The skills shortage and Brexit. Turning a crisis into a catastrophe.

Brexit is a difficult topic for Britain at the moment. As a citizen with nationality of both the UK and another EU nation I’ve not really got much of a dog in this particular race, though I do worry what will become of the UK post-Brexit. In any case, I don’t really want to get into the rights and wrongs of Brexit. This entry will deal only with the human resource and economic problems that Brexit creates and exacerbates, as well as some of the economic theory that pertains to the workforce. I will also point out that this is no longer speculative. The damage of Brexit is being done right now.

For at least a decade there has been some degree of under-investment in education and training in the UK. What do we mean by that? Well when we think of education and training we tend to think of schools, universities, and those government sponsored courses made available for people struggling to find work, all paid for through taxes or tuition fees or some sort of private-public partnerships in the case of apprenticeships, but that’s not the full story. Education and training is something that should take place throughout the entire working life of everyone who works.

Most employers regularly put employees through technical training to ensure legal compliance, and will often skimp a bit on the development side of training to cut costs. In addition to these types of on the job training people constantly need to acquire new skills and knowledge to basically do the same job. The world of work itself changes as the world around us changes. For example, France, the UK, and other countries have announced plans to phase out fossil-fuel cars over the next few decades. People who work in motor vehicle maintenance and repair are going to have to learn how to work with electrical engines as a result. But for various reasons, which I’ll get to in a minute, the UK doesn’t have as strong a culture of training and development as most other modern economies

This isn’t to say that there has been no investment in education in the UK, but there hasn’t been enough. This has created what is often referred to as the skills gap – the gap between what skills UK industries need and what skills are available to them. A lot of this gap has been bridged by immigrants. A common misconception is that immigrant expertise has become widely used because it is a cheaper alternative to investment and training in natives. Whilst that undoubtedly happens, it is not really a significant factor in why there is under-investment in education and training and why immigrants are valued so much by British industry.

The fact is the UK economy mostly consists of dynamic and diverse service industries, which often only plan for the short to medium term and have contracts and projects that are concluded quickly. For example, there is going to be a large return on investment if an Irish pharmaceutical company trains a new generation of chemists, but the return on that investment is going to come years down the line when those chemists produce new drugs. By contrast, Pinewood Studios just didn’t have time to invest in training when they got the contract to produce Star Wars: The Force Awakens, they needed a film production team consisting of a number of people with expertise in puppets and special effects to start immediately. It could be argued that Pinewood Studios should have paid out to train workers in advance, but the fact is they have no real way of knowing what contracts or projects may be coming their way from year to year. They can’t plan far enough ahead to make comprehensive and constant training programs a worthwhile investment.

The bulk of the UK economy consists of such service economies, and economics never operates in isolation. The economic model favouring a dynamic service sector has had a knock-on effect in other UK industries. Take construction. A new financial expansion might need a new office block which needs to be built at short notice. A university expanding its science and research projects might require a set of laboratories designed and constructed quickly with the bulk of the work done over a holiday period. This is one reason the construction industry rely so heavily on EU workers and are so alarmed at the effect Brexit is having within the sector.

This sort of economy, which contrasts with the more structured and planned economic models, such as economies focusing more on manufacture and engineering found in places like Germany, is the main reason millions flock to the UK to sell their trade. Quite simply this economic model creates a necessity for UK companies get the best people possible, immediately, wherever they might come from. Each economic model has its benefits and its drawbacks, and to know which is better you’d need to talk to an economist. But there is no question that a more stable, less dynamic, more regulated economy produces more workers which are trained to a high standard, as training itself is a future investment and planning.

When you look at some of the immigration figures in the UK workforce they are truly staggering. EU migrants make up a huge chunk of the workforce in construction, nursing, engineering, science, and agriculture. All of these industries are not just businesses, but vital components of a functioning country. And all these industries face a potentially crippling loss of manpower should EU migration be stopped. And in some of these industries the effects of the Brexit referendum already being felt right now as Britain is seen as as a less welcoming place to go and work.

The lack of manpower in some sectors represents another, less obvious threat to UK industry, as many service industries themselves can easily migrate to another country. We’ve seen this happening already, as some fintech companies are beginning to make preparations to leave. These are currently being done with a view to retaining financial passporting rights, but where people need to travel and hire with minimum restrictions it is very possible that such service sectors could move some or all of their operations overseas. Hostility towards immigration also makes UK companies less competitive. The education industry, our universities, take millions every year from overseas students. Trying to prevent students from studying here will see many of them go to Ireland, Germany, France, or the United States instead, depriving our education sector of funds and meaning even less investment in training, making these issues even worse.

With businesses making waves about of the government stance on immigration one might think that the previously business-friendly Conservative party would be moderating their outlook somewhat. But a document was leaked to The Guardian which spelled out just how hostile the government is planning to be with immigrant labour. The document was a master class in economic vandalism and could almost have been written by someone intent on sabotaging the nations ability to have a competitive economy.

Fascinatingly, the document contained this little nugget:

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People are people. It suits some to move around a lot and see the world, particularly if young, and many people will be happy with a short term stay of a few years. But others have families, wives, husbands, sons and daughters, who will be considering school and a mortgages. Would a brain surgeon or product designer really want to move to London if he is told he might well be deported after two years, if he knows he can settle for life in Helsinki, Prague, or Madrid? And most businesses recruiting talent of that level do not want cultivate an employee if that employee could be removed from their organisation by the government on a whim.

It gets worse:

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Work is work. If something needs to be done pragmatic and sensible business generally doesn’t care about the gender, race, religion, or nationality of the person doing it, as long as the work gets done. This leaked document appears to make a distinction between work undertaken by immigrants and work undertaken by natives. Make no mistake, this is institutionalized discrimination. A bizarre position that places ideology before the practicalities of international trade and business.

But hold onto your hats ladies and gentlemen, this is about to get even worse:

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This policy, if implemented, delays hiring, it increases the costs of hiring, and limits the pool  you can hire from all at once. It reduces your ability to hire the best people you can find, and instead means that you must consider where someone was born as a factor in whether to hire before their relevant experience or qualifications. In effect this takes an already difficult task of hiring during a skills shortage, and makes it virtually impossible for some roles. There is no way to look at this except as a proposal destructive to the future of business in the UK.

A lot of companies operating in the UK have looked at this in dismay. There will be contingency plans being formulated to deal with this and other effects of Brexit that will cost businesses unnecessary time and money. These costs will be passed on to the end user of the business one way or another.

Another consequence is that Philip Hammond’s threat to turn the UK into a free-market, low regulation, low tax, Singapore on the Thames has been rendered completely worthless by this leaked report. These are not the policies of any Conservative or even Labour party of the post-Thatcher era. This is a protectionist policy of a pre-1980s Labour party. Businesses big and small will be stifled and harmed by this policy. In leaving the single market the government is walking away from the regulatory framework that has created the large market while erecting new regulations which are barriers to employment and therefore international trade with the European Union.

This is all a massive step away from economically sound politics. Economically speaking it takes the worst policies of the left (government interventionism in business and a mistrust in the free-market) and the worst policies of the right (nationalism and an insular mistrust of international trade) and combines them. If having rigid borders is more important to you than economic prosperity – that’s fine. I’m not saying that you shouldn’t be happy with this. But make no mistake, policies such as these will cause immense damage to British industry and economic activity, which will in turn damage prosperity and ultimately degrade the standard of living for the people of the UK.

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