UK employers not prepared for post-Brexit labour supply shock

New research from the CIPD shows that employers are simply not ready for the introduction of new immigration restrictions planned for January 2021.

In a new report, A practical immigration system for post-Brexit Britain, the CIPD highlights that a lack of awareness of the Government proposals among most employers, a lack of planning and ongoing political uncertainty mean that few organisations are equipped to deal with a potential ‘supply shock’ of a reduced inflow of EU workers post-Brexit. 

In response, the CIPD is urging the UK Government to introduce a two-year visa system for unskilled workers and to lower the proposed £30,000 minimum salary threshold for jobs on the shortage occupation list. It is also calling on government to make the system more user-friendly for employers through changes to the sponsorship system and by introducing a new ‘self-service’ system for low volume users of the system like small employers.

The CIPD’s recommendations are based on findings from a survey of more than 2,182 employers and a series of focus groups held with employers across the UK over the last four months. The survey found that:

• More than half of employers are completely in the dark about the Government’s immigration proposals, with 58% saying they don’t know anything about the Government’s white paper on immigration. Just 7% said they knew “a lot” and 35% said that they ‘know a little’ about it. 
• 56% of employers said they don’t have enough information to start making decisions about their post-Brexit recruitment strategy. Just one in four (27%) are happy to make decisions based on existing information. 
• More than half of employers (51%) felt that the Government’s planned 12-month temporary visa was either ‘not very useful’or ‘not useful at all’. Just 1 in 4 employers (28%) said it would be useful to them to meet their recruitment needs, falling to 22% among public sector organisations. 
• The Government’s immigration white paper proposes introducing a minimum salary threshold of £30,000 for recruiting most non-UK nationals from 2021. However, when asked what minimum salary threshold would enable them to meet their skills and labour needs after Brexit, the most popular employer response was a threshold of £20,000 (16% of employers), followed by £30,000 (14%) and £25,000 (12%).  

The CIPD’s research also shows that since the referendum vote most employers’ efforts have been focused on retaining existing EU staff, rather than planning how to respond to imminent immigration restrictions. This may partly explain why relatively few organisations report they have seen ‘Brexodus’ effect in their organisation yet, as they have been able to continue to access and retain EU workers fairly easily since the EU referendum. 

However, the CIPD is warning that the focus on retention, coupled with a lack of knowledge on planned immigration restrictions and limited workforce planning by employers could see many organisations experience a ‘labour supply shock’ when immigration restrictions are introduced in just over a year’s time. 

In response, the CIPD is calling on the Government to consider the following key recommendations:

1. Merge the planned 12-month temporary visa route with the Youth Mobility Scheme to create a two-year temporary visa route for all workers, to be reviewed in 2025. This would create a transitional two-year visa route that would enable EU citizens to live and work in the UK for a maximum of two years to study or work without a job offer, irrespective of age. The merging of the two routes would make the system simpler and fairer. It wouldn’t discriminate by age and would also reduce costs as it helps employers to avoid the sponsorship system. The two-year framework would also be more attractive as employers have highlighted that a one-year visa is too short and a two-year timeframe would be a minimum requirement for them due to training costs. Employers in the CIPD’s focus groups also felt that two years would be a better timeframe to be able to continue to attract EU citizens to the UK. 

“The pool (of EU candidates) is reducing; it has not necessarily stopped altogether, but it’s a reducing pool.” University, Wales, in a CIPD focus group

2. Allow for lower salary thresholds to be set for skilled workers based on jobs covered by the shortage occupation list

If the median annual earnings for a shortage occupation lies below the £30,000 threshold, this should become the default minimum salary threshold for that particular occupation. This system would be simpler and fairer and would also prevent abuses such as the undercutting of UK workers, ensuring that migrant workers are paid appropriately and that they complement rather than substitute UK workers. This arrangement would replace the existing exemption for public sector organisations as many public service occupations will be covered by the shortage occupation list and could benefit from a lower salary threshold under this proposal. 

“The average salary of a skilled worker... in the manufacturing sector is less than £30,000. It’s £28,000 for a skilled worker. And that’s a significant issue for us.” Engineering employer, Scotland, in a CIPD focus group  

3. Make the system more user-friendly through reform of the sponsorship system

In order to make the system more user friendly and cost effective for employers, the CIPD recommends that the umbrella sponsorship system should enable membership and sectoral bodies to be responsible for compliance duties and take on the role of umbrella sponsors. A transactional ‘self-service’ system should be developed for low-level users of the system such as small employers which would be monitored to ensure compliance.  

Gerwyn Davies, senior labour market adviser for the CIPD comments: "Very few employers are ready for the end of free movement and restrictions on immigration in just over a year. Worse still, many seem both daunted and alarmed by the range of restrictions planned and the costs they are likely to incur. Even if they can access the talent they need, there are concerns they may not be able to afford it.  In response, the planned introduction of migration restrictions must be phased in to offset the risk of a labour supply shock and to avoid harming UK competitiveness.”

“It seems inevitable that the rate of inflow of EU citizens into the UK from 2021 will fall compared with recent years. With so few employers ready, we need a ‘safety buffer’ to give them more time to adjust.  We need a set of workable policies that apply across all sectors that are simple, low-cost, fair and user friendly for both employers and non-UK citizens.  However, the current timetable and balance is working against the short-term interests of employers and EU citizens.” 

A full list of the CIPD’s recommendation for the UK’s post-Brexit Migration can be found in its report ‘A practical immigration system for post-Brexit Britain’.