with the data are discussed in the Department for Work and Pensions report on Eastern European migration but are not the subject of the present Report.[16]

11. Migration from the A8 countries is overwhelmingly from Poland; in the first quarter of 2007 71% of WRS first registrations were made by Poles. Slovakia (9%) and Lithuania (7%) were the second and third largest contributors.[17] The Department of Trade and Industry cited David Coleman, Professor of Demography at Oxford University, as saying that the influx of Polish workers is the largest single migration into the UK since the arrival of the French Huguenots in the late seventeenth century.[18]

12. Although A8 nationals who come to work in the UK have to register with the Worker Registration Scheme they are not subject to any restriction on where or for how long they can work. This is in contrast to their position in the majority of EU15 states, which imposed restrictions under the 'transitional arrangements' provisions of the 2003 Accession Treaty; only Sweden and Ireland—in addition to the UK—applied no transitional arrangements.[19] Whilst in Lithuania and Slovakia, we heard that the UK had gained goodwill in these countries by not restricting access to its labour market.

13. Romanian and Bulgarian nationals have been subject to tighter controls on the right to work in the UK. On 24 October 2006 the then Home Secretary announced that A2 nationals would require a work authorisation document to gain employment in the UK. In the first instance workers from these countries were restricted to applying for quotas in the agriculture and food sectors or the highly-skilled migrant programme.[20] In December 2006 the Minister of State for Nationality, Citizenship and Immigration told a joint meeting of the European Scrutiny Committee and Home Affairs Committee that it was proposed that there be 16,250 places for seasonal agricultural workers and 3,500 places for workers in the food processing industry. Students and the self-employed are exempt and A2 nationals can still apply for existing programmes such as the highly-skilled migrant programme or work permits. The Government has committed itself to a review of these arrangements after a year.[21] In spring 2007 the Labour Force Survey estimated that 24,000 economically active Romanians and Bulgarians were living in the UK.[22]

14. The lack of accurate or adequate information on the number of A8/A2 nationals working in the UK or from which countries they come is a matter of concern because of the consequences for wide areas of public policy. The available evidence suggests that Poles are the largest population, followed by Lithuanians and Slovaks. We recommend that, at the very least, the next census contain specific questions to ensure that more accurate data are available to enable the Government and the new Statistics Board fully to gauge the penetration of A8/A2 nationals in the labour market. We also recommend that the Government give urgent consideration to how it can improve the information it collects on A8/A2 immigration before the next census.

Impacts of Immigration

SKILLS

15. Our witnesses identified the filling of skills gaps as a major benefit of A8/A2 migration. The British Chambers of Commerce submitted the results of a survey of small and medium sized businesses which found that 25.6% of those surveyed employed migrant labour primarily because of a short supply of candidates with the required skills and 19.6% because of a shortage of candidates with the required experience.[23] The EEF told us that it was clear that A8/A2 migration had helped meet skills gaps in manufacturing.[24] The Greater Manchester Chamber of Commerce told us "there is a lack of specialised skilled workers available to many businesses in the UK" whilst migrant workers from the A8/A2 "are likely to be some of the best workers from these areas, as it is those with higher skill levels and stronger work ethics that stand a better chance of securing employment overseas".[25] The Society of Motor Manufacturers and Traders told us that their members were recruiting in part directly from Central and Eastern Europe in order to find appropriately skilled staff.[26]

16. According to the British Chambers of Commerce survey, 23.3% of employers use migrant labour chiefly because they believe that immigrants have a better work ethic than native employees, whilst 17.4% cited greater productivity as their major reason for employing migrant labour.[27] Similar sentiments were expressed by representatives of Intellect, by individual chambers of commerce and privately to us during our visits overseas.[28] The Chief Economist of the Centre for European Reform told us that this was in part a product of the lack of equally attractive employment at home and the risk factor involved in moving overseas.[29]

17. The evidence we received suggests that those A8/A2 nationals who come to work in the UK are largely from the intermediate and higher end of the labour market.[30] The European Commission report on the impact of enlargement noted that a disproportionately high number of EU10 nationals who live in the EU15 (up to 60%) have intermediate skill levels.[31] Moreover, the education systems of A8/A2 countries, in general, specialise in skills relating to manufacturing, engineering and electronics, a legacy of the focus on heavy industry in many of these countries' economies during the Communist period.[32] The UK's weaknesses in intermediate level technical and practical skills, as identified by the Leitch Review and our own Report into manufacturing skills, mean that skill sets of migrants from the A8/A2 are well suited to plug these gaps in the UK's own skills base.[33]

