Conclusions and recommendations
Migration
1. 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.
(Paragraph 9)
2. 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.
(Paragraph 14)
Impacts of immigration
3. 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. (Paragraph
18)
4. 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 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. (Paragraph
21)
5. 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 the context of
specific sectors and we will be returning to this issue during
our forthcoming inquiry into the construction industry. (Paragraph
26)
6. 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. (Paragraph 29)
Overall impact
7. Migration
from the A8 since 2004 has benefited the UK economy and 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. (Paragraph
31)
8. 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. (Paragraph 32)
Exploitative Employment
9. 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. (Paragraph 36)
10. 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. (Paragraph 37)
Long-Term Impacts
11. 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. (Paragraph
42)
12. 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. (Paragraph 43)
EU Funding
13. The
significant influx of EU money into the A8/A2 during the 2007-2013
funding period will provide excellent opportunities for UK companies—particularly
in the fields of construction and financing. The ministers and
officials we met during our visits indicated that they were determined
to achieve the best value possible and would welcome British involvement
in the resulting investment. We hope that the British government
and business look seriously at the new opportunities that will
arise from these developments. (Paragraph 47)
Labour Market
14. Our
witnesses cited the labour market as one of the major attractions
of the A8 as investment locations due to the strong work ethic
and technical skills of the workforce combined with relatively
low labour costs. The evidence we received suggest that it is
no longer accurate to describe the A8 as 'low-cost economies'.
Although average labour costs remain just over a quarter of those
in the EU15, genuinely low-cost, low-skill production is already
heading further east, to the A2, Ukraine and China where wage
rates are much lower. Employers in the A8/A2 countries repeatedly
stressed to us that skills, not wages, were the major reason for
their presence in the A8/A2 countries. This was further reinforced
by government officials and ministers from the countries we visited,
who accepted that their countries could not compete on cost with
China, India or other emerging economies. (Paragraph 55)
15. One of the major
economic challenges facing the A8/A2 at present is a growing labour
shortage in the areas most attractive to overseas investment.
Foreign investment is often concentrated around the major cities,
increasing demand for labour in areas with relatively small populations.
Rather than move to the cities to meet this demand many A8/A2
nationals—and especially the most skilled—are choosing
to move to Western Europe, in effect putting employers based in
Bratislava, Vilnius or Warsaw in direct competition for labour
with employers in London or Dublin as well as local rivals. In
some areas and sectors—for example the Lithuanian construction
industry or the highest levels of company management—we
were told that this is pushing wage costs up towards Western European
levels. The people we spoke to during our visits emphasised that
these shortages were a real problem for new companies seeking
to move into well established sectors. (Paragraph 56)
Transparency and Corruption
16. We
commend the work being done by UK embassies in A8/A2 countries,
for example in Hungary, to combat corruption. We recommend that
the UK continues to be active through its embassies to assist
national governments in building upon the improvements of the
last ten years and further reducing corruption. (Paragraph 57)
Ease of Doing Business
17. As
with any overseas market, the A8/A2 countries present a range
of challenges to UK investors and exporters. Our witnesses raised
concerns about complex, unfamiliar and slow administrative and
legal procedures in many of the A8/A2 countries—although
we note that similar concerns are also raised about some well-established
EU15 countries. Nonetheless, we believe that in terms of high-growth
economies worldwide the A8/A2 countries present relatively few
barriers to entry and relatively few risks. Their relative nearness
to the UK, membership of the European Union and open economies
are key competitive advantages for the A8/A2 countries in dealing
with UK business. (Paragraph 62)
Size of Market
18. Although
the A8/A2 countries are relatively small when compared to the
major emerging economies—both in terms of population and
GDP—we were reminded that when these countries joined the
European Union their combined economy was the size of the Netherlands;
now Poland alone has a larger economy than that of the Netherlands
and it buys £2.8 billion a year worth of UK exports—around
the same as China. (Paragraph 65)
The Future
19. British
government and business should be aware that the more forward-thinking
A8/A2 countries are actively targeting high-value-added sectors
such as biotechnology, ICT and pharmaceuticals and are seeking
to attract research and development and other innovative investments—for
example Samsung's and Kia's investments in Slovakia or GlaxoSmithKlein's
vaccine research facilities in Hungary. This is both a significant
opportunity for partnership—making use of the skills bases,
newly built facilities and dynamism of these countries and the
new opportunities that come with a developing market—and
a potential competitive challenge for UK business in the longer
term. UK policy makers need to recognise that in attempting to
build an innovation-driven economy, our potential partners and
competitors are not limited to the USA, France and Germany; the
A8/A2 countries are increasingly becoming home to facilities of
a very high level of sophistication and technical knowhow. (Paragraph
69)
UK Trade and Investment with the A8/A2 Countries
20. There
is a widespread belief among our witnesses both in the UK and
overseas that UK businesses were slow to take advantage of the
opportunities opened up by the ending of Soviet control of Central
and Eastern Europe and the A8/A2's subsequent accession to the
European Union. Whilst interest in some sectors—such as
manufacturing—is growing and beginning to make an impact,
it is clear that investing early in newly opened markets brings
significant competitive advantages. This echoes the findings of
our predecessor Committees in the 1997-1998 and 1999-2000 sessions.
