Chapter 3: Adapting the UK labour market
33.How will a reduction in immigration from Europe affect British businesses? During the course of our inquiry we took evidence from firms and representative bodies across different sectors. This chapter analyses the extent to which the British economy relies on European workers and examines the consequences of, and the ways in which businesses can adapt to, a reduction in European immigration.
34.What follows is not intended to provide a comprehensive analysis of the UK labour market. As noted in the previous chapter, there is limited reliable data on immigration and much of the available evidence is based on anecdote. Our conclusions and recommendations are therefore necessarily tentative and intended to inform the debate and development of policy in this area.
Net migration from the European Union since 2010
35.The latest Annual Population Survey figures estimated that the population of the UK was 64.3 million in 2015. Of the total population, 58.7 million people were British nationals, 3.2 million were EU nationals and 2.4 million were non-EU nationals.52
36.Table 2 shows that annual net migration from the European Union increased from an estimated 77,000 in 2010 to 184,000 in 2015.53 The latest available figures estimate this decreased to 133,000 in 2016.
Table 2: Annual net migration to the UK, 2010 to year end September 2016
Year |
EU |
Non-EU |
British |
Total |
|
2010 |
77,000 |
217,000 |
-43,000 |
251,000 |
|
2011 |
82,000 |
204,000 |
-70,000 |
216,000 |
|
2012 |
82,000 |
157,000 |
-63,000 |
176,000 |
|
2013 |
123,000 |
142,000 |
-57,000 |
208,000 |
|
2014 |
174,000 |
194,000 |
-55,000 |
313,000 |
|
2015 |
184,000 |
189,000 |
-40,000 |
333,000 |
|
2016 |
133,000 |
175,000 |
-60,000 |
248,000 |
Source: ONS, Migration Statistics Quarterly Report: May 2017, (25 May 2017): https://www.ons.gov.uk/peoplepopulationandcommunity/populationandmigration/internationalmigration/bulletins/migrationstatisticsquarterlyreport/may2017 [accessed 12 July 2017]
37.Figure 2 shows that the estimated increase in EU net migration since 2012 has been from nationals of the original EU15 countries (excluding the UK) and Bulgaria and Romania (for whom employment restrictions were lifted in January 2014). Net migration from EU8 countries reduced substantially in the second half of 2016 to 5,000.
Figure 2: EU net migration by origin, year end March 2013 to year end December 201654
Source: ONS, Migration Statistics Quarterly Report: May 2017, (25 May 2017): https://www.ons.gov.uk/peoplepopulationandcommunity/populationandmigration/internationalmigration/bulletins/migrationstatisticsquarterlyreport/may2017#net-migration-to-the-uk-falls-to-248000 [accessed 12 July 2017]
EU nationals working in the UK
38.The Labour Force Survey provides estimates of the number of people, by nationality, who are in employment in the UK. The latest figures for October to December 2016 show that of the 31.9 million people in work, 2.2 million were EU nationals and 1.2 million were non-EU nationals. Table 3 shows that the number of EU nationals working in the UK has increased by over one million since 2010.
Table 3: People in work in the UK by nationality (overall number and percentage of the total), 2010 to 201655
Total people in work (millions) |
Of which British (millions and proportion of total) |
Of which EU (millions and proportion of total)56 |
Of which Non-EU (millions and proportion of total) |
|
|
Oct-Dec 2010 |
29.4 |
27.0 (92%) |
1.2 (4%) |
1.2 (4%) |
|
Oct-Dec 2011 |
29.4 |
26.8 (91%) |
1.4 (5%) |
1.3 (4%) |
|
Oct-Dec 2012 |
30.0 |
27.3 (91%) |
1.4 (5%) |
1.2 (4%) |
|
Oct-Dec 2013 |
30.4 |
27.6 (91%) |
1.6 (5%) |
1.2 (4%) |
|
Oct-Dec 2014 |
31.0 |
28.0 (90%) |
1.8 (6%) |
1.1 (4%) |
|
Oct-Dec 2015 |
31.6 |
28.4 (90%) |
2.1 (7%) |
1.2 (4%) |
|
Oct-Dec 2016 |
31.9 |
28.4 (89%) |
2.2 (7%) |
1.2 (4%) |
Source: ONS, UK labour market: Mar 2017, (15 March 2017): https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/bulletins/uklabourmarket/mar2017#employment-by-nationality-and-country-of-birth-not-seasonally-adjusted-first-published-on-15-february-2017 [accessed 12 July 2017]
39.EU nationals make up 7 per cent of the total workforce. The Labour Force Survey provides estimates of the number of EU nationals working in particular sectors and the proportion they make up of the overall total. For example, the concentration of EU nationals is significantly higher in some sectors, reaching 14.2 per cent in accommodation and food services. The latest figures are shown in Table 4.
