Uncertainty for employers over impact of Brexit

Newsletter articles

20 Jul 2017

HR Insight Issue 24

Andrea BroughtonAndrea Broughton, Principal Research Fellow

We live in times of high uncertainty and rapidly shifting sands. At the time of writing, all issues surrounding Brexit are more uncertain than ever, following the 8 June general election and the Conservatives’ loss of an overall majority in the House of Commons. Although Article 50 of the Lisbon Treaty was triggered in March, starting the negotiation process that will ultimately lead to the UK’s exit from the European Union, it is unclear how the talks will now proceed and whether a ‘soft’ Brexit may now be a more likely outcome.

The harder the terms, the more likely it is that the impact on UK businesses will vary, largely depending on the sector in which they operate: we can be pretty certain that some sectors are likely to be hit hard if there is a sharp fall in the level of available workers from other EU Member States. For example, the agricultural sector relies heavily on migrant labour, particularly in areas such as soft fruit picking and packing, where the availability of migrant labour has enabled this sector to grow. If seasonal workers no longer come to the UK in such numbers, employers are likely to start to struggle to replace them.

Evidence given to the House of Commons in January 2017[1] indicates that it would be very difficult indeed to find UK workers to make up this shortfall, as they tend not to want travel to a different part of the UK to work and, for them, the jobs on offer are relatively unattractive. This evidence also found that businesses in the hotels and restaurants sector are also likely to be significantly affected by a shortage of workers from other EU Member States. Many individuals from these countries tend to come to the UK to work for one or two years and are happy to work in bars and restaurants on a relatively short-term basis. As such, employers in this sector may struggle to find UK workers to take their place. Other sectors likely to be affected by a shortage of migrant labour from the EU are health and elder care and construction.

A review by the Federation of Small Businesses[2] found:

  • Over a quarter (29%) of small businesses reliant on mainly low-skilled workers report being unable to meet their labour needs without their EU workers.
  • Over half (59%) of small businesses with EU workers are concerned about accessing people with the skills they need post-Brexit.

One way of attracting UK workers would be to offer training in order to enhance skills levels and match them to the jobs on offer. However, this would require employers to commit to financial investment and time, which may be problematic, given additional costs such as the new requirement to automatically enrol employees in pension schemes. FSB research found that 43 per cent of smaller businesses said that the cost of training posed a barrier to investing.

Employers could invest more heavily in labour-saving technology, although this is expensive and takes time to develop (only one in ten FSB respondents would automate business processes previously completed by workers). Also, for some sectors, such as hospitality and some parts of agriculture, this is not an option, as labour will always be needed for most customer-facing jobs and specific roles, such as soft fruit picking or cleaning.

Many employers are wondering what Brexit will bring in terms of potential changes to employment conditions. The government stated relatively soon after the referendum result that it would draw up a Great Repeal Bill in order to transpose all EU legislation, including employment legislation, into UK law. However, there is speculation about what might happen in the years to come. Much will depend on the government in place at the time of course, but it is generally thought that more unpopular pieces of legislation, such as the Working Time Regulations and the Agency Workers Regulations, may be vulnerable to amendment or repeal.

There is certainly a debate about the operation of the Agency Workers Regulations, which give agency workers the right to equal pay with user company workers after 12 weeks. The Working Time Regulations also impose restrictions in terms of the average hourly working week and give workers rights to paid holiday and rest breaks. Widespread use is made of the individual opt-out from the average 48-hour week, especially in sectors such as finance. Nevertheless, recent research by the CIPD and employment law firm Lewis Silkin[3] has found that three quarters of respondents in its survey of 508 businesses said that the Agency Workers Regulations (75%) and the Working Time Regulations (74%) were necessary.

The Brexit referendum threw us into a period of deep uncertainty for employers, both in terms of their labour supply and the future legal regulation of employment, the election result has just made that even more the case.



[1] http://www.parliament.uk/business/committees/committees-a-z/commons-select/work-and-pensions-committee/inquiries/parliament-2015/inquiry2/

[2] Peate A, Metcalfe A (2017), A skilful exit: what small firms want from Brexit, FSB

[3] CIPD and Lewis Silkin (2017), Employment regulation in the UK: burden or benefit? Survey Report, CIPD