Boris Johnson’s post-Brexit immigration reforms start to bite

Boris Johnson’s post-Brexit immigration reforms are beginning to take effect.

This is the fifth part of an FT series asking whether Boris Johnson is pursuing reforms that will change the face of Britain.

Under a grey sky, tight clusters of Pinot Noir grapes are starting to ripen in the vineyards at the Oastbrook Estate, a small winemaker on the South Downs in southern England. They will be ready to pick in a few weeks.

Nick Brewer, the estate’s owner, has spent long hours stripping leaves from the vines to prevent a damp summer causing mildew. Now, he is frantically calling friends, family and volunteers to help bring in the harvest.

“We were heading for this problem,” said Brewer. In the past he hired Romanian workers for seasonal jobs such as leaf-stripping, but many went home during the Covid-19 pandemic and have not returned, he thinks because they failed to apply for settled status in the UK following Brexit.

Big winemakers can call on recruitment agencies, said Brewer, although they have flagged labour shortages as a risk to investors. He can just manage by marshalling friends, but some producers are simply giving up on part of this year’s harvest due to a lack of workers.

Nick Brewer with his wife America at the Oastbrook Estate in East Sussex

It is not just grapes at risk of rotting on the vines since Britain introduced curbs on low-skilled immigration after leaving the EU. Growers of soft fruit and vegetables across the UK are planning to plant less in 2022 after losing large parts of this year’s crop because they did not have enough pickers.

Labour shortages are emerging in several sectors — from lorry drivers to food processing, social care to construction — as post-Brexit migration restrictions amplify bottlenecks caused by the pandemic.

The most acute problems have stemmed from the lack of heavy goods vehicle drivers, caused by both UK and European workers quitting. Supermarkets have blamed the shortage for gaps on their shelves, and warned of increased disruption in the run-up to Christmas.

But it took recent problems with deliveries to petrol stations — prompting panic buying by motorists that drained thousands of forecourts across Britain — to force a change in the government’s stance on immigration.

Having previously rejected the case for allowing foreign workers to fill the vacancies, the government said at the weekend it would allow 10,500 lorry drivers and food processing workers to come to the UK on three-month visas, although the British Chambers of Commerce described the move as “throwing a thimble of water on a bonfire”.

As the costs of the new immigration regime for companies and households become clearer, the big question is whether the government can deliver on the promise made to Brexit supporters in “left-behind” areas — that by ending most low-skilled migration, it would create a “high-wage, high-skill, high-productivity economy”.

Line chart of GDP per hour worked (2009 = 100) showing Reliance on a 'low wage' model may partly explain the UK's poor productivity performance

Boris Johnson believes his immigration policy — which does allow skilled foreign workers to come to the UK — will boost his re-election chances if it leads employers to invest in new technology, train Britons better and pay them more.

“There is now a dividing line between this government and the opposition,” he told MPs this month. “We want a high-wage, high-skills economy with controlled immigration. What they want is low wages, low skills and uncontrolled immigration.” 

But the prime minister now faces the first big test of his new approach. If he is prepared to loosen immigration rules for truckers and food workers, will he hold the line as a clamour grows from business to do the same for other industries?

Since January, EU and non-EU citizens coming to work in the UK must have a job offer, at a set skill and salary level, from an approved employer. Requirements are lower for a list of shortage occupations compiled by the government, for health workers, researchers and a quota of seasonal farm workers. But there is no general route for employers to hire at or near the UK minimum wage.

This new regime was always going to be a shock to employers who had honed business models on the ready availability of low-skilled workers. The government’s policy was explicit: companies could still draw on the millions of EU citizens already settled in the UK, and so would have time to adjust, but they would need to stop relying on immigration “as an alternative to investment in staff retention, productivity . . . technology and automation”.

But the pandemic has made the shock swifter and sharper than expected. And while claims of a mass exodus of EU nationals from the UK may have been overstated, new inflows have dried up.

There were just 270,000 national insurance registrations of overseas nationals in the year to June 2021, less than half the level in the previous 12 months, with the biggest drop from EU countries. Although visa applications to bring in skilled workers under the revamped regime are nearing pre-pandemic levels, few are from the EU. Routes into the UK for low-skilled workers are largely closed.

Line chart of NI number registrations to overseas nationals entering the UK, by nationality (rolling annual total, 000s) showing Inflows of workers from the EU have dried up

This has forced a rapid adjustment in industries such as food processing where staff churn was always high, with migrants previously using an unappealing job as a stepping stone to move on to something better once they were in Britain.

Even if the government relents on more low-skilled immigration, it could be hard to tempt workers back to Britain. Chris Gray, director at Manpower UK, the recruitment agency, said many EU nationals were “trapped” overseas because they had not applied for settled status in Britain — and had found better prospects in their home countries.

But it is not clear that lower immigration will automatically lead to more or better-paid jobs for Britons.

