Fewer than half of UK businesses with high numbers of migrant workers say they plan to hire more UK nationals if immigration falls after Brexit, according to a new report by think tank the Resolution Foundation.
Only 38% of 500 firms surveyed, across a range of sectors, said they would respond to a drop in the supply of foreign workers by hiring more British nationals, while 15% said they would change their business model. This could include investing in new technology and upping automation, although to what degree would vary by sector.
More broadly, the report says the UK labour market is facing a crisis, as falling migration comes together with the rising cost of cheap labour. It argues the government must do more to prepare businesses for the coming changes, most of which, it says, are not ready.
“Low-paid labour will no longer be as cheap and will no longer be as available as British firms have grown used to. Businesses will respond to these changes in a number of ways, depending on their ability to automate or recruit more workers,” said Stephen Clarke, economic analyst at the Resolution Foundation.
“But in almost all cases,” he said, “they will need a helping hand from government to get the wider economic conditions right.”
The possibility that businesses may not increase the number of their UK-national employees may be unwelcome news for many, given Vote Leave’s emphasis during the Brexit debate on cutting back on cheap migrant labour and securing British jobs. And 26% of businesses said they expected the number of EU/EEA nationals in their workforce to increase after Brexit.
In April, the National Living Wage (NLW) for workers over 25 went up, raising the cost of low-paid labour: the Resolution Foundation’s report predicts that the NLW will rise three times faster than typical wages over the next three years — 10% against 3.3% — while overall wage bills will increase by £4.5 billion in 2020, among affected companies.
The auto-enrollment of workers into pension schemes, it says, is also predicted to raise the cost of hiring.
Compounding this problem, the predicted drop in migration is likely to be most felt among those sectors most impacted by the rise in the NLW, which could cause a labour shortage. The report warns that changes in low-paying sectors like food manufacturing (in which 41% of workers are migrants), domestic personnel (39%) and hotels and restaurants (30%) will be so big “that it could fundamentally change how firms in these sectors operate.”
Clarke says the government must do more to provide clarity about new immigration rules, to encourage lower-skilled and older people into work and to ensure that employment and benefit regimes keep up with the changes. A failure to plan for the coming changes, he says, could be disastrous, and lead to business closures, job losses and weaker pay growth.
On a similar note, Caron Pope, managing partner at Fragomen, the world’s largest immigration law firm, said the government was not doing enough to reassure businesses. “It doesn’t look as though the government is taking much notice at the moment and the immigration regime of the future is still unknown,” she said.
“Employers have been clamouring for answers for a year in every sector … Uncertainty breeds uncertainty, which is not good for anyone,” she said.
According to Torsten Bell, director of the Resolution Foundation, leaving the EU “will have a profound effect on people’s lives … How government and firms respond to these changes is as central to preparations for Brexit as negotiations in Brussels,” he said.
Here is the chart of the sectors predicted to be most impacted by increasing costs, alongside how dominated they are by EU workers:
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