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Will Brexit Impact the Cleaning Industry?

The Brexit is going to bring domestic changes to the UK cleaning business and the industry overall may be impacted in different ways. On 19 December 2018, the UK government published a white paper in preparation for Brexit scheduled for 29 March 2019. The white paper outlined the plans to end the free movement and introduce a new single immigration system.

According to Migration Advisory Committee (MAC), 40% of the EEA nationals living in the UK are self-employed. One-third of these workers are depended on the trad and occupations related to construction and building traders; cleaners and domestics; carpenters and joiners; elementary construction occupations; and painters and decorators.
Source: Migration Advisory Committee (September 2017), ‘EEA migration in the UK: Final report’; paragraph 1.48

The MAC report makes clear that while the micro impacts of migration are important to individual businesses and the migrants themselves and that some businesses and sectors have clearly benefitted from migration, the aggregate positive economic impacts at the macro level are small and not significant, compared with other factors affecting economic performance.

In the UK, there are some 5.7m small and medium-sized enterprises, which account for over 99% of private sector firms and 60% of the total UK private sector employment. Small business such as cleaning industry also accounts for 73% of all net private sector job creation in the UK, creating about 2m jobs since 2010. Therefore, how small business responds to the uncertainty arising from Brexit has significant implications for the economy.

The MAC recommended there should be no dedicated migration route for skills below the NQF3 level (low skilled and unskilled), other than through the Youth Mobility scheme and possibly through a seasonal agricultural workers scheme. The Government accepts the thrust of the MAC’s analysis and recommendations, though there will, on a transitional basis, be a short-term workers route.

Impact on Low Skilled Occupations Such as Cleaners

Our discussion of behavioural impacts so far has focused on occupations eligible for the skilled route in terms of a skill level above RQF3. However, we estimate around 55 per cent100 of resident EEA migrants work within occupations with a skill level below RQF3 and therefore long-term inflows to these occupations would not be eligible for the skilled workers’ route.

This does not necessarily mean there will be no migrant inflows to these occupations; employers would be able to employ lower-skilled workers coming under temporary work routes, dependants of UK or other migrants with valid leave to remain in the UK or students working part-time. It is uncertain how many EEA or non-EEA nationals may choose to supply labour under these routes or how demand for low skilled non-UK national labour may respond in light of other changes to migration policy for work.

As with skilled occupations, we would expect to see labour market adjustments to policy changes. Using the same three indicators (as above), we have identified lower skilled occupations of particular importance, either due to recent reliance on long-term EEA employment, high wages or contributions to public services or those that may face adjustment difficulties.

Nine lower skilled occupations are identified as potentially facing difficulties adjusting to policy changes, either due to potential difficulties attracting labour from other sources or in substituting capital for labour by automating.

Three of these occupations also have relatively high wages, such as construction and building trade supervisors or contribute extensively to key public services such as childcare personal services.

Two occupations (road transport drivers and other services occupations) have been particularly reliant on long-term EEA labour over recent years. Carers are identified as providing a contribution to key public services, which are heavily reliant on long-term EEA migrant labour in recent years.

Labour market impacts

Different employers, occupations or sectors may be able to make use of temporary workers to different degrees, depending on how business models can flex to accommodate additional shorter-term employees. It is uncertain which particular occupations or sectors affected by proposals under the skilled worker route may be more or less likely to look to temporary workers as part of a mitigation strategy.

In the short-term, at the very least should these routes should offer a route for employers to maintain access to some migrant labour outside of the skilled worker route, and to continue activity making use of this labour. Routes without sponsorship may mean movement between roles in the labour market could be relatively frictionless for these workers. As those who come through a YMS route do not necessarily for work, it is unclear how far employers may benefit from increased labour supply through expansion of that route.

Regional impacts

There will be geographical variation in the impacts of the policy proposals. How different English regions and Devolved Administrations are affected will depend on the size of the area’s EEA workforce and geographical differences in occupational mix and earnings.