18. Our witnesses told us that the A8/A2 nationals who come to the UK to work tend to be the 'best and the brightest' and that their skills and work ethic are the major reasons why employers find them attractive employees. It is clear from the evidence we received that A8/A2 migration has helped plug skills gaps as well as alleviating labour shortages in certain sectors of the economy.[34]

WAGES

19. Despite being 'the best and the brightest', we were told that the majority of A8/A2 nationals initially work in relatively low-paid, low-skilled jobs in the UK.[35] The majority of registered workers (77%) earn between £4.50 and £5.99 an hour.[36] 5.9% of companies surveyed in the British Chambers of Commerce survey cited lower wage costs as their main reason for employing migrant labour.[37] According to the WRS figures the predominant occupations for Eastern European migrants are as process operatives, warehouse operatives, agricultural and hospitality workers. Whilst the overwhelming majority—97%—are registered as in full-time employment, 50% are registered as in temporary employment.[38] It is noticeable that there has been a significant fall in the number of migrants earning between £4.50 and £5.99 an hour, from 85% in the first year of the scheme (with a further 2%-3% reported as earning less than £4.50 an hour) to 77% in spring 2007.[39] This supports anecdotal evidence that migrants who remain in the UK are moving into higher-waged, higher-skilled occupations which make more use of their talents.[40] The Chief Economist for the Centre for European Reform told us that transitional arrangements in countries like Germany had limited this phenomenon—and therefore the potential benefits to the economy of migration—by not allowing migrants to move between occupations to those where they could add the most value.[41]

20. We received evidence that this movement of labour into higher-earning occupations combined with economic growth in the A8 is making it harder for employers in agriculture, who had previously relied on A8 nationals for their labour, to recruit staff. The National Farmers' Union told us that current estimates predict a shortfall of 5,130 workers (17% of seasonal labour demand) in 2008. We also heard that this situation will be exacerbated by the Government's restriction of the Seasonal Agricultural Workers Scheme to Bulgarian and Romanian nationals.[42]

21. We note that A8/A2 migrants tend to find work in the UK for which they are overqualified. This could be said to have a negative impact on the economic efficiency of Europe as a whole—their home countries are losing skills and the UK is not maximising its advantage from them. Nonetheless there is some evidence that A8/A2 nationals who remain in the UK are starting to move into the higher-paid, more-skilled jobs for which they are better suited. Whilst we welcome this, it has caused labour shortages in agricultural industries that had previously relied on Central and Eastern European workers entering the UK through the Seasonal Agricultural Workers Scheme (SAWS). We find it remarkable in these circumstances that the Government is proposing to allow only Bulgarian and Romanian nationals to apply through SAWS.

22. It has been argued that A8/A2 migrants have reduced wage inflation in the economy. The EEF told us that migrations from the A8/A2 countries had allowed the economy to grow faster without creating wage inflation or forcing higher interest rates.[43] A report written by Professor David Blanchflower—a member of the Bank of England's Monetary Policy Committee—and two colleagues concluded that, by increasing the supply for labour by a greater amount than the demand for labour, Eastern European migration had reduced inflationary pressures on wages in the short run.[44] Similarly, the SMMT told us that recruitment from the accession states had "eased some pressures from wage costs".[45]

23. A report commissioned by the Low Pay Commission into the impact of all immigration into the UK on wage levels found a very small (0.7 pence per hour) negative impact on wage growth over a year at the lowest end of the spectrum and a modest increase (25 pence per hour) in average wage growth.[46] A second report, into the North Staffordshire Labour Market, found that the majority of migrant workers worked around or on the minimum wage level. Leaving aside exploited or illegal labour—which is discussed elsewhere in this Report—it found that lower levels of sickness absence and a stronger work ethic meant that employers could achieve savings on labour rates by employing migrants without cutting wage rates and that migrants were generally paid the same as their UK equivalents.[47] These findings tend to support the evidence of Katinka Barysch, who told us that the existence of a UK minimum wage had significantly reduced the undercutting of wages experienced to some extent in Germany.[48]

