What Brexit means for the talent pool

Published: 08 Jul 2016

 The struggling state of global currency values and equity markets hogged headlines in the immediate aftermath of the UK’s vote last week to leave the EU, the referendum known as the Brexit. In the days since, the possible effects on the European talent pool, as well as several known unknowns, are starting to emerge.

Brexit brings likely scenarios of recruitment freezes, job cuts, and restrictions on migration. HR experts predict that productivity and diversity in the workplace will be hit and retention will be an important challenge for employers. There are also consequences for talent creation and the knowledge base in the UK as well as the nation’s ability to attract talent from overseas.

Sixty-four per cent of company directors think Brexit is negative for their business, according to an Institute of Directors poll conducted Friday, the day the Brexit result was announced. Recruitment freezes are in the cards for 24% of respondents, and 36% are making plans to reduce investment in their business. Twenty-two per cent are considering moving some operations overseas.

Freedom of movement

As part of the EU, UK citizens have the right to live, work, and study in other EU countries. Other EU nationals have reciprocal rights in Britain. What kind of arrangement might replace that freedom of movement is one of the many unknowns businesses are faced with.

“We could have a completely independent relationship with Europe where people have to apply to come and live and work in the UK, and have to meet certain skills criteria as non-EU workers do. But it looks as though there’s a distinct possibility now that it may not be as radical as that, and actually you could have a system which is not too dissimilar from the one we’ve already got,” said Gerwyn Davies, a policy adviser focusing on labour market issues at the Chartered Institute of Personnel and Development (CIPD).

Uncertainty about their immigration status could prove troubling for EU nationals and the sectors of the British economy that rely on them.

“Employers should be reassuring their employees that there is no significant threat to the rights of European Economic Area (EEA) workers already in the UK to live and work here, there’s no risk to their job security at present,” Davies said. “However, looking ahead, it seems likely that there will be some sort of worker registration scheme for EEA nationals that are already in the UK, to protect their right to live and work. The million-dollar question is what happens to those who arrive [in the UK] between now and formal separation [from the EU]?”

Sectors most affected

The sectors with a large share of migrants in their workforce, and therefore likely to be most affected by the Brexit, include financial services, construction, and travel and tourism. Health care also relies heavily on migrant workers.

In the UK as a whole, just 6% of organisations have a genuine skills shortage vacancy, Davies said. However, in the construction sector, one in three vacancies goes unfilled. Migrant workers from accession countries (including Poland and Lithuania) have helped solve that. “Without them, there would be a crisis in that sector, and businesses would not be able to grow and carry out the big infrastructure and house-building projects that the country needs.”

Also, a high proportion of EU workers, particularly from the EU 14 countries including France and Germany, are employed in the financial services sector.

Brain drain

The UK’s eventual withdrawal from the union could hit universities and the scientific sector hard. Both sectors currently receive millions of pounds in EU research funding. “Where science and research funding is drying up, you will see a brain drain. Talented people will go where the stability and the funding for long-term projects are,” said Azmat Mohammed, director general of the Institute of Recruiters.

Predictions of recession and large companies relocating overseas would make Britain a less attractive destination for skilled workers looking for a secure job for the next five to ten years, Mohammed said.

Engineering and communications companies, banks, and insurance companies, faced with the possible end of “financial passporting,” or their ability to conduct trade across the EU from their UK base, are considering relocating all or part of their workforce.

“There will be an exodus of highly qualified staff in a number of fields, largely to keep their jobs with corporations who don’t like what has happened,” said Linda Holbeche of the HR Society, a visiting professor at Cass Business School.

If these companies do leave, rather than a skills gap, the UK may simply be left with a massive GDP gap, she said. “Ireland is likely to prove a popular destination for those companies,” Holbeche said, “as it is English-speaking and offers low rates of corporation tax as well as that critical access to the European market.”

Social tensions revealed by the referendum are another factor that could discourage skilled workers from coming to the UK, Holbeche said.

Productivity

UK productivity has stagnated since the 2008–09 recession, with negative consequences for living standards and long-term economic growth. Productivity levels are already lower than those of many other developed economies. Losing some of the 2.15 million EU nationals employed in the UK workforce is likely to exacerbate the situation.

Among UK nationals who have migrated to the EU – to France and Spain in particular – a significant proportion are retired. In contrast, many of the EU migrants to the UK are young, highly skilled workers who are contributing to the economy and paying taxes, according to the CIPD’s Davies.

If freedom of movement were curtailed, it would also be more difficult for UK nationals to gain skills and experience from studying and working abroad.

Small and mid-size companies

If the UK government decides to extend its points-based immigration system to EU citizens, employers would find it much more expensive to hire from abroad. “The points-based system is costly and becomes more so year-on-year,” Davies said. “It is bureaucratic and can be quite slow. At the moment, to recruit non-EU nationals, you have to advertise the post for 28 days and demonstrate that you cannot fill that role with a local or EU worker. That’s something that employers don’t want.”

The cost and time involved would be particularly onerous for small and mid-size companies such as Fraud Fence, a consultancy that advises companies on fraud risk management. The company relies on a network of highly skilled freelancers, about half of whom are EU nationals.

“One of the great things about London that really helps small businesses is the access to such a wide range of freelancers who specialise in different areas,” said Cecilia Locati, ACMA, CGMA, the director of Fraud Fence. “From a business owner’s point of view, resourcing projects this way is much less risky because you select your team to provide the service the client needs, and at the end of the project, you don’t have overage.”

Fraud Fence’s freelancers have an audit background and are initially drawn to London by the large number of companies with audit teams based there, she said.

“From our perspective, access to this kind of people is critical,” Locati said. “If people from the EU need to rely on a working visa, it would make it more difficult for them [freelancers] to stay in this country and difficult to maintain London’s great freelance market.”

Securing the talent pipeline

To offset the risk of relying on migrant labour, the CIPD suggests companies look at developing relationships with local educational institutions to ensure that their organisation is well-placed to recruit the best talent from those colleges or schools.

Having a formal training scheme in place (such as an apprenticeship) which offers young people a clear progression route ensures that you are marketable as an institution, Davies said.

Apprenticeships are cost-effective ways to bring talent into a business in bigger numbers, Mohammed added.

“We have to embrace what we have in this country at the moment,” he said. “The apprenticeship and higher apprenticeship programmes that are still in place. All of that funding is still there.

“Businesses may not be looking to hire, but they could look to improve the prospects of people they already have within their business,” Mohammed continued. “We are still part of the EU; all of the European Social Fund pots of cash that allow companies to train staff and develop their own people should be used.

“If you trust your business, you should keep on attracting and hiring the best people for your business. You’re only going to have a crisis if people stop doing things.”

This article originally appeared in CGMA Magazine "What Brexit means for the talent pool"

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