Labour shortages in the UK and the post-Brexit immigration system

John Springford, the Deputy Director of the Centre for European Reform, and Jonathan Portes, Professor of Economics and Public Policy; Senior Fellow at UK in a Changing Europe, have published a report following their examination of the post-Brexit immigration system and its impact on labour shortages

In their analysis, the pair compare labour shortages in the UK pre-Brexit when EU nationals had an unrestricted right to live and work in the UK, to the post-Brexit system which offers no such freedoms. The authors note an increase in labour shortages in the UK, with a substantial shortfall in migration for work and call for the liberalisation of the immigration system to limit the impact of these shortages.

Changes in the labour market

Since free movement ended on 31 December 2021, Britain has experienced a shortfall of around 330,000 workers. The shortfalls sit disproportionately in low-skilled sectors and, although there has been an increase in migration by non-EU nationals since Brexit, this has not been sufficient to meet labour market demands and has done very little to fill low-skilled vacancies.

The sectors most impacted by the reduction of EU workers are transport and storage (128,000 reduction /8% total employment in sector), wholesale and retail (103,000 reduction workers /3% total employment in sector), and accommodation and food (67,000 reduction/ 4% total employment). The manufacturing and construction sectors have also suffered significant labour shortages since Brexit.

Many prominent ‘Leave’ supporters such as Lord Wolfson are now in favour of government action and advocate a liberalisation of the immigration system to support these sectors.

Potential impacts

In their report, Springford and Portes identify three key risk areas in the present circumstances:

The immediate need for more workers could lead to employers increasing wages to attract more settled and non-settled workers to their roles. While this is not necessarily a bad thing, these additional costs could then be passed onto buyers and consumers meaning prices for products and services could increase.

Businesses may be forced to reduce production to cope with decreased capacity and to ensure compliance with safety and working regulations. This will could have an impact on profitability levels and, if experienced at scale, will exert further downward pressure on the economy.

In the longer term, businesses may turn to automation to fill low-skilled roles which could in turn lead to less employment opportunities in the future. Britain has already been identified as the only G7 member whose employment rate in the third quarter of 2022 was below that of its pre-pandemic level.

Springford and Portes argue that the Government should look at adapting the immigration system to make it easier for UK businesses to recruit from overseas and reduce labour shortages.

Changes to the immigration system

One possible mechanism to make the immigration system more accessible noted by Springford and Portes is the removal of the Immigration Health Surcharge (IHS). This is a charge paid by visa applicants to provide them with access to the NHS. In August 2020, following recommendations from the Migration Advisory Committee (MAC), the Government scrapped this charge for holders of Health and Care visas when efforts were being made to encourage visa applications in these sectors. The government could consider scrapping the charge for other sectors with urgent labour shortages.

Another similar option may be to remove the Immigration Skills Charge ('ISC’). Under the current immigration rules, employers are required to pay up to £1000 per migrant worker per year of visa unless one of the limited exceptions apply. The high costs may be deterring employers from using and benefiting from the immigration system. Removal of this charge could support businesses, particularly SMEs, to fill vacancies and reduce labour shortages.It would also be worth considering expanding the Shortage Occupation list (‘SOL’), to enable low-skilled, in demand jobs to qualify for sponsorship. The MAC has been commissioned to review the current SOL and is expected to feed back to the Government in Spring 2023. If additional occupations are placed on the SOL, more businesses may be able to benefit from the support of migrant workers to meet their labour force requirements.

Summary

As noted by the report’s authors, “the end of free movement is contributing significantly to labour shortages in less-skilled sectors of the economy and the new immigration system is not liberal enough to compensate.” The government must consider how best to support businesses and reduce the impact of the labour shortages experienced since Brexit.

---

Author: Megan Moorhouse

If you would like to discuss any of the issues raised in this article, or discuss whether the immigration system can be used to support your business, speak to our specialist immigration advisors for further information.