Table 4: Number of EU nationals aged 16 years and over in employment in the UK by type of industry, July 2015 to June 2016
Industry |
Total number of EU nationals |
Percentage of people in that industry who are EU nationals |
|
Accommodation and food services |
234,000 |
14.2% |
|
Manufacturing |
304,000 |
10.3% |
|
Administrative and support services |
147,000 |
9.9% |
|
Transport & storage |
146,000 |
9.2% |
|
Construction |
181,000 |
8.2% |
|
Information & communication |
75,000 |
6.1% |
|
Wholesale, retail & repair of motor vehicles |
247,000 |
6.0% |
|
Financial & insurance activities |
73,000 |
5.8% |
|
Agriculture, forestry & fishing |
20,000 |
5.7% |
|
Mining, energy & water supply |
28,000 |
5.3% |
|
Professional, scientific & technical activities |
120,000 |
5.3% |
|
Human health & social work activities |
191,000 |
4.6% |
|
Education |
141,000 |
4.3% |
|
Real estate activities |
13,000 |
3.7% |
|
Public admin & defence; social security |
36,000 |
1.9% |
|
Other services |
98,000 |
5.5% |
Source: Written evidence from ONS (LMT0036)
40.This is the lowest level official data available on the reliance of particular sectors on EU workers. Stephen Clarke from the Resolution Foundation said that:
“there is not enough data to test if it is, say, in bars. It is more high level than that … It is very difficult to be more specific than those broad-brush findings, just because of data limitations.”57
41.Representatives from some more narrowly defined industries did however provide the Committee with some statistics which are reproduced in Table 5. We note that the agriculture industry’s own estimate of the number of EU nationals employed in their sector is over five times higher than the official estimate.
Table 5: Estimates of EU nationals working in particular sectors given in evidence to the Committee
Industry |
Total number of EU nationals |
Percentage of people in that industry who are EU nationals |
|
Agriculture58 |
115,000 |
20% |
|
Higher Education-academics59 |
34,000 |
17% |
|
Hospitality60 |
700,000 |
15% |
|
Manufacturing61 |
300,000 |
10% |
|
Social care62 |
80,000 |
6% |
|
Technology 63 |
210,000 |
7% |
42.The figures for the UK as a whole mask regional differences. A number of witnesses highlighted that there are higher proportions of EU nationals working in London. Charlotte Holloway, Policy Director at techUK, said that there are companies in their membership “with a much higher proportion of EU workers” than the national average, “they are often more likely to be located in London”.64 The British Hospitality Association said that the proportion was “much higher” in the capital compared to the national average, “the number of EU workers in a business can often be at 50 per cent”65. Box 2 summarises the evidence we heard about the composition of the workforce at the predominantly London-based Pret a Manger.
Box 2: Pret a Manger, a case study
|
Pret a Manger was founded in London in 1986. As of 2015 it had 303 shops in the UK.66 Around half of these shops are in London.67 Andrea Wareham, Director of People at Pret a Manger, gave evidence to the Committee in March 2017. She said that 65 per cent of Pret a Manger’s workforce (around 10,000 in total) were EU nationals and only around one in 50 people who apply to work at the company are British (Ms Wareham said this last figure was based on anecdotal evidence from recruitment centres).68 Ms Wareham said that if EU nationals decide to stay with the company after the first three months, they remain with Pret a Manger for “at least three years”, after which she said they “often go home”.69 |
Present status of EU nationals
43.The Chartered Institute of Professional Development published their 2016/17 Labour Market Outlook in February 2017. It said that 29 per cent of employers had evidence that showed EU nationals were looking to leave either their organisation or the UK (or both) as a result of last year’s referendum and 27 per cent of EU nationals were considering leaving in 2017. The Royal College of Nursing told us there had been a 90 per cent drop in the number of EEA nurses joining the regulatory register since last year’s referendum on EU membership.70 Chris Cox said that one possible explanation was “the uncertainty of the position of EEA nurses and people in this country. It has not been a very comfortable environment.”71
44.In a policy paper published after the June 2017 General Election, the Government said that in the negotiations with the European Union its “first priority is to reach agreement on the post-exit position of EU citizen now living in the UK and of UK nationals living in other EU countries.”72 The paper says that EU nationals will be able to apply for residence status and will receive documentation which will “help them to demonstrate to employers and other service providers their ongoing rights to be in the UK.”73
45.The Secretary of State for Existing the European Union said that the documentation would not be an identity card:
“We are talking about documentation to prove that people have the right to a job and the right to residence, but they will not have to carry that around all the time. It is not an ID card; it is rather like your birth certificate. It’s not an ID card.”74
46.We welcome the Government’s position that securing an early agreement on the rights of EU nationals currently in the UK is its first priority in negotiations with the European Union. This is urgent, particularly as there is evidence some EU nationals are beginning to leave the UK.
