fsb response to mac call for evidence · 6 november 2017 professor alan manning chair migration...
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6 November 2017
Professor Alan Manning Chair Migration Advisory Committee 2nd Floor, Peel Building SE 2 Marsham Street London SW1P 4DF Dear Professor Manning Re: FSB response to the Migration Advisory Committee’s Call for Evidence The Federation of Small Businesses (FSB) welcomes the opportunity to contribute to the Migration
Advisory Committee’s Call for Evidence. FSB is the UK’s leading business organisation. Established
over 40 years ago to help our members succeed in business, we are a non-profit making and non-
party political organisation that’s led by our members, for our members.
Our mission is to help smaller businesses achieve their ambitions. As experts in business, we offer
our members a wide range of vital business services, including advice, financial expertise, support
and a powerful voice in government. FSB is also the UK’s leading business campaigner, focused on
delivering change which supports smaller businesses to grow and succeed. Our lobbying arm starts
with the work of our team in Westminster which focuses on UK and English policy issues. Further to
this, our expert teams in Glasgow, Cardiff and Belfast work with governments, elected members
and decision-makers in Scotland, Wales and Northern Ireland.
Our research found that 47 per cent of small businesses employ a predominately mid-skill level
workforce. The policy discussion surrounding EEA citizens following Brexit has focussed on, in our
view, a debate characterised by a false dichotomy between high and low skilled workers. We are
concerned that our members will lose out under a new system that fails to recognise that a plurality
of small businesses rely on predominately mid-skill workers. Brexit provides us with a unique
opportunity to reshape our education and skills sector. We face a watershed in our approach to
immigration that should not be taken lightly. We must, therefore, prioritise the transition to, and
implementation of, any new immigration system for EU workers that supports – not inhibits – small
businesses to access the skills and workers they need to survive, build and grow.
Our full response to the Call for Evidence can be found below.
Yours sincerely Ken Wright Chairman, Home Affairs Committee Federation of Small Businesses
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FSB Submission to the Migration Advisory Committee’s Call for Evidence
November 2017
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Introduction
The Federation of Small Businesses (FSB) ran a consultation and campaign on Brexit, aiming to get
the information our members needed from both official referendum campaigns. Our polling
showed we had two large groups in our membership, one that wanted the UK to leave the EU (41%)
and one that wanted to stay (47%) – while the remaining 12 per cent were undecided. It is also
worth noting that FSB members are individual business owners, rather than companies or
corporates, and that our poll broadly matched the final official referendum in terms of regional
breakdown.
Since the outcome of the referendum on the UK’s membership of the European Union (EU), FSB has
undertaken a comprehensive research programme to analyse the potential opportunities and risks
of the UK leaving the EU for small businesses. As part of this research programme, FSB published
the Skilful Exit report in April 2017, which focussed on the impact of Brexit on access to labour and
skills for small businesses and the self-employed. The report found that most of the concern over
Brexit and the labour market is concentrated in the 20 per cent of our members with staff that have
EU citizens in their workforce. This subset of our membership are concerned about accessing the
skills they need (59%), their ability to grow their business after Brexit (54%), and the need to
enforce new immigration rules (56%).
Research Methodology This submission is based on the research completed for our Skilful Exit report, which incorporated
FSB members’ experiences and views on their business’s labour and skills needs. FSB undertook a
mixed method approach for the research consisting of a quantitative online survey and a series of
semi-structured interviews.
The survey was nationwide in its reach and members were invited to participate in the survey via
email and social media channels. The survey was administered by the research agency Verve and
was in the field from 17 – 29 November 2016. The survey questionnaire was completed by a total of
1,236 small businesses. The semi-structured interviews were primarily conducted over the phone
and included members from every devolved nation and purposefully drew from a variety of regions
and sectors. These interviews were used to construct the detailed case studies that are included
throughout the Skilful Exit report.
The survey findings are all weighted according to FSB membership weighting (to reflect the
demographic balance of FSB members throughout the UK). All percentages derived from the survey
are rounded to the nearest whole number, which is why some percentages presented in the figures
do not add to 100 per cent.
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EEA Migration Trends Please provide evidence on the characteristics (e.g. types of jobs migrants perform; skill levels, etc) of EEA migrants in your particular sector.
The Skilful Exit survey asked small business owners to select the occupations that most accurately
reflect what the majority of their employees do in order to attempt to identify the level of skill on
which the small business is most reliant. The occupations provided to survey participants to select
were based on Standard Occupational Classification (or SOC) codes, which have been grouped
together into a corresponding skill-level: high-, mid- and low-skilled.
For the purposes of this submission, references to high-skilled businesses refer to those with
employees mostly doing jobs that require post-compulsory education, such as Information
Communications Technology (ICT) or health professionals. In contrast, in businesses where most
employees work in mid-skilled jobs, such as care or construction, workers are often employed for
their technical knowledge or understanding of a particular field, usually acquired through on-the-
job vocational or technical training such as an apprenticeship, and significant work experience.