24. The Department for Work and Pensions told us that they did not have any evidence to suggest that there was a connection between wage inflation and migration. They told us that there had been no noticeable slowing of wage growth in sectors and localities where A8/A2 migrants tended to work. They concluded by saying they had not been able to find data to support the notion that such migration had dampened wages.[49]

25. The British Chambers of Commerce told us that "it was a bit of a myth" that A8/A2 migrants were receiving lower pay than their UK equivalents. Their survey found that only 5.9% of businesses gave lower wage costs as the main reason for employing migrant labour. They accepted that by increasing the labour supply and reducing competition for staff between employers, migration may have reduced wage growth. A suggestion was also made that A8/A2 nationals may be less inclined to demand extra money for overtime work.[50]

26. The evidence on whether A8/A2 migration has slowed wage growth in the UK economy is mixed. The Government suggests that it has had no discernable impact. Other studies suggest there may have been a slowing of wage inflation through an overall increase in the labour supply. The Low Pay Commission's report into migration in general concluded that a small decrease in wage growth at the lowest levels was more than compensated for by modest increases at higher levels of pay. What the studies that have found an impact agree on is that such impacts are small in the context of the whole economy. We do not rule out more significant impacts in relation to specific sectors and we will be returning to this issue during our forthcoming inquiry into the construction industry.

EMPLOYMENT

27. The Department for Work and Pensions has conducted the only major study to date on the impact on the UK labour market of A8 migration this concluded. "Despite anecdotal evidence, there is no discernible statistical evidence which supports the view that the inflow of A8 migrants is contributing to a rise in claimant unemployment in the UK."[51] Officials from the Department reiterated this view in oral evidence to us.[52] This conclusion was supported by the European Commission's report on the impacts of enlargement on the EU15, which noted that those countries which had adopted the most open attitude towards A8 workers (the UK, Ireland and Sweden) were those with the best employment performance over the post-accession period.[53] The Trades Union Congress report on the impact of migration in general on the labour market similarly cited several reports which found no evidence to suggest that unemployment overall had been increased by migration and some evidence to suggest that migration may increase overall employment.[54]

28. Nonetheless, there have been suggestions that recruitment of A8 nationals by employers in low-skilled areas of work may have had some impact on employment rates. The TUC report noted that employers were more likely to have recruitment strategies targeting migrant workers than the core unemployed and referred to anecdotal evidence suggesting that in specific sectors—in particular, construction—this may be disadvantaging the long-term jobless.[55] A small regional study by the Low Pay Commission in South Staffordshire cited 'limited' evidence that employers who had previously relied on a variety of sources of migrant labour were now relying increasingly on A8 labour—in effect displacing non-EU workers.[56]

29. Concerns have been raised that employers may be less inclined to pursue recruitment strategies aimed at the long-term unemployed due to the presence of skilled Central and Eastern European alternatives. Nonetheless, we have seen no evidence to suggest that immigration from the A8/A2 countries since their accession has increased claimant unemployment in the UK.

Overall Impact

30. Our witnesses agreed that migration from the A8/A2 countries has been positive for the economy and UK business. The British Chambers of Commerce told us: "The view from the chambers of commerce is that it [A8/A2 migration] has significantly enhanced wealth in this country and wealth creation."[57] The EEF told us that "on balance, it has had a beneficial impact because access to more workers, and often very skilled workers, has allowed the economy to grow at a faster rate without problems of wage inflation taking off and interest rates needing to rise."[58] Intellect welcomed the opening of labour markets in that it had allowed greater freedom for companies to move staff between different parts of an international operation; however they expressed concern that as a result "there is a growing risk of EU discrimination against staff whose 'home country' is outside the EU."[59] The Government's position is that "the UK economy has benefited quite significantly from the influx of typically medium skilled workers who are prepared to work flexibly to fill gaps in the UK labour market."[60]

31. Migration from the A8 since 2004 has benefited UK business, chiefly by filling gaps in the labour market. The Government's decision to open the UK labour market to A8 nationals has been beneficial from a labour market perspective because it has allowed workers to move flexibly between sectors following employer demand. Nonetheless, the Government should be aware that this has created shortages of seasonal labour in agriculture, which had previously relied on labour from restricted migration schemes.