“It’s not as simple as putting up pay,” said David Brass, chief executive of The Lakes Free Range Egg Company, who accepts that younger British workers will not aspire to long hours tending chickens, in a tourist area where hospitality jobs are readily available.

Site managers at his business, near Penrith in Cumbria, were working unsustainable 12-hour, six-day weeks to make up for the loss of European workers, and in the short term Brass said he was considering reducing flocks early. In the longer term, he will look to automation: robots were already packing eggs more reliably than people, he added.

David Brass with wife Helen

Madeleine Sumption, director of the Migration Observatory at Oxford university, said she thought the main effect of the new immigration curbs would be that labour-intensive sectors shrink as a share of the UK economy. “A lot of industries don’t have much scope to dramatically raise wages,” she added.

One exception could be haulage: HGV drivers’ wages have rocketed as businesses fight to secure their supply chains. “Even if this leads to higher prices for the rest of us, it might be a price worth paying,” said Jonathan Portes, professor of economics at King’s College London. But he added that in less critical industries, such as hospitality or food processing, the likely outcome was that “some jobs won’t exist at all and we’ll import or consume less”.

Bar chart of UK businesses citing a reduction in EU applicants as a reason for being  unable to fill vacancies* (%) showing Some sectors have been severely hit by the drop-off in EU migrants

This would be painful for many businesses, but not necessarily a bad outcome for the British economy. Alan Manning, professor at the London School of Economics and a former head of the government’s Migration Advisory Committee, said low-wage sectors gained ground relative to others after the advent of EU free movement of people rules, with the UK agricultural workforce growing for the first time in 200 years. Even if this had not depressed wages for British workers, it would have dragged down average UK productivity, he added.

If the government’s goal is to drive up UK productivity, it will not be enough to shut out low-skilled labour. It has also promised “simple, effective and flexible arrangements for skilled workers from around the world to come to the UK”. The question now is whether employers can hire talent from abroad easily.

In theory, the regime for skilled immigration has become more liberal, at least for those coming from outside the EU. Salary and skill thresholds are lower and employers no longer have to prove that they tried to hire in Britain before looking overseas. “Administratively, that’s a huge burden lifted,” said Marcia Longdon, a partner at the law firm Kingsley Napley.

Can Boris Johnson change the face of Britain?

With Johnson seeking to be in power for a decade, the FT is examining whether he is pursuing reforms that will have a lasting impact on the UK.

Part 1 Can Johnson turn his levelling up slogan into a substantial set of domestic reforms?

Part 2 Will the plan to provide skills for workers through an overhaul of further education succeed?

Part 3 What does the proposal to turn Britain into a “science superpower” mean in practice?

Part 4 Does Johnson have a detailed plan to put the UK on a course to net zero emissions?

Part 5 What does the reform of immigration rules mean for business and the economy?

But the new system is expensive. Companies must pay for a sponsor licence to employ non-UK nationals, and there is then a visa application fee, an annual health surcharge, and in most cases an ongoing “immigration skills charge”.

If an employee comes with dependants, charges can add up to £20,000 over five years, said Chetal Patel, a partner at the law firm Bates Wells. “Some organisations with deeper pockets will cover it all,” she added. “Small and medium-sized enterprises don’t necessarily have those deep pockets.”

Demand to use the new system is already straining the Home Office’s ability to process visa applications. Patel said lawyers were sitting with their fingers poised to hit send on emails when “coveted” slots for fast-track processing by the department were made available each day.

As well as the cost, small companies could be put off by the reporting obligations and scrutiny that come with having a sponsor licence. And employers may not all be willing to pay the salary needed to bring in workers with mid-level skills — in social care or specialist trades, for example — who qualify.

Portes said he was “encouraged” by recent figures on visa applications. These showed that skilled migration from non-EU countries had regained pre-Covid levels in the first half of 2021, with especially high take-up of a route for healthcare workers that was cheaper and simpler than before.

But new inflows from the EU are very low. Even if they pick up as time passes, it seems unlikely that they will regain the levels seen before Brexit, or that migration from the rest of the world will fill the gap.

Until now, the government’s move to end free movement after Brexit had pushed migration down voters’ list of concerns.

Polling published by British Future, a think-tank focused on diversity, showed the number of people who wanted migration reduced at its lowest level since 2015, with the majority content for businesses to hire overseas for any job that was hard to fill in the UK.

Bar chart of Should the government allow employers to recruit overseas? (%) showing UK public opinion not fully aligned with the government's migration policy

But as supply chain problems drive up prices in the shops, voters may soon ask how the government’s immigration curbs have helped them.

Sumption said that while the new regime could force big changes on certain industries, it would probably make little difference to employment or wages across the economy, or the state of the public finances.

Portes said that the new restrictions “will on average make us a bit poorer and less productive, with winners and losers by sector”.

But some suspect even the sectoral adjustment could, in the end, be less than employers fear. “I’ve always believed that if the government ended free movement with the EU it would just up the number of visas elsewhere,” said Frances O Grady, general secretary of the TUC, adding: “Let’s wait and see”.

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