How will ending free movement impact UK employers?
4 Oct 2017
Erica Consterdine, Research Officer
As the Brexit negotiations unfold, it seems likely that free movement in its current form will no longer apply. Labour market demands for European Union (EU) workers come at both the high and low end of the skills spectrum. Any policy response needs to be multifaceted and able to address shortages at both ends of the labour market. What are these possible policy responses and what might they mean for employers hiring EU nationals?
Aside from a reformed freedom of movement, which the government have ruled out, policymakers broadly face three options: whether to subject EU nationals to the same rules as third country nationals (TCNs), whether to establish sector- or occupation-specific routes, or whether bilateral agreements will be made either with specific nations or blocs to allow some form of facilitated immigration. Each option has complexities surrounding policy design and critical implications for employers wanting to hire EU workers.
The current immigration system is made up of five tiers: Tier 1 (high capital); Tier 2 (skilled); Tier 3 (low skilled); Tier 4 (students); and Tier 5 (temporary workers). But Tier 3 has never been open since the inception of the points-based system (PBS) in 2008. Tier 2 is the dominant route for work-related migration but is subject to a job offer with a minimum salary requirement of £30,000.
If the government simply apply the same rules and policies to EU nationals as they do to TCNs, then this will likely generate labour market shortages. The low- and mid-skilled occupations in which EU nationals dominate will not meet the Tier 2 eligibility requirement of being graduate level (NQF 6), nor will they meet the salary threshold.
This could mean that the government will expand the Shortage Occupation list which is not subject to the same salary requirements as other Tier 2 general visas. However, this would mean that the government would need to invest in a much stronger, detailed and comprehensive monitoring and evidence base of skill and labour market shortages, implying the Migration Advisory Committee will play a greater role in advising and implicitly designing policy. This could mean the Home Office moves to establish more formal discretion for UK Visas and Immigration (UKVI) immigration officers, at least in the transition phase, whilst these teething issues play out.
A further and perhaps simpler option would be to open Tier 3 for the first time. This would allow the government to tailor a low-skilled route to meet specific labour market shortages. However, this will unlikely be met with much support given public pressures to reduce immigration and the Government’s commitment to reducing net migration to the tens of thousands.
It is hard to envision a situation where red tape will not increase for employers wanting to hire non-British workers. If EU nationals are simply subject to the same rules as TCNs under Tier 2, then employers will have to demonstrate that a British worker cannot fill a vacancy otherwise known as the resident labour market test. This will be challenging, if not impossible, for some sectors such as agriculture and social care which struggle to attract British workers.
The Home Office continues to bolster its auditing and removal of sponsorship rights for non-complying employers with, for example, the roll out of the stricter right to work requirements in the Immigration Act 2016. The immigration system has moved towards outsourcing immigration controls over the last decade, and if EU nationals are subsumed within the current PBS further liability onto employers seems evidential.
The government may seek to re-open and establish new sector-specific schemes, and it seems the government is exploring re-opening the seasonal agricultural workers scheme. This could lead to additional complexity. The current system was introduced under Labour in 2008 precisely to simplify a system that had 80 or so different legal channels. Layering a number of sector-specific schemes could see a return to a bewildering immigration system for employers to navigate.
Employers wanting specific sector or occupational schemes would need to invest and concentrate their efforts into lobbying with evidence, demonstrating significant shortages as well as company efforts to recruit British nationals.
A further option is that the government negotiate bilateral agreements with specific countries or blocs of countries to allow reciprocal movement of people. This would be determined by which countries the Department for International Trade chooses to negotiate with and the type of agreement made. But trade agreements will require lengthy negotiations, making this an impractical solution for employers in the short to medium term.
A mid-way approach could be to establish an abundance of schemes in Tier 5 (possibly through bilateral agreements) which could include both sector specific schemes as well as preferential agreements for certain nationalities, as is currently the case. Again, investment into monitoring of shortages and heavy compliance requirements for employers would follow, but this would potentially be advantageous by:
- meeting shortages in a tailored way whilst retaining the current system and therefore providing some consistency for employers;
- circumventing the resident labour market test and salary requirements of Tier 2; and
- diplomatically improving relations with specific countries; whilst
- encouraging strictly temporary immigration as the Conservative government has repeatedly called for.
In any scenario, employers will need to hire more immigration lawyers and human resource specialists within companies to deal with the complexity of the new system and focus on compliance matters. The biggest implication in any future context will be the potential increasing visa costs to hire EU workers. Whilst large multinationals will easily absorb these costs, SMEs with lower margins will likely struggle the most.
Employers in low-skilled sectors which rely on EU nationals will have to explore moves to upskill their current workforce; offer initiatives that are appealing to British workers (such as career progression schemes); explore using apprenticeships by utilising the apprenticeship levy; and investigate ways of retaining or reengaging other underemployed socio-demographic groups such as older workers and NEETs. Nonetheless, without improved pay and work conditions some sectors will struggle.
Automation and offshoring to outsourced providers are further possibilities for employers to circumvent the reliance on EU workers. Sectors such as horticulture and agriculture are increasingly investing in technology to reduce the dependency on labour. But these are long-term solutions, they are no panacea and evidently cause job displacement, which may be advantageous for employers offsetting labour costs but do little for the prospects of workers in the future.
Brexit has presented the government with a trade-off between meeting public demands to reduce immigration and the economic costs of doing so. Employers in key sectors such as the NHS are already struggling to recruit EU nationals, and the uncertainty around Brexit is already having the effect of dissuading EU nationals from either remaining in the UK, or immigrating in the first instance. Indeed, the most recent figures from the ONS show that net migration has fallen.
But parliamentarians are firm in their conviction that Britain’s vote was a vote to exit the single market, a vote to take back control of immigration, and therefore continued freedom of movement seems politically unfeasible. Prime Minister Theresa May has explicitly stated she will prioritise controls over immigration over access to the single market. Politics has trumped economics. The task for the government will be to square this circle, especially to appease employers’ legitimate concerns.
The author would like to thank Mark Tovey for his contribution to this blog.
Any views expressed are those of the author and not necessarily those of the Institute as a whole.