Low Levels Of EU Migration Will Bring Problems For UK Businesses - They Must Think Fast

EU migration has dropped to 90,000
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The latest statistics on immigration to the UK have been released.

At its peak in mid-2016, net annual immigration to the UK amounted to 336,000. This was almost exactly evenly divided between migrants coming from the EU and those coming from elsewhere. Over the most recent year, the figure is much lower – at 244,000 - but clearly still positive. This is due to a reduction in net migration from the EU – down from a peak of 189,000 in 2016 to 90,000. That reduction itself is the consequence of increased numbers emigrating to the EU as well as of reduced numbers of immigrants – in the year to mid-2016 some 95,000 people migrated from the UK to other EU countries, but over the last year this has risen to 130,000. It is likely that much of this is the result of people who had previously moved to the UK from elsewhere in the EU now deciding to move back. Meanwhile annual gross immigration to the UK from other EU countries has fallen by some 47,000 since mid-2016.

Uncertainty surrounding the position of EU workers in the UK following Brexit may be one factor explaining these shifts. The perception of being used as pawns in a political negotiation may be another. But there are economic factors at work as well. The gap between the economies of the accession countries of eastern Europe and the richer countries such as the UK has narrowed markedly over recent years. For example, at the turn of the millenium average annual earnings in Poland were less than 54% of those in the UK, but they are now more than 60%. Real wages have fallen by more in the UK since the 2008 recession than any other major economy except Greece. For many workers who have moved to the UK from elsewhere in Europe, this makes staying a less attractive proposition.

The high levels of immigration into the UK over the last couple of decades could, in principle, themselves have contributed to this stagnation in real wages. The increased supply of labour certainly gives employers more clout in the market. But at the same time migrants increase the demand for services, and and so the demand for labour has also risen. This means that the overall impact of migration on the wage level could be positive or negative. Most estimates suggest that there has been a miniscule overall effect – though within this broad brush total there are likely to have been some winners and losers.

Meanwhile, migration from other parts of the world remains high. A particularly important route into the UK for such workers is the employer-sponsored ‘tier 2’ visa – which is allocated to skilled workers earning at least £30,000 a year. A limited number of such visas is available, and these are awarded on a points system – points being awarded on the basis of the level of education, prospective earnings, occupational labour market shortage, and other criteria. The minimum points score required for successful applications for these visas has shot up in recent months, with many applications now being turned down. This has adverse implications for businesses facing shortages of highly skilled workers.

Workers coming to the UK under the ‘tier 2’ system often bring dependent relatives with them on family visas. In average, each ‘tier 2’ migrant is accompanied by 0.7 dependents. Other visas that allow entry into the UK from outside the EU include visas for students and for temporary workers, most of whom eventually migrate back out of the country.

The immediate impact of reduced EU net immigration is to some extent mitigated by the fact that UK growth is, relative to other European economies, currently somewhat muted. Over the medium term, however, businesses in the UK will need to plan their response to labour shortages. For some, this might entail relocating some of their production abroad. Others will overhaul and modernise their human resource management practices. Indeed, equipping the UK’s workforce for the challenges ahead will require transformation of the education and training landscape – a task that calls for concerted action from government, business, worker organisations and educational institutions. The fall in net migration that we have already seen indicates that this is required regardless of the implications of the eventual Brexit settlement on migration. The Industrial Strategy suggests some first steps. The need to shift up and out of first gear is urgent.

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