Reliance on EU nationals in lower-skilled sectors
47.As Table 5 above illustrates, the sectors that are estimated to be most reliant on EU nationals tend to be those that are classed as lower-skilled. EU nationals are more likely than British or non-EU nationals to be employed in jobs that are deemed to be lower-skilled. Table 6 below shows that 24 per cent of EU nationals working in the UK are engaged in work considered to be “low-skilled” by the Office for National Statistics, compared to 10 per cent of UK nationals and 13 per cent of non-EU nationals. Just under half of EU nationals working in the UK (46 per cent) are engaged in jobs that the Office for National Statistics considers to be “lower middle” or “low” skilled jobs.75
Table 6: Percentage of UK nationals, EU nationals and non-EU nationals in employment in the UK by skill level, October 2015 to September 2016
High |
Upper middle |
Lower middle |
Low |
|
|
UK |
28% |
28% |
34% |
10% |
|
EU |
20% |
24% |
32% |
24% |
|
Non-EU |
27% |
28% |
34% |
11% |
Source: Written evidence from ONS (LMT0036)
48.The Government’s rhetoric on immigration to date has focused on higher-skilled immigration: in her ‘Plan for Britain’ speech in January 2017, the Prime Minister said Britain would “continue to attract the brightest and the best to work or study.”76 Many witnesses however raised concerns that this focus would be at the expense of lower-skilled immigration. Andrea Wareham, Director of People at Pret a Manger, said that it “does not help us in any way. We need some thought to be given to the unskilled labour.”
49.The Oxford Migration Observatory has estimated that around three quarters of EU migrants currently employed in the UK would not meet the current Tier 2 visa requirements for non-EU workers.77 That proportion is higher in those lower-skilled sectors identified in Table 5 that have a higher reliance on EU workers. The British Hospitality Association and Agricultural and Horticultural Development board both estimated that 96 per cent of EU workers in these sectors would not meet the Tier 2 salary criteria.78 NFU Scotland said the strict application of the criteria would mean:
“a complete block on UK businesses being able to recruit non-UK workers as agricultural labourers, food processing operatives or HGV drivers. The impact would be disastrous.”79
50.Tim Thomas, Director of Employment and Skills Policy at EEF, the manufacturers’ organisation, said that the manufacturing industry needed people with various types of skills:
“we use individuals with craft-level and technical-level skills, such as mechanical and electrical engineers … In Home Office terms that is not highly skilled; it would be a lower-level skill. However we need those workers to make sure our members can keep producing in the UK.”80
51.Most comparable countries to the UK make a distinction between skilled and unskilled workers in their immigration policies. For a job to be considered ‘skilled’ under the UK’s regime for non-EU immigration, an undergraduate degree is required. Other countries take a less arbitrary approach. Dr Lucie Cerna, Research Associate at the Centre on Migration, Policy & Society at the University of Oxford, explained how other countries examine the skills that a job requires:
“They try to group occupations at different skill levels, which takes more closely into account the tasks that are actually being performed in a job. When you look comparatively, in some countries adults with tertiary education attainment have lower skill levels than people from other countries with only secondary-level attainment.”81
52.We strongly recommend that the Government develop a new immigration policy for implementation once the UK has left the European Union. It should consult on the needs of business and on a timeframe for implementing the new policy. Any new immigration system should not make an arbitrary distinction between higher-skilled and lower-skilled work on the basis of whether a job requires an undergraduate degree. British businesses must have access to expertise and skills in areas such as agriculture and construction that would at present be categorised as lower-skilled occupations.
Turnover
53.Representatives from the hospitality industry said that a high turnover of staff presented a problem for their businesses. The British Hospitality Association explained in their written evidence:
“Our industry is concerned about a cliff-edge scenario in which the government fails to put in place adequate measures to protect our industry from the impact of Brexit on the UK labour market. Without such protective measures, our industry would experience massive operational pressures very quickly. Our industry is characterised by relatively high turnover, as some people use the sector as a way to enter the labour market and then progress their career in different industries.”82
54.From the figures provided to the Committee in evidence by Pret a Manger, around a third of their staff that are EU nationals (2,000 people) will leave the company each year.83
55.High turnover was also mentioned as a problem in the social care and nursing sectors. Mark Dayan, Policy and Public Affairs Analyst at the Nuffield Trust, explained that although the proportion of EU nationals working in social care was relatively small at 7 per cent, “the reality is that there is a disproportionate need now for the flow of new people coming in from the EU.” He said this was also the same in nursing, “where a third of new registrants are from the EEA”.84
Reliance on EU workers in higher-skilled roles
56.Representatives from manufacturing and higher education and research were also concerned about recruitment after Brexit, particularly given the shortage of people in the UK with science, technology, engineering and mathematics (STEM) skills.
57.EEF, the manufacturers’ organisation, said over a quarter of firms “specifically recruit EU employees to bring new skills into their business … The manufacturing industry relies on skilled labour from overseas and therefore will be hit by any immigration changes.”85
Box 3: Manufacturing, a case study
|
EEF told us that manufacturers were “striving to attract and retain the best people and to fill the well-documented skills gaps in our industry.” They said three quarters of firms had struggled to fill skilled engineering posts in the last three years: “There are issues around the quality of candidates, with 67% saying that candidates lack the right technical skills, 61% saying candidates lack industry experience and 33% saying a lack of relevant qualifications. However, there is also an availability issue, with 64% of companies saying they are struggling to recruit due to an insufficient number of applicants.”86 Mr Thomas told us that demand for technical skills was on the rise: “we know that demand for those skills is going to increase: 59% of our members tell us that the demand for production-related technical skills will increase; 72% are concerned about current access to skills; and more than 50% say that demand for technical-level skills is increasing. We face a situation where currently we have a shortage, our demand is increasing and potentially we will have restrictions in the future that blunt our members’ access to what I would call lower-level skills.”87 |
58.In higher education and research, the University of Cambridge said that “the UK’s ‘home grown’ science and innovation system is hampered by long-term weaknesses in its STEM talent base … Alongside [development of domestic skills], access to global talent is also essential.”88 They said that nearly half of engineering, science and hi-tech firms report difficulties in recruiting people with the right STEM skills.89 The Russell Group said that there tended to be a greater proportion of EU and non-EU nationals in academic posts within STEM subjects at their universities compared to the average, as listed in Table 7.
