An aura of uncertainty weighs heavily on the business atmosphere in the UK right now.  Brexit is fast approaching, and the full impact on currency values, foreign trade, and the labour market won’t be known for some time.  But as we near the end of UK membership in the European Union – the divorce becomes final on March 29, 2019 – the signals of what’s to come are becoming clearer, and anxieties are running higher.

UK citizens voted in 2016 to leave the EU primarily because they thought not enough was being done to curb immigration, which they felt was increasing at a far too rapid pace and threatening UK jobs and livelihoods.  That sentiment is being felt by citizens of countries around the world, with commensurate increases in feelings of nationalism and isolationist political rhetoric.  The UK’s vote to leave the EU, after decades of EU membership, feels akin to Texas leaving the United States.  But the implications of leaving the EU were not fully understood or even considered prior to the Brexit referendum being put to a vote.  One of the many consequences that will need to be dealt with? After Brexit, the UK will no longer adhere to the EU Freedom of Movement Act, an act which allows all EU citizens to freely work and/or live in any fellow EU member country.  Instead, Britain will need to come up with its own immigration policies.

UK Reliance on EU Workers

Businesses are lobbying hard during the debate over what the new immigration policies should be.  The Confederation of British Industry (CBI), representing 190 thousand UK firms, is trying to make sure Theresa May is fully aware of the UK’s heavy reliance on EU migrant workers before drastic and potentially destructive actions are taken by the government to turn these workers away at the border.  As just one example, the service industry accounts for over 80% of the UK economy.  And a huge amount of the workers in those service industries are EU migrants: 41.6% of packers/bottlers/canners/fillers, 39.6% of food/drink/tobacco operations, 26.7% of valets/vehicle cleaners, etc.  What would UK firms do without those employees?  The labour market is already tight with an unemployment rate of around 4%.  It’s not as if UK workers are, in fact, competing with migrants for these jobs. Kotoky of Bloomberg noted that the tight labour market is already driving wages up at the fastest rate since 2008.  That has a huge impact on firms’ bottom lines.

EU Workers in the UK Decline at Record Pace

Citizens in other EU countries are already anticipating the likely impact Brexit will have on their lives if they depend on being able to work in Britain, and they are understandably being proactive about acting in their own self-interest. Reports from Bloomberg show in the third quarter of 2018, there were 5% fewer EU nationals working in the UK than a year ago, the biggest decrease on record.  After also accounting for the EU migrants that have left the UK so far, net migration from the EU to the UK is now over 60% lower than before the Brexit referendum took place in 2016.  Some argue that increased immigration from countries outside the EU has offset this decline.

Post-Brexit Immigration Plans

The general idea behind May’s proposed immigration plan is to prioritize high-skilled workers over low-skilled workers trying to work in the UK from abroad, regardless of their country of origin according to Bloomberg.  That means EU citizens will no longer be given precedence over other countries’ migrants to the UK, a point that May is hammering home at every opportunity.  It’s not surprising that this would leave a bad taste in the mouths of potential EU migrants and driving down those net migration numbers.  After decades of enjoying free movement in and out of the UK, EU workers are essentially writing off the UK as an option.

Outlook

The consensus seems to be, after Brexit becomes official in March of 2019, that UK businesses, and subsequently the country as a whole, will suffer from declines in economic performance, labour market shortages, and skills mismatches.  The director of the Confederation of British Industry, Carolyn Fairbairn, said the new policy would affect a wide range of businesses and erode public confidence.  Businesses are complaining that they will not be able to fill low-skilled jobs if May’s new immigration proposals are approved and implemented according to reports from the Guardian.  May’s response?  Businesses need to train UK workers to fill those gaps.  That sounds nice in theory, opening up opportunities to the young and unemployed by providing them with the training needed to fill labour gaps in low-skilled jobs.  But there are two major problems with that theory: 1) employment is already low – that pool of young or unemployed workers waiting for jobs does not exist, and 2) training any potential UK workers that are on the market would be a huge added expense to businesses.  This plan only seems feasible if the government is also willing to subsidize these training programs.