The dust has settled on the bombshell that is Brexit. After two years of chaos and calamity, a post-EU Britain is beginning to take shape. The long, agonising process of legislative attrition between Westminster and Brussels is beginning to subside and practical negotiations are getting underway.
However, it still looks as if annexing Britain from Europe with a giant saw might be easier than striking a mutually beneficial bargain. Debate around the “divorce bill”, seems to have all the emotional trauma of a genuine divorce, complete with Mother Theresa and Father Junckers.
The negotiations are stuck in a quagmire, far deeper and murkier than anyone had previously thought: the Irish Border, exit fees, trade agreements/alignments, as well as a complete rewriting of thousands of different policies.
It’s the biggest constitutional change Britain has seen since, well, joining the European Communities (E.C) back in 1973. The immensity of which is reflected by the extra £2bn being spent on readying the UK diplomatic and civil services.
Personal politics aside, Brexit will bring about cataclysmic changes to the UK labour market. The impact of which will be felt first and foremost in the make-up of the British workforce. This ebook will explore the ramifications of Britain’s divorce from the European Union, outlining the steps HR and people leaders need to take to attract, engage and retain employees through the uncertainty.
So far, Brexit has hit the UK economy hard. The pound, though recovered somewhat from its post-Brexit divebomb, is still noticeably weak against both the dollar and the euro.
The impact of this is complicated. While it can boost some areas of the economy it can set others into decline, so it’s best to look at the economy with a holistic metric. That of GDP.
GDP is a litmus test for the state of an economy. If it’s on the up, a country is doing well, and will attract workers, businesses and foreign investment. However, if it’s in decline for over two quarters, a country is officially deemed in a “recession”.
Unfortunately, the UK’s GDP isn’t looking so good. In fact, it hasn’t been this slow since 2008. We’re currently bleeding around £300m per week in depressed economic activity.
The office for national statistics’ (ONS) predictions are cautiously conservative. Over the next five years our GDP will slip down to 1.3% growth, and will only recover to 1.6% in 2022 – nowhere near our pre-financial crash average of 2%
This contextualises the immediate aftermath of Brexit for the UK economy. The cause and effect of a contracting GDP is instability and could result in a reduction of Foreign Direct Investment.
“Why is FDI a big deal?” You might ask. Well according to an LSE report, foreign direct investment accounts for a whopping £1tn of UK assets. More importantly, 50% of this comes from EU investors
FDI is basically a vote of confidence in the UK economy and as such encourages growth, drives output and increases real wages. A report that studied 73 countries found that increases in FDI have a largely positive impact on GDP growth, especially for countries like the UK that have a highly developed financial sector.
The prevalence of FDI in the UK market, (particularly in the City) has given Britain its edge in the financial services industry. As of 2017, London was ranked as the number one global financial centre in the word, beating the other contenders of New York, Zurich and Tokyo. To put it into numbers, a fifth of all global banking happens in London, with some 250 banks operating within the City .
Academics across the board agree that Brexit will have an impact on FDI, the reasons being:
As previously stated, GDP and FDI are interlinked. A hit on either slows down growth and consequently production. These conditions can impact the reliability of migrant workforces.
Foreign nationals can be precarious workers and are dependent on strong economic conditions. Since the mid-90s Britain has been a hotspot for immigration, due to its booming economy. However now that wages have stagnated and the economy has slowed, migrant interest in Britain has started to fall.
Net migration from the EU is now down by 28,000. The vast majority of which are from the EU15, meaning a dramatic decrease in educated foreign nationals. However, there is also a significant reduction in immigration from the EU ; the Central and Eastern European players that account for a hefty chunk of our manual labour and agricultural workforce.
Conversely British emigration has surged, increasing this year by 28,000. This is a clear indication that residents of the UK are losing faith in the job market. Instead attention has turned to the countries with strong currencies and fast-growing economies, such as Scandinavia, or the other Western-European economic forces like Germany and France.
The impact is hard to predict at this stage, particularly as Britain has seen a spike in real wages (wages in relation to inflation) over the past few months. However, it‘s important to remember that nothing has actually changed yet: Britain is still operating as an active part of the EU. To get a sense of what the likely outcome is, here are a few ballpark estimates from our top institutions:
This is still only speculation, however it is as close as we can get to an empirical estimation of a Brexit Britain. And for many the outlook isn’t much to write home about.