Table 7: Percentage of EU and non-EU academics in STEM subjects at Russell Group universities
Subject |
Percentage |
|
Chemical engineering |
54% |
|
Mathematics |
53% |
|
Electrical, electronic, computer engineering and general engineering |
52% |
|
IT, systems sciences and computer software engineering |
49% |
Source: Written evidence from the Russell Group (LMT0014)
Responding to lower European immigration
59.Professor Alan Manning told us that although food manufacturing was reliant today on EU nationals, only 1 per cent of workers in the sector were from the EU in 2004: “in a sense, a bit over a decade ago sectors were managing without this labour. Therefore, what we now think of as the status quo has not actually been the status quo forever. One should not underestimate the capacity for change.”90
60.We agree with Professor Manning about not underestimating the capacity for change and the extent to which the economy has adapted to the increased flow of migrant labour. If net migration slows or is reversed three possibilities were put to us in evidence about how the economy might respond: increasing pay to attract more British workers, better training of the domestic workforce and changing business models. We examine each in turn as to how they might facilitate adjustment in those sectors who have come to rely on migrant labour.
Increasing pay
61.In a 2008 report on immigration, this Committee concluded that “the available evidence suggests that immigration has had a small negative impact on the lowest-paid workers in the UK.”91 That remains the case today. Jonathan Portes said the “emerging consensus is that recent migration has had little or no impact overall, but possible some, small, negative impact on low-skilled workers.”92 Stephen Clarke, Research and Policy Analyst at the Resolution Foundation, told us it was wrong to say there is no evidence that migration does not exert a downward effect on wages for some occupations, “however, it is also wrong to suggest that the effect is large.”93
62.It is difficult to quantify the extent to which immigration has reduced wages across different sectors: migrant labour could put downward pressure on wages but it could also be the case, where there are vacancies, that immigrants are willing to work for lower wages than UK nationals would be. There is evidence that immigration has been used as a cheaper source of labour in some professions.
63.In 2016 the Migration Advisory Committee published a report on nursing which found that migrant nurses were paid £6,000 less than equivalent British workers.94 Professor Sir David Metcalf, the then chairman of the Migration Advisory Committee, said there seemed to be “an automatic presumption that non-EEA skilled migration provides the health and care sector with a ‘Get out of Jail Free’ card.”95 While non-EEA nurses were the source of the cheaper labour in this example, it demonstrates employers can have to pay British workers more. Chris Cox, Director of Membership Relations at the Royal College of Nursing, believes “we should be incentivising people moving into the nursing profession through better pay and terms and conditions.”96
64.Tim Martin, chairman of JD Wetherspoon, said it was “probably true” that businesses would need to pay more to attract British workers.97 The British Association of Leisure Parks, Piers and Attractions said the “inevitable consequence” of reduced immigration would be that “wage costs have to rise in order to attract and retain workers from other sources.”98
Willingness of British workers to take on lower-skilled work
65.Andrea Wareham, Director of People at Pret a Manager, thought however that “increasing pay would not do the trick”. As noted in Box 2, only one in 50 applicants for vacancies at Pret a Manger are British. Ms Wareham said however that this wasn’t down to the pay on offer: Pret a Manger pay “well above the national living wage … the point is whether people want to work in our industry. There are amazing places to work and cool brands to work for, but still we are not always seen as a desirable place to work.”99
66.Witnesses from the agricultural industry also thought there was an unwillingness amongst British workers to carry out particular types of work. The Agricultural and Horticultural Development Board said that the problem was the “desirability of these roles within a competitive labour market.”100
67.The Agricultural and Horticultural Development Board said that attempts to fill vacancies with UK workers have “proved difficult in the past … It would appear that UK workers would prefer permanent work, better locations and more sociable hours. In addition, the UK benefit system does not work well for seasonal workers when their contracts come to an end.”101
68.Minette Batters, Deputy President of the National Farmers’ Union, said that there “would probably come a point when at a certain wage level we could easily fill the vacancies, but agriculture works in a marketplace and ultimately UK producers compete with producers elsewhere in the world.”102 The National Farmers’ Union said in written evidence that higher wages would only be possible if the cost increases could be recovered from the market.103 Seasonal agricultural work is considered further in Box 4.