32. We believe it is too soon to make a judgement on the decision to introduce restrictions on Bulgarian and Romanian nationals—but we note that countries in the A8 experiencing labour shortages are using labour from the A2 to plug those gaps.

Exploitative Employment

33. A recent BBC news investigation raised the prospect that some A8/A2 nationals are being encouraged to come to the UK on the back of misleading or false promises of employment and then subject to exploitative working conditions once they arrive. The investigation focused on the role of middlemen and gangmasters in this process.[61] The Home Office report into the employment of migrant workers found that there were examples of exploitation both in terms of underpayment and denial of employment rights. Some respondents to the survey underpinning the report claimed that exploited labour was being used to undermine wages and conditions in low-skill, high-turnover sectors including hospitality and catering, construction and agriculture.[62]

34. The Department for Work and Pensions told us that there had been examples of abuses—in particular relating to the deduction of money from wages for accommodation—but that it was not sufficiently widespread to affect the labour market as a whole.[63] The Department of Trade and Industry told us that the influx of legal migrants from the A8 countries post-accession may have had a positive role in displacing illegal or exploitative labour by providing a legitimate source of low-cost employees.[64]

35. The accession of the A8 to the European Union was closely followed by a substantial increase in the employment rate among nationals of those countries living in the UK. In summer 2003 the figure was 57.3%—below the average for both migrants in general (65.3%) and non-migrants (75.8%). By summer 2005 this picture had reversed: the A8 figure was now 80.6% compared to 66.4% and 76.1% respectively. A major part of this increase has been associated with workers moving from illegal and unreported employment into the open economy.[65]

36. Migrants from the A8/A2 countries should be clear that, as European Union citizens, they are entitled to the same protection in terms of the minimum wage, employment conditions, union membership and health and safety as a UK citizen. We encourage the Government to work closely with the A8/A2 nations to ensure that new and potential arrivals are made aware of their rights at the earliest possible opportunity.

37. We note that, whilst the Gangmaster Licensing Authority has helped address the problem of exploitative employment by intermediaries in the agricultural sector, there are no similar arrangements in other sectors where intermediaries play a large part in recruitment. We recommend that the Government give urgent consideration to extending the Gangmaster Licensing Authority's remit.

Long-Term Impacts

38. A8/A2 migrants have benefited British businesses in the period since 2004, chiefly through the plugging of gaps in the labour market. The longer-term impact of such westwards migration is less certain. The key variable here is the future intentions of A8/A2 nationals. The current trend is for A8 applications for the WRS to increase year-on-year, from 204,965 in 2005 to 227,710 in 2006.[66] Whether this trend continues in the years to come depends on future developments in the UK and A8/A2 economies. If, as widely expected, wages continue to increase in the A8/A2 countries, growth remains high, unemployment falls and other European countries continue to relax their restrictions on migrants then it would be reasonable to expect migration from the A8/A2 into the UK to slow. Indeed, the latest figures show 46,820 WRS first-time applicants in the first quarter of 2007—an increase of only 85 on the previous year—and 49,500 in the second quarter—a fall of 6,980 on the previous year.[67] These figures suggest that the numbers of A8/A2 nationals arriving in the UK may already be slowing. However, the problems already outlined with such data and the number of variables involved in predicting migration flows mean that it is difficult to establish how far this reflects the situation on the ground, or whether this slowdown will continue.

39. The other key aspect in determining long-term impact is the number of A8/A2 migrants who choose to remain in the country. Most people we spoke to in Lithuania and Slovakia said they envisaged the majority of migrants returning from the UK in the medium to long term. When registering on the WRS applicants are asked how long they intend to remain. In the period April 2006-March 2007 the majority (55%) said three months or less, 26% did not know and 9% said for more than two years.[68] There is no measure of the numbers of A8/A2 nationals actually leaving the UK.

