Long reads

The troublesome job of replacing EU workers

25 May 2017 By Jo Faragher

Post-Brexit restrictions will inevitably mean fewer EU migrants. Employers will need to ask some difficult questions about where talent will come from

For a word that barely existed three years ago, Brexit now holds a remarkable grip on British political and social discourse. From the Commons chamber to the neighbourhood local, it is the most persistent and divisive topic of our times. And it’s little wonder some have already had enough of it. Unfortunately for the short-term needs of the British economy, however, many of them are workers from the European Union.

There are, of course, no political answers to be had yet about the post-Brexit status of EU workers, or ongoing access to such a vast talent pool. It seems safe to suggest that there will need to be significantly fewer migrants in future to satisfy the political and popular demands that drove the referendum. But without hard and fast solutions, some people are voting with their feet.

Figures from the Office for National Statistics (ONS) suggest that, in the third quarter of 2016, net migration – the difference between people arriving in the UK and those leaving – dropped below 300,000 for the first time in three years. The number of EU migrants coming to the UK to work fell for the first time in a decade in 2016; most of Eastern Europe (Bulgaria and Romania aside) supplied fewer workers to the UK year on year, and there are further signs of decreases in the number of new national insurance numbers being registered to Europeans.

Potentially, that is bad news for productivity: EU workers made up around 7 per cent of the UK workforce at the end of 2016, compared with just over 3 per cent in the same quarter in 2006, and in certain sectors, such as technology and hospitality, the proportion is much higher. At the same time, the Recruitment & Employment Confederation has just reported the sharpest drop in candidate availability for 16 months.

The simplistic, rhetorical question at this point is: why can’t we get British people to do the jobs EU workers might not be able or willing to do in future? And while some will consider it a naïve suggestion, it bears further scrutiny. The ONS says there are around 2.2 million EU workers in the UK. Last year, meanwhile, the number of unemployed people hovered around the 1.69 million mark.

There are, however, several major impediments to simply transferring one group into the other. One is that the geographic locations of many unemployment hot spots are a long way from the greatest concentration of EU workers – this explains, for example, why seasonal agricultural work is so dependent on immigrants. In London and the south east in particular, migrants who expect to eventually return home are naturally willing to work for lower pay and lesser prospects than young locals looking to get on the housing ladder.

In technology, healthcare and other specialist sectors, we simply don’t have enough qualified and capable Brits thanks to mismatches between degree uptake and business need. And there are questions over the willingness of young people to take on some unskilled and distinctly unfashionable roles.

“Some employers have had no option other than to recruit EU workers, despite making an effort to improve pay and conditions in a bid to attract local talent,” says Gerwyn Davies, CIPD labour market adviser. “It’s as much about a labour shortage as a skills shortage. In low-paid sectors such as hospitality, retail and social care, employers struggle to find local applicants.” The CIPD’s winter 2016 Labour Market Outlook also revealed that almost a fifth (17 per cent) of employers felt EU nationals had a better work ethic and were more motivated.

A forthcoming CIPD report contains plenty of testimony from businesses at the sharp end of this situation. “Would I employ more British people?” asks one hospitality leader. “Absolutely, but we don’t get the applications. The majority come from people within the EU.” A food service business, meanwhile, reports: “[Hiring EU migrants] is not a deliberate policy. We recruit, hopefully, the best person for the job at the time. It just so happens that, in many cases, that’s what’s come up.”

These are valid perspectives, but they cannot tell the whole story. It is undoubtedly true that, in some sectors, specialist agencies have made it convenient and cost-effective to ship in older, ‘shovel ready’ workers from eastern Europe. And despite the introduction of the minimum wage, the pay for blue-collar roles is not keeping pace with inflation – thanks, say some, to competition from migrants.

Employers could do more, says Davies. “Some businesses could be more proactive in their communities and address whatever it is that’s turning local applicants off – whether that’s job design, pay or conditions.”

For Simon Conington, however, the main argument here is numerical – there simply isn’t enough slack in the market. “We have one of the lowest levels of unemployment globally so it’s not just a case of training up UK workers,” says the managing director of recruitment company BPS World. Stephen Clarke, analyst at think tank the Resolution Foundation, agrees: “The assertion that British people don’t want to do this work, in some sectors, might be true. But it’s also the case that we have a very tight labour market so it’s not like there’s a massive resident army of workers.”