Box 4: Seasonal workers in the agricultural industry: a case study
|
Agriculture is reliant on a seasonal workforce. Around 80,000 seasonal workers are employed in horticulture and 13,000 seasonal workers in poultry.104 The National Farmers Union estimated the seasonal worker requirement in horticulture would increase to 95,000 by 2020.105 The West Sussex Growers Association said that without this workforce, “it will not be possible to grow, harvest or pack many crops that are currently grown in Britain.” The Farming and Rural Issues Group South East said that filling such positions from the “local indigenous workforce has proved to be impossible.” Ms Batters said there were not enough people in the country to do these jobs, citing Herefordshire as an example where there is a need for 3,500 seasonal workers but there are only 400 unemployed people in the county.106 The Seasonal Agricultural Workers Scheme operated in the UK for 60 years until it was closed in 2014 as EU labour was thought to be sufficient to meet the needs of the sector. Representatives from the industry called for the Government to reintroduce the scheme once a new immigration regime came into force. The Minister for Immigration said “there may well be situations where we need to bring people in” and gave seasonal workers in agriculture as an example, “however, that will all be part of the settlement [with the EU].”107 |
69.As some of our witnesses highlighted, pay is not the only consideration but there are now a large number of migrant workers in some sectors who will not easily be replaced by domestic workers. Competitive labour markets will see some price adjustment in response to labour shortages, with an associated increase in local labour supply. However, in some sectors, business models may have to change. As noted in the example of agriculture, this is likely to lead to higher prices for consumers.
Improving skills
70.A number of witnesses raised the problem of skills shortages in the UK, particularly in STEM subjects (as noted in Box 3). EEF said in written evidence that there is a “stubborn” 35 per cent of jobs in manufacturing that are hard to fill.108 Tim Thomas said the main reason for this was a “lack of technical skills among the applicants” and in particular a “lack of applicants with basic level skills such as maths and English.”109
71.Mr Thomas said EEF “are quite prepared to pay for the training and to train more people; we just need the people to train.”110 Ms Holloway said that for the technology industry, initiatives like the computing curriculum in schools “will help the domestic talent pipeline … but it will take a number of years.”111
72.This is an area where the Government could clearly play an important role. The Minister for Immigration told the Committee it was “absolutely fundamental to this Government’s policies to ensure that we upskill our people to take those jobs and obviate the need to backfill using immigration.”112
73.The Government’s recent industrial strategy acknowledges the UK’s “poor performance in basic and technical skills” and commits to creating “a proper system of technical education, to benefit the half of young people who do not go to university and provide new, better options for those already in the workforce.”113
Disincentives to train domestic workforce
74.Lord Green suggested that the availability of EU nationals may have discouraged firms in some industries from investing in training:
“In respect of skills, Baroness Wolf did a very interesting report that showed that serious training by British industry had fallen very sharply over the last 10 years. You cannot say whether that is because of the availability of large numbers of eastern Europeans, but the two were over a similar period. David Goodhart mentioned that the number of apprentices in construction by our own firms was only 8,000 a year. Clearly, having gone into that situation of dependence on immigration, it will take a while to move away from it.”114
75.Our 2008 report into immigration suggested this could be a consequence of immigration: “there is a clear danger that immigration has some adverse impact on training opportunities and apprenticeships offered to British workers.”115 We called for the Government to consider measures to ensure that “employers recruiting migrants are also investing in training and skills development of British workers.”116
76.This has not happened in nursing. Mr Cox admitted in his evidence that “on the supply side, we were simply not training enough of our own nurses” which he put down to “poor workforce planning.”117 In the foreword to the Migration Advisory Committee’s 2016 report on nursing mentioned in the previous section, Professor Sir David Metcalf said that “the long-term solution to addressing this shortage is recruiting and retaining staff by providing sufficient incentive and opportunity.”118
77.Mr Dayan highlighted the shift from nursing bursaries to nursing loans that will be fully implemented this year.119 Mr Cox said there had been a 23 per cent drop in the number of applicants for university places for nursing training this year compared to the previous year: “loans are not attractive … Coming out at the end of a three-year degree course with a debt of between £40,000 to £60,000, when the pay they are likely to be getting is around £26,000 a year, is not an attractive incentive.”120
Unemployed and part-time workers
78.Lord Green of Deddington pointed towards the number of unemployed and part-time workers who would like to work more and suggested the UK should aim to be self-sufficient “in most sectors”:
“We have 1.5 million people who are unemployed, and we have over a million part time workers who are looking for full time work. It is not as if the barrel is empty, but there are some situations, such as isolated farms, which British workers probably cannot get to. You have to look at each sector individually.”121
79.Mr Clarke however did not think it would be particularly easy to bring the unemployed into the workforce: “These people will probably need much more active labour market policies to get into the workforce than simply just freeing up the opportunity.” He said that “people with disabilities form about 2 million of those out of work, and they are not going to start working in the fields or in physically demanding manufacturing jobs. We need to be cautious about what we can expect in the short run from substituting British for EU labour.”122
80.We warned in our 2008 report on immigration that employment of migrant workers could lead to businesses neglecting skills and training for British workers. As the example of nursing highlights, these fears appear to have been realised. Training for the domestic workforce needs urgently to be given a higher priority.
