Brexit and the Labour Market (Economic Affairs Committee Report) - Motion to Take Note

Part of the debate – in the House of Lords at 12:35 pm on 8th February 2018.

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Photo of Lord Burns Lord Burns Chair, Lord Speaker's committee on the size of the House 12:35 pm, 8th February 2018

My Lords, I too am grateful to the noble Lord, Lord Forsyth, for securing and introducing this debate, and to the noble Lord, Lord Hollick, who chaired the committee during much of our deliberation on this sensitive issue.

The UK labour market we see today is the result of adapting over many years to membership of the EU; we must not underestimate that. The emergence of the single market, the expansion of the EU to 28 countries and the increased rate of migration from the enlarged EU to the UK have all contributed to this. Such forces are evident in businesses that have flourished but also in those that have suffered—certainly, we can see it in the growth of certain industries where integrated supply chains are important; for example, the car industry. In other industries and services it is less evident, but we can see effects both positive and negative.

We have also seen a significant increase in the size of the UK population over this period, with increased demand for many services in both private and public sectors. Of course, the increased rate of migration to the UK has brought us workers who have filled many of the vacancies generated by such developments. One extremely welcome development is that increased migration has not created an unemployment problem, as many feared it might—the total number of people in work has risen and unemployment remains at very low levels.

The committee looked at a number of the impacts of this, although in many cases the evidence was really quite sketchy. We looked at whether wage levels in established activities had been held down. The evidence there was that it was possible, but the likelihood was that it was less than was often claimed. In other areas, migrant labour may have been willing to work for lower wages than would UK nationals and in the process have generated a new market for new kinds of services. As a consequence, in addition to increased migration of highly skilled workers, we have seen a sharp increase in the number of certain types of lower-skilled, lower-productivity services, particularly in the hospitality sector but also elsewhere, a development which might well have had some impact on reducing the average levels of productivity in the economy.

In some other areas—for example, agriculture—it was pointed out that production may have continued, supported by low-paid workers, when otherwise the products might have been imported rather than be produced in this country. It was also suggested to us in evidence that the inflow of trained staff from the EU in some industries and companies may have meant less pressure on those industries to train additional staff in this country, and that it was having a significant impact.

We then turned our attention to the issue of how easy it would be following Brexit to unwind and possibly put into reverse such incentives, which have now been generated over a long period, and whether it could be done quickly and without considerable dislocation. The general view of the committee was that there were indeed many problems with anything that attempted to make us adjust too rapidly.

I support the view that it is impossible at this point to be precise about these forces or how quickly the labour market can adjust to life outside the EU. Now that it has been agreed that EU nationals currently in the UK will retain their right to remain here, some of the concern has been lifted, but in other areas there are still great uncertainties and there could be difficulties, as previous speakers have mentioned. Many of those sectors most reliant on EU nationals tend to be classed as lower-skilled, and there may a temptation to seek to design an immigration policy based on attracting the brightest and the best. The committee came to the conclusion that any new immigration system should not make an arbitrary distinction between high-skilled and low-skilled work; we should recognise that non-graduate skilled migrants might be just as important during the adjustment phase as so-called skilled workers.

The second problem is that many of the industries employing low-skilled workers experience very high rates of turnover. An either over-rigid or bureaucratic system of control will leave them in substantial difficulty. Just as the economy has adapted to the increased flow of migrant labour, it is possible to envisage that over time it would be capable of responding to a reduction in the flow: I do not want to be too pessimistic about that. Of course, not all the ways in which the economy will adapt will necessarily be welcome to everyone and in some respects it will require adjustments to government policy. We may see increasing pay and prices to the consumer in some sectors, which in turn will affect the demand for their products. Government will have to adapt. As speakers have pointed out, better training and retraining of the domestic workforce, particularly a better system of technical education, becomes even more urgent to provide some of the skills the economy requires.

The noble Lords, Lord Forsyth and Lord Darling, mentioned that our committee is now examining some of these issues. So far, what we have learned has not been encouraging: that is probably the best I can say. In a number of areas there will have to be substantial changes if we are to have a labour force capable of taking these challenges on. I was pleased to read in the Government’s response a recognition that this process of adjustment will take time: I hope that they really mean that. They have also agreed that shifting to a high-skill, high-productivity economy is important and that people should have access to training throughout their working lives. These are also things that are going to be important.

We have to be very cautious about the mechanisms that we use to seek to bring greater control over migration to the UK. I do not object too much to the notion that we should have a view about the sustainable rate of net migration. That seems a very sensible way to approach this policy, but the committee was very strongly of the view that any strict targets for numbers, particularly on a yearly basis, will quickly run into trouble and will probably be impossible to deliver. Like the noble Lord, Lord Forsyth, I am somewhat comforted by the language in the Government’s response of a “net migration commitment” rather than a target. I would be grateful if the Minister confirmed this in her response.

One issue on which the committee came to an early agreement was that of reliable information. We have heard a number of speeches refer to this today. We were all very strongly of the view that a sensible migration policy will require much better statistics about those entering the country, those leaving and the total number of temporary migrants working here. The noble Lord, Lord Forsyth, dealt with this in detail and I will say only that I agree with him. I hope that people become much more aware of this problem as we come to the implementation of a net migration policy. The information we investigated clearly does not deliver this at the moment. The Government have responded and argued that the Home Office is already working with the ONS to develop better exit data and to improve the quality of data, but we cannot stress too strongly that the problems in attempting to design and implement an immigration policy in the absence of much more reliable data will be extraordinarily difficult. A number of us are still somewhat cautious, having seen what can be described only as the relatively lukewarm response of the Government in terms of the urgency of this issue.

Finally, whether students should be included in net migration figures has aroused a lot of debate. The committee came to the view that students should not be included in any short-term migration figures, for public policy purposes. I still support this recommendation; however, I note that it would be necessary only if the Government were tempted to put limits on the number of students able to study in the UK in order to reach the short-term net migration target, or if they sought to make it much more difficult for those wishing to remain in the UK for a period after completing their studies. I was given some hope from the Government’s response that this is not their intention. It insists:

“There is no limit on the number of genuine international students who can come to study in the UK and the Government has been clear that it has no intention of imposing such a limit”.

Can the Minister confirm that that this means that no limits will be introduced, even in circumstances where the Government are having difficulty achieving their overall net migration objectives?

There is a slightly more threatening phrase afterwards in the response:

“so long as students go home at the end of their studies, it is perfectly possible to increase the number of international students in the UK without adding to net migration”.

My concern here is twofold. First, we have no accurate measure of whether students go home at the end of their study and, secondly, it can often be of considerable benefit to the economy for graduates to remain here after their period of study. If the Minister can confirm that the only reason the Government do not accept our conclusion that students should be excluded from the figures for the purposes of public policy is that they believe it is not necessary, universities can put to rest their fears that this might have an impact on the number of genuine international students having access to our universities.