Clarke says larger employers in some sectors will be able to configure roles around these recruitment challenges, or may even be able to invest in technology to automate aspects of certain roles, but there is no single solution that fits everyone. He adds: “Agricultural employers might want to invest more in machinery, but some employers may look to hire new UK workers, which will involve a change in their recruitment practices. We don’t have a lot of historical evidence to draw on to see how this plays out, as few countries have forcibly reduced migration in this way.”

A further issue, particularly in sectors such as technology and engineering, is that UK school leavers and graduates do not possess adequate, job-ready skills when they start work. And while there has been a sharper focus on employer-led and vocational learning in recent years – most recently with the introduction of the apprenticeship levy and the forthcoming T-level vocational qualifications – employers say they are still likely to face a shortfall of skills because we simply cannot produce qualified workers quickly enough.

Jim Bligh, director of corporate affairs at Tata Consultancy Services (TCS), an IT services group employing 385,000 staff globally, says: “We’re hiring thousands of people locally every year but we have hundreds of vacancies at any one time. It’s hard to find people with adequate and up-to-date skills. It’s estimated that there’s a 40,000 shortfall of STEM graduates, and we see that every day. So while we welcome initiatives such as T-levels, demand still outstrips supply – it’s a slow burn.”

TCS operates across 16 EU countries – as well as in the US and India – and uses intra-company transfers to move employees around, often on short-term contracts. Having a ‘global networked delivery model’ means it is not overly reliant on EU talent, although many migrant workers in the UK are subject to the new immigration skills charge, which adds up to £1,000 per year on top of existing visa costs. “This has compelled us to try and employ more people locally,” says Bligh, “but finding the right people here is a challenge.”

The company is also building its future pipeline of workers through an IT Futures outreach programme with schools and universities, including coding and application design competitions where students can win a paid internship.

Budgeting for visa costs and ‘getting your house in order’ is something employers can do now without knowing the ins and outs of the post-Brexit regime. Migrate UK, an advisory company, has seen a five-fold increase in enquiries about British citizenship and a sharp rise in queries from EU nationals concerned about their likely employment status.

“We can’t always give people a definitive answer but we have recommended, where possible, that companies ensure they have employees’ passport details or other right-to-work documentation available, such as certificates of registration. This could save time in the future and means you can prepare for any shocks that might happen,” says senior consultant Eros Rhode.

If the UK introduces a similar points-based regime to the one it operates for non-European Economic Area workers, this will at the very least mean a substantial increase in hiring costs (for the immigration skills charge, potential sponsorship costs and administration fees). Academia is likely to be one of the worst-hit sectors, not least because many staff are already considering leaving – a survey by the University and College Union found that 76 per cent of EU national lecturers and professors would be more likely to quit the UK after Brexit.

In response to such concerns, University College London has held 10 immigration clinics with an immigration lawyer and offers a dedicated EU email inbox. Spokesperson Dominique Fourniol says: “Financial support is the most frequent request for help from our EU colleagues, for residency applications, naturalisation and individual immigration advice.” The university also has a dedicated website for all issues around Brexit, and around 300 staff have sought help or advice from one of its support services.

According to Jacqueline de Rojas, president of techUK and managing director for the UK and Ireland at software company Sage, some digital businesses are considering pushing more work outside the UK in a bid to mitigate the impact of future immigration restrictions. “In the worst-case scenario, where there’s no trade deal, we’re seeing some companies thinking about investment decisions outside the UK. We need to skill-up for jobs that don’t even exist yet, despite the fact there are already needs we cannot respond to,” she says.

Technology is one sector that may look to streamline the number of physical workers it needs through automation and artificial intelligence, but this may not be a strategy so easily available to the likes of hospitality, where there is a requirement for staff to be physically available.

In construction, a number of employers are making efforts to diversify their candidate base, particularly given the demographics of the industry – almost a quarter of workers are over 50 and 15 per cent over 60, and because of the physical nature of the work they tend to retire earlier than those in other sectors.

James Bryce, director of strategic workforce planning at construction consultancy Arcadis, says there’s little point dwelling on how the UK became so reliant on EU workers, and that companies should focus instead on how they can broaden how they search for and develop talent. “It has been easier to get people who are trained up and ready to work from the EU, and that’s partly why we’re in the situation we’re in now.