81.We welcome the Government’s Industrial Strategy as a starting point, in particular the desire to create a proper system of technical education to provide more of the skills that the economy requires. But it needs to go further to meet the challenge of retraining the workforce.
Changing business models
82.If sectors struggle to replace EU nationals with British workers, a change of business model may provide an alternative solution. As we said in our 2008 report on immigration, “ready access to cheap migrant labour may reduce employers’ incentives to consider other options, in particular changing production methods.”123
83.Professor Portes said firms could “adopt labour-saving machinery or reduce output or go out of business entirely.” He discussed the examples of picking strawberries and making coffee:
“It seems unlikely, for example, that picking strawberries could be economically mechanised—it would just be cheaper for the UK to buy strawberries from Poland … we will probably just stop growing strawberries. For other crops, mechanisation might be more feasible … If we stop having flexible, skilled and willing-to-work Europeans in our coffee bars in London, we will probably get more machines.”124
Automation
84.Dr Martin Ruhs, Associate Professor of Political Economy at the University of Oxford, said that international evidence showed that it was technology that tended to replace migrant workers rather than domestic workers:
“It is very hard to find international evidence to show that once an immigration inflow stops and certain types of occupation have become heavily reliant on migrant workers, there is a huge inflow of domestic workers. What we have often seen is that if immigration stops, jobs are mechanised or rationalised away. Technology takes over.”125
85.Mr Clarke said that recent surveys by the Chartered Institute of Professional Development showed that fewer businesses were talking about looking to employ more British workers: “the majority were looking either to mechanise or to keep current workers on. Fewer businesses were thinking that they would respond by recruiting more UK workers. That may change. We do not know.”126
86.The Minister for Immigration said that the “fairly new phenomenon” of large amounts of inward migration may be one of the reasons “why we have not invested in the type of technologies that would improve productivity in this country.”127
87.In agriculture, the National Farmers Union believed that “automation for harvesting, where achievable, remains at least a decade away. As such, the industry will remain dependent on manual labour … for the foreseeable future.”128 Ms Batters explained that the technology to reduce that dependence exists today but the challenge was finding the capital investment:
“The machine exists; the robot that can pick strawberries is there. The challenge and the 10 years come in when you look at the investment that will be needed. We could fast-track that investment, and maybe there is an opportunity through the industrial strategy to do that … A lettuce picker costs well over £1 million … where will the investment come from in a supply chain that is already massively constrained by cost?”129
88.The Government’s ‘Building our Industrial Strategy’ Green Paper acknowledged that the UK has lower levels of fixed capital investment than competitors in other countries: “the UK has “lower take up of robotics and automation technology than competitors.”130 The Green Paper said the Government were committed to “ensuring the uptake of new technology and digital processes which support growth.”131
89.The availability of cheap migrant labour in recent years may be a factor behind the low levels of capital investment and productivity in some sectors. The Government should consider ways it can help businesses, such as capital allowances for investment in automative processes.
Implementation period
90.Witnesses across a range of sectors called for a period of implementation before restrictions on immigration from the European Union take effect. Ms Wareham said that Pret a Manger “entirely” accepted the number of EU nationals will go down over time but “our thoughts are that there could be quotas based on data about how much work is required, and as the number of EU nationals goes down and the number of British nationals increases, that needs to happen as smoothly as possible over time.”132 Minette Batters, Deputy President of the National Farmers Union, said “we feel very strongly about transition … we will not get there in two years.”133
91.Chris Cox, Director of Membership Relations at the Royal College of Nursing, said there should be a transition period of “at least four years.”134 Tim Thomas said “we cannot suddenly go from a system we have worked with extensively for a long time to something completely alien come 2019.”135
92.An implementation period would allow time for the domestic workforce to be trained. The Institute of Directors said the “best way to reduce the reliance of UK employers on recruitment from overseas is to increase the supply of British workers with the skills those employers need ... but until that has been achieved, many businesses will continue to need access to international skills.”136 This point was also recognised by the Minister for Immigration who told us that “what we do not want is industries feeling that there will be a crisis or any cliff edges … we understand that a number of other factors are in play, particularly the time it takes to bring doctors and nurses through for training, for example.”137
93.Such a period would also allow businesses to make capital investments in labour-saving equipment. Mr Swales said that it would provide “opportunities for businesses to make capital investment and perhaps do more substitution. That is probably a good outcome from my perspective.”138
94.The Secretary of State for Exiting the European Union, Rt Hon David Davis MP, acknowledged the reliance of some industries on EU nationals when he appeared on the BBC television programme Question Time on 27 March 2017.139 He indicated that although the Government would meet its immigration target eventually, the concerns of businesses reliant on EU workers would be taken into consideration: “The simple truth is that we have to manage this problem. You’ve got industry dependent on migrants, you’ve got social welfare, the National Health Service—you have to make sure that they continue to work.”
95.A suitable implementation period is likely to be necessary before a new immigration system for the European Union comes fully into force to allow for the necessary training of the British workforce and investment in new technologies. This could take a number of years and needs to take into account the fact that each region of the country will have different training and investment needs.