40. Other surveys have been undertaken into the future intentions of A8/A2 migrants. Surrey University's study found that of the 505 Poles surveyed, 18.6% intended to stay less than six months, 12.7% intended to stay between six months and two years and a similar number aimed to stay between two and five years. Longer term, 11.1% aimed to stay more than five years and 15.4% had decided to stay permanently. The largest single group (29.75%) were those who had no set plan for how long they would stay.[69] A survey by the Polish Marketing company ARC Market and Opinion found that 45% of the 1,389 Poles surveyed planned to stay at least five years in the UK, 45% planned to go home within four years and 10% planned to stay permanently.[70]

41. Some of our witnesses raised concerns that a high number of returnees could cause problems for UK businesses. The British Chambers of Commerce told us: "Business has become increasingly reliant on migrant labour. We do not know whether these people will stay or go or what will happen and obviously there is a disappointment that businesses cannot access locally that level of skill and work aptitude that they seek."[71] The EEF stressed that they did not see migrant labour as a long-term solution to skills shortages and gaps in the manufacturing workforce.[72] The Chief Economist of the Centre for European Reform told us: "There will be a big loss for the UK economy if a large number of the Central and East Europeans go home."[73]

42. There is not enough data to make an accurate prediction of the numbers of A8/A2 nationals who will be living in the UK in the medium to long term; UK business cannot take this supply of skilled, willing labour for granted. Although A8/A2 labour has eased labour shortages in a number of sectors, it is not a long-term solution to those problems. We recommend that the Office for National Statistics and its successor body investigate the returnee rate among A8/A2 nationals and that Government and business work together to ensure that a skills and labour vacuum is not left behind when, and if, the flow of A8/A2 nationals to the UK slows or reverses.

43. Whilst in Lithuania we saw examples of Lithuanians who had returned to their home country after a period in the UK and used the skills, contacts and expertise gained during that period to set up successful business ventures linking the two countries. The presence of large numbers of A8 nationals in the UK and the goodwill generated in those countries by the opening of the UK labour market offer excellent opportunities for better business links between these countries and the UK, especially when, and if, those migrants begin to return home. Government and business need to develop strategies to maximise the UK competitive advantage gained from these returnees by, for example, ensuring effective British chambers of commerce are supported in these countries, developing cultural links and targeting UKTI resources. This is a significant and potentially highly beneficial long-term consequence of migration to which insufficient public policy attention has been given; greater attention should be paid to it if the advantages to the UK are to be maximised.

9 Cision (2007) A Candid Assessment of the British Media's View of EU Expansion, p. 3 Back

10 Q50 (British Chambers of Commerce) Ev56 DTI; Ev73 (Department of Trade and Industry) Back

11 Border and Immigration Authority, Department for Work and Pensions, HM Revenue & Customs and Communities and Local Government (May 2007) Accession Monitoring Report: A8 Countries May 2004 - March 2007 p. 2, Table 5; (hereafter 'UK Government' Accession Monitoring Reports, Applicants are required to re-register when they begin a new job, however the figures cited in the Accession Monitoring Report refer only to first applications. Back

12 Centre for Research on Nationalism, Ethnicity and Multiculturalism, University of Surrey, (2007) Polish Migrants Survey Results http://www.surrey.ac.uk/Arts/CRONEM/CRONEM_BBC_Polish_survey%20_results.pdf Back

13 WRS data provides the basis for the Home Office's Accession Monitoring Reports, supported by Labour Force Survey data it also underpins the Department for Work and Pensions documents cited elsewhere in this Report; Qq104-105 (Department for Work and Pensions) Back

14 Office of National Statistics (2007) Labour Force Survey, January to March 2007 Back

15 The Observer, 29 April 2007, '"Immigration figures are 'false'": Councils say government statistics seriously underestimate the number of new arrivals and they need more money to cope' Back

16 Q104 (DWP); Department for Work and Pensions, (2005), The Impact of Free Movement of Workers from Central and Eastern Europe on the UK Labour Market: Early Evidence, section 4.1.1 (hereafter 'DWP, The Impact of Free Movement') Back

17 UK Government Accession Monitoring Report, table 3 Back

18 Ev64 (DTI) Back

19 European Commission (2006) Enlargement, Two Years After: An Economic Evaluation, p. 80; the majority of such restrictions have since been removed or relaxed. Back

20 Official Report, 24 October 2006, Column 82WS Back