Now we have dealt with the numbers, it’s time to turn to the challenges facing HR and business leaders.
Article 50 has been triggered. The pin has been pulled on the Brexit grenade and we’re now in a countdown that ends on 29 March 2019.
The official exit date looms and yet very little with regards to to the labour market has been set in stone – this is essentially the difference between a deal or no-deal exit.
A cliff-edge Brexit is unlikely but not impossible, so there is the further complication of having no hard and fast lines on what migration is going to look like come March 2019. It all depends on how aligned we decide to be on trade with Europe.
Consequently employers have very little time and information to work with when it comes to any sort of strategic planning.
We have already gone through another – though far smaller – paradigm change in legislation this summer: that of GDPR (General Data Protection Rights). One of the areas GDPR is tackling is the type of data you’re lawfully allowed to request and retain from your employees.
This means collecting data on demographics, such as country of origin, both from within and out of your company is a lot trickier.
This links back to GDP and FDI. With the Brexit uncertainty comes a reduction in investment and output. The first thing this will impact is real wages.
Inflation is rising as we speak which has, in part, benefited UK exports. This coupled with low unemployment has actually produced a spike in real wages. However, inflation is predicted to continue rising ahead of wages. This will reduce the spending power of the British public and (most importantly) deter migrant workers from the UK.
The very nature of Brexit demands a restriction in migration. The government’s stance looks conclusively against remaining in the single market and therefore against free movement of labour.
his will impact two main areas. The first is specialist fields such as finance and medicine, where Britain relies heavily on specialists from the EU 15. The second is low-wage labour. Industries such as manufacturing, hospitality and agriculture, in which Britain is heavily dependent on the EU countries, will be drastically impacted by the reductions in net migration.
Employment law is another grey area. It still remains uncertain how the government postBrexit will look to revise the existing legislation.
There are varying degrees of severity, in terms of the government’s approach. If the primary legislation of the European Communities Act (1972) was repealed, then the skeleton around which most of our current regulations have been built, would collapse. The result would be a rewriting of all employment law over the past 45 years.
However CIPD’s Head of Public Policy Ben Wilmott believes: “There is no appetite for a bonfire of EU regulations… the prime minister has indicated that employment rights will be protected… and actually employers are mostly in favour of recent EU legislation, such as the equality act and rights for individuals with protected characteristics.” So it seems likely that there will be a ‘broad consensus’ with Europe on most employment law.
This is not to say that "secondary" regulations haven't the potential to change. Laws enforcing working hours, holiday and holiday pay might come under scrutiny, as they are seen already as controversial. Transfer of Undertaking (Protection of Employment), or TUPE as it’s known, is an area that might be revised, owing to its complexity and Ben believes: “There may be a way to simplify TUPE that makes it a little more employer-friendly”.
The list above affects almost any business operating in the UK at the minute. However, while there are challenges aplenty, the situation isn’t terminal. In fact, there are a number of measures that HR departments and employers can take to help minimise Brexit’s impact. We caught up with some of the country’s biggest and best-known firms to see how they’re coping with Brexit, and learn about the strategies they have in place.
Agriculture and manufacturing are both sectors that are heavily reliant on migrant labour. With access to these workers diminishing, we caught up with Louisa Hogarty from Noble Foods, to chat about what Brexit means for them:
Noble Foods is a group with about £600m turnover and 1800 employees. The group is split into a number of business units. First and foremost, it is the UK’s leading supplier of fresh eggs to retailers. Alongside this, Noble Foods operate a number of different facets of the egg supply chain.
One of the biggest challenges Noble Foods are facing with Brexit is a diminished labour market. In most of their divisions, they are heavily reliant on European labour - Eastern European labour in particular - and have noticed increases in turnover of late:
“Occupationally, [Noble Foods is] quite a diverse place to work,” says Louisa. “However, in all divisions, the front line operational roles are where we struggling to remain competitive. It’s an issue predominantly informed by inflated wage-costs as a result of Brexit.”