96.The Government must also acknowledge that in order to achieve some of its other policy objectives, such as building 225,000–275,000 new homes each year, lower-skilled immigration may be required in the medium term to provide the necessary labour.
Regional system of immigration
97.The Mayor of London and the Scottish Government have both discussed the prospect of regional immigration policies in the UK. The Mayor of London was quoted in the Financial Times last year describing it as an option to consider and that “nothing should be off the table.”140
98.In the December 2016 paper, Scotland’s Place in Europe, the Scottish Government said that “limiting free movement of the people has the potential to seriously harm Scotland’s long-term economic future” and it was “increasingly clear that one-size-fits-all approach is not in the best interests of Scotland.”141
99.We received some evidence in support of regional immigration policies. The Institute for Public Policy Research (IPPR) said given there were clear differences in attitude to migration across the country, “a regional approach to migration would allow visa policy to reflect the public’s views in each region.”142 Chris Murray, Research Fellow at the IPPR, explained this would require a:
“twin-track approach with a UK-wide visa, as we have currently, and for regions like Scotland …those visas would be tied to Scotland. People could apply for them, and if they wanted to move they would have to apply to the UK-wide group or to a different region.”143
100.The IPPR saw the regional visa as providing for where a person could work and live. They thought the introduction of the Biometric Residence Permit and the increasing devolution of immigration to employers and landlords would make enforcement “unprecedentedly feasible”.144 The City of London Corporation were similarly supportive. They thought the flexibility of a regional system would allow the UK “to react more deftly to the changes in an individual sector’s employment needs.”145
101.Other witnesses were more skeptical. Migration Watch said it would be “chaotic, unenforceable, and would lead to a major increase in bureaucratic complexity.”146 The TUC thought residency requirements “would impede the ability of migrant workers to travel to work in cities like London where the cost of living means that workers are often forced to live out of the city.”147
102.Australia and Canada have both introduced regional immigration systems. Jean-Christophe Dumont, Head of the International Migration Division at the OECD, said Canada’s provincial programme had been “quite successful” with around three-quarters of people staying in the province.148 The Minister for Immigration said regional policies “might work in places such as Canada” but would not work in a country the size of the UK as people could easily move from their permitted region.149
103.Philippe Legrain, Visiting Senior Fellow at the European Institute of the London School of Economics, said however that people adhering to the conditions of the visa was less of a problem for London or Edinburgh as “it is an attractive place to be”150
104.Mr Clarke recognised the difficulties of implementing the system but did not “think it is beyond administrative capability.” He said thought would need to be given as to how a regional system would work with other parts of the immigration system such as naturalisation.151 Similarly, the Institute of Directors described it as an “interesting proposal … worth exploring in the longer term.” But not viable in the short to medium term due to “very poor record keeping by the Home Office … and the lack of suitable and necessary infrastructure.”152
105.We are persuaded there may be some merit in a regional immigration system for Scotland and London but agree with most of our witnesses that this is beyond existing administrative capabilities. Before seeking to implement a regional system the Government should carry out a review and be satisfied about its administrative feasibility.
52 ONS, Population of the United Kingdom by Country of Birth and Nationality, 2015 (25 August 2016): https://www.ons.gov.uk/peoplepopulationandcommunity/populationandmigration/internationalmigration/datasets/populationoftheunitedkingdombycountryofbirthandnationality [accessed 12 July 2017]
53 The. 2011 census revealed that net migration for the period 2001 to 2011 had been underestimated. The ONS subsequently updated the total net estimates, but not the breakdown by nationality. ONS, ‘Quality of Long-Term International Migration Estimates from 2001 to 2011’, April 2014: http://webarchive.nationalarchives.gov.uk/20160105160709/http://www.ons.gov.uk/ons/rel/migration1/long-term-international-migration/quality-of-long-term-international-migration-estimates-from-2001-to-2011/sty-quality-of-ltim.html [accessed 12 July 2017]
54 EU 15 countries are Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy, Luxembourg, The Netherlands, Portugal, Republic of Ireland, Spain, Sweden; EU 8 countries are Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia that joined the EU in 2004 (excluding Cyprus and Malta); EU 2 countries are Bulgaria and Romania that joined the EU in 2007. Croatia, which joined the EU in 2013, is not included in the figures. British citizens are excluded from all figures.
55 Percentages may not add up to 100 per cent due to rounding. Total people in work also includes people who did not state their nationality in the survey.
56 EU 27 countries (excluding UK)
58 Written evidence from the Agricultural and Horticultural Development Board (LMT0006); Q 51 (David Swales). The AHDB said the 115,000 figure does not include seasonal, casual and gang labour. With these workers included, the total is 182,000.
66 Pret a Manger, ‘2015 Annual Results’, 19 April 2016: https://www.pret.co.uk/en-gb/financial-results-2015 [accessed 12 July 2017]
67 Ibid.
70 Written evidence from Royal College of Nursing (LMT0018). In oral evidence, Chris Cox said there had been 9,300 applications from EEA nurses in the previous year (2015/16) out of a total of 30,000 applications (Q 57).