“But it’s not as simple as companies just bringing in Polish plumbers or whatever – many of these people have been here for 20-odd years and have families here. We need to think about how we ensure they’re able to remain here and be productive, and how we make transitional arrangements.” Bryce points to examples in the rail industry, where employers are encouraging workers close to retirement age to get involved in training and consultancy.

Taking a more creative approach to talent is something many organisations would benefit from, says Julia Howes, a principal in Mercer’s UK talent division. “Employers need to think about attracting people from sources they may not have considered before, such as women returners, or people with caring responsibilities who can work but may need to do so more flexibly,” she says. Ex-offenders, former Army personnel, those with disabilities and the long-term unemployed are other underrepresented groups to consider.

Looking again at job descriptions and how roles are organised will help expand the pool of talent. Howes adds: “Lots of organisations have firm expectations around how much experience they expect someone to have, but it’s often hard to find those people. Talk to managers: is it better to have no one with the exact required experience or someone who can do at least some aspects of the job?”

If employers do nothing else, they should carry out an informal audit of where their danger points lie and consider recruitment and talent development approaches in those areas, says Davies: “They need to look at their recruitment channels and how they might be able to offset this loss of skills, or create a safety net for EU employees they want to retain.”

With competition for talent only likely to get tighter, ensuring you have a strong employer brand will become increasingly important. “We need to ensure that we continue to be an attractive place to work, but building great people programmes, paying people right, building the best training programmes – that all means lots of investment,” says Bryce. Until the next government makes it clear exactly how employers will have to manage their migrant workers in a post-Brexit world, we’re unlikely to know just how significant that investment will have to be.

Stay up to date with the CIPD’s Brexit resources at cipd.co.uk/news-views/brexit-hub

Hospitality

The British Hospitality Association estimates that one in 10 workers in the UK is employed by the hospitality sector, and that 12.3 per cent of those are EU nationals. However, research carried out by KPMG puts this as high as 23.7 per cent. This sector’s reliance on EU staff cannot be overestimated: sandwich chain Pret A Manger made headlines earlier this year when it claimed that just one in 50 applications for its jobs came from British workers.

KPMG estimates that, even in a situation where there was no new migration into the sector from 2019 but existing EU nationals were allowed to remain unrestricted, hospitality employers would still need around 62,000 new EU nationals every year to maintain the current level of growth. Lord Green, founder of the Migration Watch think tank, has said the government is considering a two-year, post-Brexit ‘barista visa’ for hospitality workers, but this is yet to be confirmed.

Tech

The digital sector in the UK accounts for about 16 per cent of domestic output, 10 per cent of employment and almost a quarter of exports, according to lobbying body techUK. It estimates that 18 per cent of the three million workers employed in digital and technology roles were born outside the UK, and of those one-third are from the EU.

The tech sector has already been hit by the cost of the immigration skills charge, which has added £1,000 per year to existing visa charges for employers recruiting skilled workers from outside the EU. Any restrictions post-Brexit are likely to not just limit the pool of skilled talent available to tech companies, but also create a significant additional cost and administration burden if similar skills charges or points systems are applied to EU nationals.

Whatever immigration controls are put in place, one of the big issues will be data protection law. If either the EU or the UK places tighter restrictions on moving data between the UK and member states, this could affect companies’ ability to deploy staff more flexibly to get around talent shortages. Jacqueline de Rojas of Sage Group says: “The thing about digital is it doesn’t matter where you are, so we should be able to recruit people who are based anywhere. But we need to get the data deal right if we’re going to be able to do that.”

Construction

Construction consultancy Arcadis estimates that – aside from any potential Brexit effect – Britain needs 400,000 new construction workers each year. It predicts that in a ‘hard’ Brexit scenario (such as extending the points-based system currently in place for non-EU migrants) 214,000 fewer construction workers would enter the UK from the EU between now and 2020. In a sector already experiencing candidate shortages, employers would never be able to replace those EU workers at the same rate as they left.

It’s not as simple as forking out for visas and additional surcharges for highly skilled engineers, either. “We don’t only need highly qualified people, we need elementary occupations as well to support our output, both for infrastructure projects and housebuilding,” says Arcadis’ James Bryce. The Royal Institution of Chartered Surveyors has sent out a similar warning, claiming the construction industry could lose as much as 8 per cent of its workforce if the UK is unable to access the single market – which could put major infrastructure projects such as HS2 at risk.

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