Competing for a company like Noble Foods this is not a straightforward issue. Big multinationals have the resources to remain attractive simply through pay rises and can price smaller manufacturers out of the market when it comes to low-skill labour jobs. To tackle this Noble Foods has piloted an initiative, dubbed ‘one-percents’. The idea being that as a company, Noble Foods try to add value in terms of additional benefits to their employees:
Another titan UK industry that relies on migrant workers is retail. Of the 2.9 million workers in the sector 8 , 6% are from the EU. 6% are from the EU.
In order to understand the situation retail faces, we sat down with retailer Levi-Strauss & Co’s HRBP director for North Europe, Caren Ibn-Ayoub.
It’s important for Levi Strauss & Co to exercise caution. For an international company whose European HQ is in Brussels, they want to avoid making any speculative decisions:
“The main challenge is the uncertainty and not knowing what you do not know,” explains Caren. “Until there is an agreement between the UK and other EU countries – or elsewhere for that matter – you do not know what you are dealing with. At the moment it is predominantly speculation.”
Workstreams is a new Levi initiative intended to address the key issues relating to Brexit, through a series of task-forces. Each workstream has a distinct focus, such as HR and people, global trade, supply planning, sales and commercial, and tax and finance:
There has been a focus on the negative aspects of Brexit However, for Caren “it’s important to understand what positives could come from the situation, for example increased tourism.” Moreover, from a Levi perspective, nothing to do with Brexit has affected them negatively, so there’s no cause for despair yet.
According to Caren: “HR departments need to consider what different workforce planning tools are available to them.”
Workforce planning tools can be defined as modelling employees, creating objectives and establishing any gaps you have in your workforce.
In the case of Brexit, they might be utilised to map out the presence of EU workers and the volume of travel by our employee in and out of the UK: “We employ a diverse workforce including a lot of non-UK workers,” explains Caren. “We do not know if there will be restrictions put on any worker groups from Europe and/or whether this will require a visa.”
“In essence I think employers have to get the balance right between thinking and planning for Brexit and not overdoing, ” warns Caren. “. You could spend a lot of time creating strategy that is not needed or warranted as the situation did not play out as you speculated.”
Hospitality is perhaps the most noticeably reliant industry on EU workers. From hotels to fast-food chains, migrant workers make up a sizable chunk of the service industry.
To shed some light on how this might change, we grabbed a moment with Gary Griffiths, HR business partner at Wasabi, to chat about the pressing issues within hospitality.
It seems almost guaranteed now that there will be a restriction of the talent pool. Organisations that haven’t been forward-thinking will struggle with the immediate shortages Brexit will bring.
“It’s going to come down to the way organisations engage with their employees, " explains Gary. “They need to start a dialogue to let people know what kind of support they’re going to receive.”
For Wasabi, Brexit hasn’t had any impact to date. Its European contingent of workers are well established in the UK and so far has remained fairly undisturbed: “For many people in our workforce, it’s simply a case of “wait and see”... other organisations in different industries, such as financial services, possibly have found it a bit more difficult. However, in food and beverage or quick service-retail we haven’t felt that pinch yet.”
Gary argues that the first step will always be centered on data: “A lot of businesses have a HCM (human capital management) in place but it doesn’t really give them the ability to have a look at their data to see who is working in their workforce. If you cannot determine what your employee demographic is then you’re immediately on the back foot.”
But it’s more than just crunching numbers, Gary explains. It will also come down to how you handle your people:
Retargeting your EVP (employee value proposition) was another must-do for Gary: “As the talent pool shrinks, the point of difference will be the experience that you’re able to create for your workforce. In order to retain your workforce, you need compelling employee value proposition and you need to be mindful of what other competitors in your industry are doing.”
So, what does Gary believe the immediate next steps are? Well for him, that’s the million-dollar question and is dependent on what the likely outcomes may be: “I have had discussions with people in the past who ask: ‘why do any planning at this point when you don’t know what will happen?
"The best advice that I would give is that, as a business, model different scenarios and plan for the different eventualities. That could include financial modelling as well for things like visa quotas. If we are going to need to invest in diversifying our talent pool, what different recruitment avenues are available? "It’s not about having a crystal ball. Ultimately, it’s going to be one of a few different outcomes that will be the reality for UK businesses…”
It might sound abstract but data will be the most useful weapon in your arsenal post-Brexit. Self-evaluation is the easiest way to inform your next steps and to do this you need to be crystal clear on the demographics of your company.