72 HM Government, The United Kingdom’s exit from the European Union: safeguarding the position of EU citizens living in the UK and UK nationals living in the EU, Cm 9464, 26 June 2017: https://www.gov.uk/government/publications/safeguarding-the-position-of-eu-citizens-in-the-uk-and-uk-nationals-in-the-eu/the-united-kingdoms-exit-from-the-european-union-safeguarding-the-position-of-eu-citizens-living-in-the-uk-and-uk-nationals-living-in-the-eu [accessed 12 July 2017]
73 Ibid.
75 In their written evidence the ONS split employment by skill level into ‘high’, ‘upper middle’, ‘lower middle’ and ‘low’. The ONS said these groups are based on occupational groupings. The ONS’s ‘Occupational Classification Hierarchy’ splits all occupations into nine major groups. You can find more information about this at: https://onsdigital.github.io/dp-classification-tools/standard-occupational-classification/ONS_SOC_hierarchy_view.html [accessed 12 July 2017]
76 The Rt Hon Theresa May MP, ‘Speech on The Government’s negotiating objectives for exiting the EU’, 17 January 2017: https://www.gov.uk/government/speeches/the-governments-negotiating-objectives-for-exiting-the-eu-pm-speech [accessed 12 July 2017]
78 Written evidence from the British Hospitality Association (LMT0008) and the Agricultural and Horticultural Development Board (LMT0006)
86 Ibid.
89 Cancer Research UK also made the same point in their written evidence.
91 Select Committee on Economic Affairs, The Economic Impact of Immigration (1st Report, Session 2007–08, HL Paper 82-I)
92 Written evidence from Professor Jonathan Portes (LMT0015). Professor Portes cited a 2015 paper by Nickell and Salaheen as finding that a 10 percentage point rise in the immigrant share leads to approximately a 1.5 per cent reduction in wages for native workers in the semi/unskilled service sector: “This would mean that immigration since 2004 would have reduced wages for native workers in that sector by about 1 per cent, or put another way would have depressed annual pay increases by about a penny an hour.”
94 Migration Advisory Committee, Partial review of the Shortage Occupation List: Review of nursing, March 2016: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/510630/Partial_review_of_the_shortage_occupation_list_-_review_of_nursing.pdf [accessed 12 July 2017]
95 Ibid.
100 Written evidence from the Agricultural and Horticultural Development Board (LMT0006); They quoted a 2015 paper from Dr John Lever of the University of Huddersfield:
“First, there has been a rise in the incidence of low paid, irregular and non-unionised work in the agricultural and meat processing sectors. Second, and related to the first trend, employment in these sectors has become less attractive to the UK workforce … From the slaughter of livestock to the production of fresh, chilled and frozen meat products, the work involved in the meat-processing sector – boning, freezing, preserving and packing meat—is widely recognised to be dirty, dangerous, demanding and unattractive to UK workers.”
101 Ibid.
104 Ibid. The poultry industry requires seasonal workers for the processing of turkeys around Christmas.
105 Ibid.
106 In June 2017 there were 1,115 people claiming JSA in Hertfordshire. ONS, ‘CC01 Regional labour market: Claimant Count by unitary and local authority (experimental)’, 12 July 2017: https://www.ons.gov.uk/employmentandlabourmarket/peoplenotinwork/unemployment/datasets/claimantcountbyunitaryandlocalauthorityexperimental [accessed 12 July 2017]
113 HM Government, Building our Industrial Strategy, January 2017: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/611705/building-our-industrial-strategy-green-paper.pdf [accessed 12 July 2017]
115 Select Committee on Economic Affairs, The Economic Impact of Immigration (1st Report, Session 2007–08, HL Paper 82–I)
116 Ibid.
118 Migration Advisory Committee, Partial review of the Shortage Occupation List: Review of nursing, March 2016: https://www.gov.uk/government/publications/migration-advisory-committee-mac-partial-review-shortage-occupation-list-and-nursing [accessed 12 July 2017]
123 Select Committee on Economic Affairs, The Economic Impact of Immigration (1st Report, Session 2007–08, HL Paper 82–I)
130 HM Government, Building Our Industrial Strategy, January 2017: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/586626/building-our-industrial-strategy-green-paper.pdf [accessed 12 July 2017]
131 Ibid.
139 ‘EU migration may rise some years after Brexit, Davis tells Question Time-Politics Live’. The Guardian, 28 March 2017: https://www.theguardian.com/politics/blog/live/2017/mar/27/bbc-brext-question-time-britain-after-brexit-question-time-special-with-davis-starmer-clegg-salmond-politics-live [accessed 12 July 2017]
140 ‘Sadiq Khan on London after Brexit: ‘Open is what we are’’, Financial Times, 4 October 2016: https://www.ft.com/content/d32b1a42-7a5b-11e6-ae24-f193b105145e [accessed 12 July 2017]
141 Scottish Government, Scotland’s Place in Europe, December 2016: http://www.gov.scot/Resource/0051/00512073.pdf [accessed 12 July 2017]
146 The British Medical Association, EEF, the National Farmers Union, JD Wetherspoon, Pret a Manger and the Universities and Colleges Employers Association were all against the idea, mainly because of the perceived administrative difficulties.