Comment

Britain must pay the price for living off the fruits of cheap EU workers

Strawberry picking
Eastern European workers picking strawberries. The farming industry has relied on their cheap labour Credit: Alamy Stock Photo

There is no better fruit in the world than a ripe, English strawberry. This being my preference, the possibility of a labour shortage brought on by a recovering eurozone and post-Brexit restrictions is probably not in my interests. Despite the complaints by business though, it may well be in Britain’s interests.

Net migration to the UK has now been falling for a year. It fell from an annual rate of 336,000 in the quarter before the Brexit vote to 273,000 in the quarter afterwards and is now down to 230,000. The Brexit hit to Britain’s image for welcoming foreigners might be one small factor in this decline, but the main drivers are rather more prosaic.

They are the sharp fall in the value of sterling, which instantly devalued salaries for anyone exchanging their pay packet into another currency and sending it home, and a long overdue recovery taking hold in the eurozone, which has lured workers away.

The picture is more complex than it looks, because some nationalities of European migration have actually increased since the referendum, perhaps due to a rush to get in before the shutters go down. And even though the net inflow has fallen, it’s still at historically very high levels and the UK is still employing record numbers of both foreign nationals and UK citizens in its growing workforce.

Still, the moaning from business is getting louder. Last autumn, the National Farmers’ Union warned of “serious shortfalls” leading to “serious effects” on farmers that could lead to “serious” knock-on effects on the supply chain. With equal seriousness, the Federation of Master Builders, a trade association for the construction industry, recently declared: “Skills shortages are skyrocketing.” And the British Chambers of Commerce has injected a new note of alarm into its warnings, claiming that labour shortages are at a “critical” level. Code red! Mayday, mayday! Britain’s workers might finally be in for a pay rise!

There is something rather bizarre about these dire warnings, since they come off the back of a period that has seen Britain’s highest immigration seen since the arrival of the Saxons. For 20 years, net immigration has been running at well over 150,000, having previously been under 100,000, if not negative. In recent years it has been over 300,000. British businesses have been experiencing a labour supply boom-time not seen since the agricultural revolution. If this is now slowing somewhat, you might think that they would be able to find ways of coping.

The fact that employers are worried speaks to two things: the UK economy’s extraordinary ability to generate jobs and our extremely poor record at training people with the skills businesses need. Employment is at record levels, but even as the labour force has swelled in size, workplace training, productivity, investment and wages have all stagnated. In other words, our businesses are now reliant on a flow of cheap labour. What they should be doing instead is investing in training the existing workforce and making capital investments in order to do more work with fewer workers.

It should not be a surprise that some of the sectors most anxious about labour supply are also our economy’s least productive. Agriculture and construction are both long overdue major technological advances that would cut the need for so much labour. The problem is that over time, as they have failed to invest, margins have become so tight that investment becomes increasingly impossible. Unfortunately, this means that the reckoning, when it comes, will be deeply painful. Many businesses simply will not be able to adapt to survive. This applies particularly to strawberry-picking, which thus far has proved difficult to mechanise. So I may have to pay more for my punnet in the next few years.

The flip side, however, is that UK workers (both British and foreign) stand to benefit. In December, a Bank of England business survey suggested that labour shortages are finally starting to push wages up, after about a decade of stagnation. Anecdotally, managers I’ve spoken to are reporting a similar phenomenon. They are having to pay up to recruit staff. Given recent trends, that is the way it should be.

It is early days, but this shift also appears to be dragging Britain out of an unusual situation, in which the relationship between employment and wages (the “Phillips curve”, a piece of economic orthodoxy) seemed to have broken down. Policymakers were increasingly at a loss for how to explain or address this shift. Perhaps the answer is that it was temporary.

There is a caveat to this, of course. A massive shock to the labour supply would not be a positive development. Businesses that have become used to relying on cheap workers cannot adapt overnight and it takes time for new technology to develop and be introduced. So the Government needs to manage post-Brexit immigration policy carefully to ensure that the changes are not too sudden. It should also give a break to those businesses that do invest in training their workforce and buying new equipment by more generously discounting taxes against capital investment.

There are also some sectors that will find it much harder to adapt than others. The care industry, for example, relies heavily on cheap labour and will not easily find ways to substitute machines for workers. Such businesses have already been hit by sharp rises to the minimum wages and enormous local government funding cuts, which has driven down care standards and pushed many firms over the edge. The Government’s whole approach to care needs an overhaul and labour supply and quality should be one factor near the top of the list.

It is understandable for businesses to be anxious about the prospect of sudden, unmanageable changes. But managers should also recognise that labour supply has been on a tear in recent years. It is workers’ turn to get their slice of the pie.

License this content