For the time being, this means tackling GDPR reforms head on. You need to ensure that your data is squeaky clean and consensual. Following on from this, it would be a good idea to organise a focus group, tasked with analysing your workforce to inform a ‘way forward’ initiative.
There may also be a sense of uncertainty regarding job security among your employees – both migrant and terrestrial. So, it’s important to have open and transparent conversations with them about where the company is headed and how it plans to brave the storm. Ensure your employees know how you will adapt to the changes in circumstance, what positive steps you’re taking to make this transition a success, and finally what you have done to ensure their immediate futures are secure. Having a visible strategy in place will help restore confidence in both your investors and your employees.
Once you’ve analysed your data, you need to put it to use. Start devising a number of contingency plans that take into account the various different outcomes of Brexit negotiations. if a customs union is agreed, will it impact your employees? If so, is it a cost you can absorb?
Conversely if there is a hard Brexit, how many of your employees will be impacted? Moreover, how will it impact future employee acquisition? And in this situation is it viable for you as a business to sponsor visas?
This is a big one. Investing in an attractive EVP will allow you to recruit more efficiently in a restricted talent pool. In essence, an EVP is what you offer your employees in terms on benefits- what it means to work at your company.
When designing an EVP, bear in mind you’re trying to convey the company culture. What is it like to work in your workplace. What makes you a great place to work? If you can’t answer these questions, then it’s time you had a meeting with management to discuss why you haven’t yet defined your company culture.
Having a well-crafted EVP is at the heart of stemming employee turnover and, considering the diminishing labour market, it should be a top priority.
This brings us onto Noble Food’s ‘one-percents’ initiative – essentially benefits on top of salary. How can you add value to the package you offer employees? If you’re an employer of low-wage workers, you might soon (considering the predicted fall in real wages) face a crisis in employee attraction. And with big multinational chains often acting as your competitor for labour, having a comprehensive benefits package could save your business in the coming years.
Even if you deal with skilled workers and have a sizable budget, this still should be a consideration, particularly if you’re in the business of attracting and retaining young talent. For many now entering the workplace, salary is just one aspect of what it means to be fulfilled at work. Having access to healthcare plans, well-being programs and gym memberships are all seen as desirable accompaniments in a job description.
Across the board, a restricted talent pool seems to be employers’ greatest concern. Unemployment is down to 4.3%, the lowest it’s been since 1973, and employers are already claiming they cannot fill vacancies.
With the government looking to cut migration to the tens of thousands, it’s imperative that employers move away from traditional means of recruitment. So how do you widen the net?
Investing in flexible, part-time, or regional working schemes is one way to bring many demographics back into the job market. Incorporating gig workers for certain tasks within your business could also prove useful, particularly for jobs such as scripting, design or content.
Moreover, start nurturing your current workforce. Train them, educate them and promote them.
Try to work some positive threads through your Brexit strategy. Can you see any opportunities here for lateral growth? How can you fill the gaps that might be left? And perhaps most importantly, what will your company do to establish itself ahead of competitors? This isn’t a time for despair but action: there’s a lot to be getting on with.
Focusing on future prospects will not only help ease office tensions but might also stimulate a culture of innovation and productivity within your workforce.
The challenges of a transition period are very real– but so too are the solutions.
What has been revealed in this paper is that firstly, everyone is in the same boat. Even our business giants are none the wiser as to what our economic future will look like. Consequently there is only so much that can be predicted at this stage. Everyone, including our own government is in the dark.
Over the coming months, parliament will begin setting out a clear, cohesive proposal to the EU. Once the details of this are finalised, it will be possible to create concrete counter-strategies. However until then your first priority should be to keep your options open. Gear up your focus groups, collect your data and set out broad strategies but wait till you hear the gunshot.
The second is that competition is ramping up for labour. The fact that unemployment is record lows is ultimately a good thing, however it needs to be managed properly, this means investing in the advancement of existing employees.
The third is it’s all about data. Call it what you will: workforce planning tools, clean data, demographics, you need to know who your workforce is and how to protect it.
Finally, there is a general point that runs through the whole of this paper: the better you are as an employer, the easier Brexit will be. If you can stand out from the crowd, you will always attract the very best talent.