Migration and the past, present and future of the British labour market

Today we got another major clue into what’s been happening to migration since the referendum and, how it might evolve as we negotiate our exit from the EU.

Looking first to the migration story of the recent past, in the year to December 2016 net migration was down by 84,000 to 248,000 compared to 2015. This is the lowest level it has been since March 2014, and a significant fall from the high of 335,000 just before the referendum. This, along with more timely data on national insurance registrations for foreign nationals, shows that a significant shift in the supply of migrant labour may be underway.

This fall is being driven by an increase in EU nationals leaving the UK and also a drop – although less dramatic – in immigration from those countries. Within this the biggest shift has occurred for A8 migrants (Eastern European EU members, excluding Bulgaria and Romania). Net migration is now almost zero for this group, down from 50,000 a year ago.

Data on national insurance registrations for overseas nationals provides some insight into what has happened more recently. Although this data can be jumpy, and not all those who register for a national insurance number migrate to the UK or take up a job, the data shows that registrations for EU nationals are down (though they remain higher than pre-2014 levels). The most dramatic decrease is for A8 nationals, for whom registrations have fallen to 26,000 – down from 46,000 following the referendum.

So what’s driving this fall? The drop in the value of the pound is likely to be part of the story. There is also a significance divergence between the sharp fall among A8 migrants, and the lack of change in migration from Bulgaria and Romania. This could be explained by the fact that the referendum created uncertainty about the position, and more importantly future rights, of foreign nationals in the UK. Given that a higher proportion of Bulgarian and Romanian workers immigrate to the UK for temporary or seasonal work, such uncertainty may be having less of an impact on them.

The latest migration data also gives us a few hints about the future direction of travel, and the possible impact on businesses. The debate on immigration is obviously a complex one, sitting at the heart of much of both the EU referendum campaign and discussions about the kind of Brexit the government should now deliver. Given the government’s target for lowering migration numbers, the sharp fall has been welcomed by Ministers. But, irrespective of any wider pros and cons of migration, the pace of the recent reduction is set to have an undeniable impact on the UK labour market and on many of our firms.

EU migrants account for 7 per cent of all employment, up from 3 per cent when the EU expanded in 2004. This is a significant increase but it disguises the fact that many sectors are particularly reliant on migrant labour. The table below shows that EU migrants can be found across sectors, including those with lots of high-skilled workers such as computer programming, as well as those with lower skilled workers, such as domestic personnel. In some sectors over a third of the labour force were born outside the UK. Many of those below will be acutely affected by a fall in EU labour, particularly those with high staff turnover.

Returning to the present, these sectors, and many others, require clarification from politicians about what immigration system will replace the current one once we leave the EU. The Labour Party have said they will create a system “based on our economic needs” and will get rid of the income thresholds for migrants. But, having said that they will end freedom of movement, Labour should provide more information about what will replace it. The Conservatives have promised to increase the earnings thresholds, and to support “strategically-important” sectors, though in their manifesto there is little discussion about what system will replace freedom of movement.

The danger is that until more is known about our future migration system, firms will put off hard, but necessary, decisions around investment and staffing, which could have a serious impact on the UK economy. Breaking up may be hard to do, but now is the right time to start explaining what life after the divorce will look like.