We were therefore particularly disappointed to find that many
of the concerns raised in those Reports about UK reluctance to
invest in or trade with the Baltic and Central European states
were repeated almost word for word by our witnesses in this inquiry.
In particular it is regrettable that the UK retail banking sector
has failed to establish a presence in these markets. (Paragraph
79)
21. In view of the
evidence we received in this inquiry stressing the importance
of being well informed and investing early in rapidly developing
economies, we propose to conduct an inquiry into the future of
trade and investment relations with Turkey. (Paragraph 80)
22. During our inquiry
we came to the conclusion that a major reason for the relative
lack of UK investment and trade with the A8/A2 was an 'iron curtain
in the mind' of UK businesses. We were particularly concerned
to hear from the British Chambers of Commerce that many UK businesses
lack the confidence to invest in emerging markets. Awareness of
developments in Central and Eastern Europe appears to be lagging
behind reality. This raises the question as to whether an organisation
such as UKTI should entirely follow the priorities of business,
or whether it should be more active in promoting areas where UK
business may be missing out and educating them about the vibrancy,
high skills and ambitions of many of these economies. (Paragraph
81)
23. As with our previous
inquiries into trade and investment opportunities in Mercosur,
China and India we heard that other countries make more frequent
use of Ministerial visits for trade promotion purposes. We believe
that British ministers—especially those in trade promotion
roles—should follow the example of our competitors and travel
abroad more frequently to promote the UK interest. To assist in
this, firm agreements should be established between government
and opposition to ensure that ministers on trade missions should
not have to return to the House to vote, other than in the most
exceptional circumstances. In this context we welcome the current
Minister for Trade Promotion and Investment's announced intention
to spend more time undertaking such overseas visits as a step
in the right direction. We note, however, that many of our competitors
more regularly use much more senior ministers, including prime
ministers and presidents to lead trade missions and assist in
the negotiation of major deals than is the tradition for British
ministers. (Paragraph 82)
Trade Promotion
24. We
are concerned that UKTI has adopted a 'one size fits all' approach
to European Union member states—cutting back on resources
in the A8/A2 at a similar rate to the resources in the EU15. The
A8/2 are in many ways more accessible markets, especially for
SMEs, than other rapidly growing economies. Nonetheless the lack
of awareness of opportunities in these countries suggests there
is still a significant need for advice and assistance over and
above that which is required in more established markets. Although
'emerging markets' may not be the most appropriate term for these
economies, we think there is a good case for some, or all, of
the A8/A2 to receive priority attention from UKTI. (Paragraph
83)
Relocation
25. The
accession of the A8/A2 has led some companies to move production
and other business activities from the UK to these countries.
This has led to concern that UK jobs are being 'exported' overseas.
The evidence we received suggests that a degree of relocation
has been necessary to maintain UK companies' competitiveness in
the face of global competition and can be compensated for to some
extent by resulting gains in employment in higher value-added
areas of the same industry. Nonetheless, it is clear that some
sectors—such as IT and automotive—are experiencing
net reductions in their UK based workforce. We would welcome a
comprehensive study into the net effects on UK business and employment
of relocation overseas to inform public policy responses more
accurately. (Paragraph 89)
26. Although the A8/A2
have proved attractive locations for UK companies looking to offshore
some of their business activities, the evidence we received suggests
that the phenomenon itself was not a direct consequence of these
countries' accession to the European Union. Rather, relocation
overseas has been driven by global competition from a variety
of locations—including the A8/A2 but also Asia and more
widely. (Paragraph 90)
Conclusions
27. We
believe that the accession of the A8/A2 to the European Union
has been beneficial to the UK economy and business, chiefly through
the plugging of gaps in the UK labour market, but also through
increased opportunities for exports and investment. Longer-term
opportunities from migrants returning to their home countries
after a period in the UK need to be thought through and explored
more systematically. (Paragraph 91)
28. We
are concerned that many of the messages we have heard from other
rapidly growing economies—such as Brazil or India—about
UK business being slow to take full advantage of opportunities
in rapidly growing markets apply equally to Central and Eastern
Europe. Although we realise that not every company should invest
in every country we believe that the Government should look seriously
at what it can do to reduce the 'fear factor' of investing outside
UK businesses' comfort zones. This is particularly true in the
new member states, which are relatively accessible to small and
medium sized companies and could provide a way for such companies
to 'cut their teeth' abroad. The opportunities in and challenges
from these often highly skilled and ambitious economies need to
be better understood. (Paragraph 92)
29. This
inquiry has reiterated the importance of improving the skills
of the UK workforce if UK business wishes to remain globally competitive.
The accession of the A8/A2 has eased the pressures generated by
a shortage of skilled staff for many companies, but this should
not distract either government or business from the longer-term
task of improving the skills profile of the domestic workforce.
(Paragraph 93)
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