Following his Elite Leaders discussion with a select group of CEOs and directors from the recruitment sector, Investec Chief Economist Philip Shaw examines the concerns facing business leaders and the potential impact of Brexit on the future of UK industry.
News that the government’s Migration Advisory Committee has proposed a ban on the current 20,700 cap on Tier 2 visas (for foreign workers in the UK earning in excess of £30,000 a year) has highlighted again the issue of post-Brexit immigration policy. Policy uncertainty, combined with concerns about challenges of recruitment and skills shortages within the UK, have created an uncomfortable environment for many business owners, executives and company directors.
Immigration policy will be key to easing these concerns and providing businesses with the information they need to plan for the coming years. It has been established that EU migrants working in the UK during the transition period will be able to stay. Then, after five years, they can apply for permanent residency. But more important is what sort of immigration legislation we get after Brexit.
“Britain isn’t going to shut down once it leaves the EU. It will still be Britain.”
The Migration Advisory Committee’s full report recommends that EU workers not get preferential treatment. However – there is that all-important word: ‘however’ – if it’s part of a trade deal, EU migrants could receive preference over non-EU migrants. It’s a highly political issue, and one that will likely be debated for months to come.
What will businesses face in a post-Brexit Britain?
When it comes to employment, recruitment and retention, it’s fair to worry about losing jobs over Brexit. We may well lose some, but in a best-case scenario this equates to only a small amount.
Britain isn’t going to shut down once it leaves the EU. It will still be Britain. We will have a huge number of attractive qualities that will be positive factors in making the UK a desirable place to work for overseas labour. Legislation may change, and it may be more difficult for EU workers to get employment here, but Britain need not be a totally different place.
The government has indicated that it is listening to industry and understands that, in many cases, business will need to look overseas for talent. I believe Britain will continue to attract talent from around the world. Our labour market is among the most flexible within the OECD, with a high level of autonomy. Leaving the EU could affect this, but it’s also possible that we won’t need to change.
It’s also possible that some firms will move some operations from the UK in response to Brexit. At the same time, it’s entirely possible that some firms move into the UK – for the same reasons that British businesses are having to find a base on the continent or in Ireland.
Taking a wider view of the UK economy, it’s important to mention the rise of populism, with politicians increasingly promoting vote-winning policies over long-term strategies. This poses a risk in terms of reversing what most of us consider to be positive reforms for business and economic growth.
In the period since 2008, we’ve made a lot of progress to recover from the crisis, and should politicians reverse course, there’s a chance that we lose sight of long-term outcomes.
Mitigating skills shortages
Business owners across all sectors have repeatedly stressed that a skills shortage is one of the biggest challenges facing UK plc. Successfully tackling this problem is a huge undertaking and there is no quick fix. But if we can improve education in the UK, and I do realise that’s not an easy job, the quality and skills of the indigenous workforce will improve. That is a long-term solution.
If you look at a widely used measurement called Level 2 Literacy and Numeracy, which is effectively GCSE level, around 20% of young adults fail to meet this level. In fact, as of the most recent OECD report on the subject (2016), England is bottom of the class across all OECD countries for literacy among 16- to 19-year-olds, and one from the bottom in numeracy, just ahead of the USA.
We’ve got fantastic top universities, but at the other end of the educational scale there is an awful lot of work to be done.
Beyond March 29: The transition period
Business leaders have been left in a sort of limbo with regard to the UK’s exit from the EU, and their frustration is completely understandable. Successful business owners are always looking ahead, planning for the next three to five years. Without the needed clarity regarding legislation, what can they do? The transition period is critical here.
During this period – from 29 March 2019 until the end of 2020 – the UK’s relationship with the EU will be virtually unchanged, providing an element of certainty to businesses. And this type of continuity is of course needed, as uncertainty is hampering business. It’s as simple as that.
Philip Shaw is Investec’s Chief Economist.