London is the region in which most EEA residents in employment work, as a result, it is the region most affected in terms of the volume of EEA workers restricted – around 32 per cent of inflows affected are estimated to work in London. However, higher wages within this area also mean a smaller proportion of the inflows are affected compared to other parts of England and the Devolved Administrations with lower average earnings. The estimated impact of changes to EEA long-term worker inflows for different English regions and the Devolved Administrations of Scotland, Wales and Northern Ireland.

Labour market functionality

The impact of the policy proposals on how the labour market functions are mixed. Labour market flexibility would be expected to be reduced for EEA nationals who require a sponsor and to meet salary and skill thresholds to qualify under the skilled worker route – where the ability to move between roles and for labour to move freely into any vacancy may be expected to reduce.

Abolishing the resident labour market test will reduce burdens on employers looking to hire non-EEA migrants to fill skilled vacancies and can be expected to reduce the cost of hiring skilled non-EEA nationals. Allowing non-EEA nationals to work in medium-skilled occupations could improve the efficiency of matching between workers and jobs and increase the potential labour supply for some employers.

Framework for assessing the impact of migration policy

Migrants play an important role in the economy. The impact of proposals that affect the number of migrants coming to, or leaving, the UK will be dependent on which migrants are in scope; their characteristics such as their age, income, health and wealth; and the nature of any proposal (for example, who may come to the UK and what they do whilst here).

These factors combine to determine the size of the impact on the UK economy. We assess these impacts on the resident population and UK the economy under the following broad categories:

– Macroeconomic impacts (for example, economic output, economic output per head, and the impact on the Exchequer);
– Labour market outcomes (for example, the ability of firms to hire migrant workers);
– Spill-over impacts on resident population (for example, cultural exchange or congestion/inflation impacts in local areas); and
– Policy design impacts on users of the system (individuals, businesses and the Government).

Some of these categories are interrelated, such as the link between labour market outcomes and macroeconomic impacts, while some are harder to quantify than others, such as the spill-over impacts of ‘cultural exchange’.

To assess the impact of future policy proposals, we use an analytical framework. We begin by considering a counterfactual (‘baseline’) against which policy options can be assessed – estimating migrant flows that may be seen in the absence of any policy intervention. Building on this ‘baseline’, we model policy proposals to estimate how migrant flows may change as a result. These results are then compared to our counterfactual to assess the population impact, which is the basis for estimating the wider economic impacts. These principles apply both to where impacts can be, and cannot be, quantified.

Uncertainty

This analysis should be considered in the context of the wider economy and the labour market is dynamic and continually adapting to an evolving environment. Factors like staff availability and skills, the relative cost of capital and labour, tariffs and supply chains can all change over time and respond to market signals.

The economy in which businesses operate is always subject to changes and shifts in trends, and the UK’s exit from the EU and changes to migration policy are part of that, alongside changes in the UK’s demography, or technical and wider societal changes.

Behavioural impacts

The analysis presented above identifies the initial impact of potential policy changes. It assumes that migrants who meet the assumed skill and salary thresholds will
continue to come to the UK and does not consider any behavioural response in response to a stricter migration system or increased administrative burdens.

It also makes no assumption for potential behavioural responses of employers and market adjustment. The labour market is dynamic and, as with any change in environment, we would expect markets to adjust and reallocate resources to their most productive use – at least in sectors where output and wages are primarily governed by market forces.

How employers choose to adjust and the relative ease with which this can be done will depend on the specific characteristics of occupation (in particular, whether it is governed predominately by market forces) as well as wider economic factors.

The profile and length of time taken to adjust and reallocate resources can vary, and it is expected that employers’ responses will vary in terms of how what or whether they continue to provide goods and services. The economic impacts of these responses are not included within the costs discussed in sections above.

Employer and administrative impacts

A number of potential policy changes will have an impact on employers and the administration of the new scheme.

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