Brexit end of free movement causing labour shortage ‘shock’ but not wage growth, government advisers warn

Ending EU free movement has caused a “shock” to Britain’s labour market and left pay growth weak, the government’s migration advisers have said.

In its annual report, the Migration Advisory Committee (MAC) said the government had “no coherent, overarching strategy” for dealing with labour shortages hitting the economy.

The report by the government committee found wage growth in sectors most reliant on EU labour before Brexit actually lagged behind the growth in wages across the rest of the economy.

Hospitality, agriculture, logistics, and manufacturing all lagged UK median pay growth despite posting large numbers of vacancies and being reliant on EU workers.

The committee said the data illustrated “that high vacancies do not translate into higher wages automatically” and that it was “unrealistic” to expect pay to increase permanently without raising prices or increasing productivity.

“The ending of freedom of movement constituted a labour supply shock to the UK economy, particularly for the sectors most reliant on EEA-born workers,” the committee’s report says.

It said the point at which the Brexit labour shortages had hit had been exacerbated by the Covid-19 pandemic because it encouraged workers with settled status to move home.

The committee said some employers might try to attract new workers by raising wages, but that there were “high barriers to doing so”, in that “these sectors may not have been traditionally attractive to domestic workers and employers may face more intense competition with each other over a relatively fixed pool of labour”.

In some sectors there would be a “relative decline” in work with less being produced due to the lack of available workers, they said.

But the committee warned against introducing new visa routes for low-wage workers for particular sectors, arguing that this could have “unintended consequences” and lead to exploitation.

Elsewhere in the report the committee detailed how visas tied to particular jobs could carry a high risk of exploitation by creating “dependency” on an employer

Instead, the government should simply accept that some jobs were no longer “economically viable”, it argued.

“Without freedom of movement, many of these jobs may not have existed and may cease to exist in the future – and the period of adjustment to new labour market conditions may be difficult. This is not necessarily a negative development, and there is no obvious reason most private sector industries need to be a particular size,” they said.

“In the context of soaring vacancies but consistently high economic inactivity and a looming recession, the MAC believes that the government should resist calls to open new visa routes without a strong economic rationale and in effect undo the end of FoM [freedom of movement] on a sectoral basis.

“Low-wage worker routes have significant unintended consequences, and we are not confident that the government will be in a position to prevent exploitation of migrant workers whose visa ties them to low-wage jobs.”

It added: “It is disappointing that there is a lack of joined-up thinking across government, in cooperation with the private sector, on how to proactively manage and address shortages in the labour market.

“There is no coherent, overarching strategy for skills and employment that draws on public and private sector actors to facilitate a robust skills infrastructure, enable employers to improve pay and conditions and automate where appropriate, and encourage inactive workers into employment.”

Last month chancellor Jeremy Hunt accepted that labour shortages were a major problem for the UK economy “creating constraints for businesses that are finding they can't employ the people they need”.

Labour shortages have caused major disruptions across sectors in the last two years, with petrol pumps running dry because of a lack of tanker drivers, delays at airports due to a lack of baggage handlers, and buses cancelled due to a lack of drivers.

Fruit and vegetables have also been left to rot in fields because of a lack of pickers, a job previously done by seasonal labour from abroad.