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How the leaked Brexit immigration plans could impact your money

productivity

At first it seemed the government was taking a more business-friendly approach to Brexit negotiations after the hot summer, but a leaked document outlining how the Home Office plans to crack-down on EU immigration has ignited fresh concerns from industry leaders and MPs alike.

Plans to end free movement on day one of Brexit were outlined in an 82-page report that was leaked to The Guardian this week, in the first official outline of the government’s plans to drastically reduce immigration from over 250,000 a year to the tens of thousands. They include two-year biometric residencies for low-skilled workers and tougher restrictions on bringing in family members.

Estimates of the impact a big immigration cut could have on our economy vary, but the Centre for Economics and Business Research reckons it’s got the answer.

An accelerated reduction in migration could reduce GDP by 3.1% by 2025, it reckons, and by 5.7% by 2030. That’s not all, a reduction in tax receipts could reduce the government’s income by £20 billion in 2025 – and that’s if public services are scaled back to the proportionately reflect the reduced population.

Economic risks of cutting immigration

The healthy UK jobs market is currently helping support economic growth – even if wages aren’t keeping up with inflation. Employment is at record levels with 32.1 million people in work, and just 1.5 million looking for a job. The employment rate reached 75.1% at the end of the second quarter, the highest level since records began.

Now let’s look at this in the context of immigration; net migration has now fallen to around 250,000 from 330,000 in June last year – when the UK voted for Brexit. In 2017, 7% of the UK labour force were non-UK nationals¹.

An analysis of official numbers by the GMB found that EU migrants make up 20% of the work force in 18 British industries, including food processing, agriculture, manufacturing, and the hotel industry3. In fact, EU migrants drove employment growth in the last quarter of 2016.

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What worries me is whether the UK can fill the vacancies left if these proposed policies succeed in drastically reducing the number of migrants working in the UK – especially in the sectors that rely on low-cost workers. This tension is already feeding into labour data, with the number of EU workers falling 1.1% in the three months to June.

Usually, when an industry is struggling to attract employees it is forced to increase wages. I’m an avid supporter of the living wage, but a large hike in wages won’t be feasible in some sectors like agriculture, especially with trade deals yet to be finalised.

A post-Brexit transitional period is all well and good for preventing the UK from falling off a cliff come March 2019, but we have no idea how new trade deals will look when hands are finally shaken. The weak pound will also make importing goods for business, whether it’s machinery, tools or fertiliser, more expensive.

If agriculture and food processing businesses can’t afford to hire employees, they could go bust. This might reduce the availability of food in the UK and could lead to further inflation of food prices, a squeeze consumers are already feeling the brunt of.

Ironically, Brexit could threaten our food security and increase the UK’s reliance on imported food and goods. If uncertainty continues to weigh on sterling, the price of the weekly shop may get more expensive.

The Financial Times suggested this could have been part of a plan to temper expectations and deliver a proposal more agreeable to both sides later down the line. What we do know is that the Brexit team has its work cut out for it at the negotiating table, and the first draft of any bill was always going to be subject to the red pen.

1 Office for National Statistics, International immigration and the labour market, UK: 2016
2 The Guardian https://www.theguardian.com/politics/2017/jul/29/eu-workers-fifth-labour-force-18-sectors-britain-economy

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