Brexit report - Controlled immigration likely to mean automation investment in UK

Derek du Preez Profile picture for user ddpreez July 20, 2017
A House of Lords report suggests that controlled immigration after Brexit will result in firms replacing cheap labour with automation investments.

Controlled immigration from the European Union after Brexit will likely mean that UK firms will seek to replace cheap, skilled labour with increased investments in automation and technology, according to the House of Lords Economic Affairs Committee.

A report released this week by the Committee also suggests that free-flowing migration from the European Union has likely resulted in UK firms under-investing in technical training in recent years, which could mean a skills gap that needs to be plugged in the coming years, once the UK gains control of its borders and restricts incoming labour.

Following the UK’s departure from the European Union controls will be imposed on the movement of workers from the EU to the UK. The government is committed to a long-term objective to reduce net migration to the tens of thousands (net migration from the EU was 133,000 in 2016).

The Economic Affairs Committee states that this objective “runs the risk of causing disruption to businesses and the economy”.

Commenting on the report, Lord Forsyth of Drumlean, Economic Affairs Committee Chairman, said:

The Government must have reliable statistics on migration before it formulates new policy, otherwise it will be making crucial decisions - of vital importance to the country's businesses - in the dark.

It will take companies time to adapt their business models to be less dependent on EU workers and an implementation period is essential to ensure a smooth transition.

Businesses will have to accept that immigration from the European Union is going to reduce and adapt accordingly. Some firms will need to raise wages to attract domestic workers. In other sectors, where migrant workers may not easily be replaced by domestic workers, firms will need to change their business models or increase capital investment in automated processes. All these options may lead to higher prices for consumers.

The Committee's 2008 report on immigration warned that the employment of migrant workers could lead to businesses neglecting skills and training for British workers. As the recruitment and retention problem in the nursing sector highlights, these fears have been realised and training for the domestic workforce needs urgently to be given a higher priority.

Investing in STEM skills

The UK’s STEM skills gap has been widely reported and has been a topic of discussion for government policy for many years now. However, the Lords report this week interestingly suggests that the lack of investment in STEM skills in recent years could be as a direct result of migration of EU nationals to the UK. It is hoped that the government’s Industrial Strategy will go some way to drive greater investment in STEM skills. The report states:

The Government can help by ensuring that the domestic workforce is trained to offer the skills that businesses need. Our warning in 2008 that the employment of migrant workers could lead to businesses neglecting skills and training for domestic workers has proved prescient. The Industrial Strategy needs to develop and fund an effective system of technical and vocational skills training to meet the needs of the economy and the public sector; and to incentivise research and investment in automation.

A number of witnesses raised the problem of skills shortages in the UK, particularly in STEM subjects. EEF said in written evidence that there is a “stubborn” 35 per cent of jobs in manufacturing that are hard to fill. Tim Thomas [Director of Employment and Skills Policy, Engineering Employers’ Federation UK] said the main reason for this was a “lack of technical skills among the applicants” and in particular a “lack of applicants with basic level skills such as maths and English.

Charlotte Holloway, Policy Director at lobby group techUK, said that government initiatives, such as the introduction of the computing curriculum in schools, will “help the domestic talent pipeline...but it will take a number of years.”

The Minister for Immigration told the Committee it was “absolutely fundamental to this Government’s policies to ensure that we upskill our people to take those jobs and obviate the need to backfill using immigration.”

The Government’s recent industrial strategy acknowledges the UK’s “poor performance in basic and technical skills” and commits to creating “a proper system of technical education, to benefit the half of young people who do not go to university and provide new, better options for those already in the workforce.”

The Economic Affairs Committee said that it welcomes the Industrial Strategy as a “starting point”, but that it “needs to go further to meet the challenge of retraining the workforce”.

More automation?

The dearth of homegrown technical skills and the potential for a reduced migration from the EU in the future could mean that businesses need to adapt their business models, the Lords report states. This will either mean increasing wages to attract local talent, or increasing investment in automation - but it’s likely to be the latter, the Committee heard. The report states:

Businesses will have to accept that immigration from the EU is going to reduce and adapt accordingly. Many firms that have, quite rationally, adjusted their business models to take advantage of plentiful low-cost labour will need to raise wages to attract domestic workers or increase capital investment in automative processes. Both may lead to higher prices for consumers.

Is we said in our 2008 report on immigration, “ready access to cheap migrant labour may reduce employers’ incentives to consider other options, in particular changing production methods.

However, Dr Martin Ruhs, Associate Professor of Political Economy at the University of Oxford, said that international evidence showed that it was technology that tended to replace migrant workers rather than domestic workers. He said:

It is very hard to find international evidence to show that once an immigration inflow stops and certain types of occupation have become heavily reliant on migrant workers, there is a huge inflow of domestic workers. What we have often seen is that if immigration stops, jobs are mechanised or rationalised away. Technology takes over.

Equally, Stephen Clarke, Research and Policy Analyst, The Resolution Foundation said that recent surveys by the Chartered Institute of Professional Development showed that fewer businesses were talking about looking to employ more British workers. He said:

[The] majority were looking either to mechanise or to keep current workers on. Fewer businesses were thinking that they would respond by recruiting more UK workers. That may change. We do not know.

My take

An interesting read. It seems that years of access to skilled labour in the EU has resulted in a lack of investment in STEM skills in the UK, which could mean we face a cliff edge when exiting from the European Union. As a result, the quickest option to plug this gap is likely to mean investment in machines, rather than people. Make of that what you will.

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