Small businesses with mostly low-skilled workers have employees doing work that does not require
post-compulsory education, but may require short periods of on-the-job, such as farm workers or
cleaners, as Table 1 shows.
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Table 1: ONS SOC Skill Levels
High-skilled (SOC skill level 3+4)
Description: Occupations at this level normally require a degree or
equivalent period of relevant work experience. However, some jobs
do not necessarily need a degree, but generally require knowledge
associated with post-compulsory education.
Example occupations provided to respondents: Engineers, IT and
telecommunications professionals, healthcare professionals, teachers,
accountants, architects, graphic designers.
Mid-skilled (SOC skill level 3+4)
Description: Like some high-skilled roles, many of these occupations
require knowledge associated with post-compulsory education, but
not always a degree. Some jobs at this level will not require formal
qualifications or vocational training, but will instead require a
significant period of work experience. Some jobs require competence
associated with general education, but typically require a longer
period of on-the-job and/or work experience.
Example occupations provided to respondents: Bookkeepers,
farmers, mechanics, construction workers, care workers, customer
service managers.
Low-skilled (SOC skill level 3+4)
Description: Competence associated with a general education, usually
acquired by the time compulsory education is completed (aged 16).
Jobs at this skill level may require a short period of on-the-job and
knowledge of health and safety regulations.
Example occupations provided to respondents: Farm workers,
packers and bottlers, cleaners, security guards, catering assistants,
waiters.
Most work undertaken in small businesses, irrespective of whether the small business employs EU
workers, is high- or mid-skilled (86% and 79%, respectively), with a slightly larger proportion of
firms with a UK-only workforce offering high-skilled jobs, such as directors and managers, and
occupations requiring professional and technical expertise. These results were based on FSB
members selecting the predominant skill level of their workforce, as presented in Table 1. Our
results show that EU citizens are playing an important role in addressing gaps in sectors that are
dependent on high and mid-skilled workers. Indeed, EU-14 workers1 are more likely to be in skilled
1 EU-14 countries include Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, and Sweden.
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occupations than people born in the UK, with 69 per cent of workers from these countries
occupying roles skilled to SOC Level 3 or 4 - occupations that normally require a degree or
equivalent period of relevant work experience.2 By contrast, there are more employers with EU
workers mostly reliant on low-skilled workers than businesses that only have workers from the UK
(21% versus 14%, respectively).
Although we are unable to say definitively whether these businesses hire these EU workers to carry
out low-skilled tasks, it is likely that people from the EU are being recruited to satisfy demand for
labour to complete basic tasks. Further analysis from The Migration Observatory finds that,
although foreign-born workers have been and remain employed in a wide range of jobs, the growth
in employment share of foreign-born workers in recent years has been fastest among lower-skilled
occupations and sectors. They find that, in 2015, the industry with the highest share of foreign-born
workers in its workforce was food products manufacturing, wherein about 41 per cent of the
workforce was foreign-born.3
2 Migration Advisory Committee, Migrants in low-skilled work – The growth of EU and non-EU labour in low-skilled jobs and its impact on the UK, July 2014, https:// www.gov.uk/government/uploads/system/uploads/attachment_data/file/333083/MAC-Migrants_in_low-skilled_work__Full_report_2014.pdf 3 The Migration Observatory, Migrants in the UK Labour Market: An Overview, 1 December 2016, http://www.migrationobservatory.ox.ac.uk/resources/briefings/ migrants-in-the-uk-labour-market-an-overview/
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In terms of sector, there is a high proportion of small firms in information and communication
(81%) and professional, scientific and technical activities (82%) that employ individuals for jobs that
require education to degree-level or, in some cases, higher, such as engineers, scientists and
researchers. By contrast, there are no small businesses in these sectors that employ workers in low-
skilled roles.
Industries where there is a long established tradition of strong technical and vocational training
have a higher share of employees in mainly mid-skilled roles, such as those that require technical
education, training or expertise, like apprenticeships. For example, 59 per cent of small firms in the
construction sector and 57 per cent in the manufacturing sector are mainly employing mid-skilled
workers, such as electricians, mechanics and skilled-tradespeople, which is expected given the tasks
they typically carry out.
Interestingly, construction and manufacturing are the most balanced sectors with a fairly even
spread of small businesses with high, mid and low-skilled jobs. This is not only a reflection of the
range of occupations and type of businesses in these sectors, but the sectors' positive attitude to
skills development at all levels. In contrast, the information and communication and professional,
scientific and technical activities sectors are the most significantly polarised.
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The highest concentration of workplaces with low-skilled roles that do not require any post-
compulsory education or training are found in accommodation and food services (39%) and
manufacturing (24%). Typically, people employed in these sectors will be doing jobs like cleaning
and food preparation, packing and working in hospitality or on farms at various points in the year.
Self-employed EEA migrants
Non-UK business owners are an important feature of the UK economy. According to The Centre for
Entrepreneurs (CFE) there are almost half a million people from 155 countries who have come to
the UK to start a business. 4 Of the 3 million active UK-registered companies in the UK,5 those
founded or co-founded by ‘migrant entrepreneurs’ total 14.5 per cent, or one in seven of all UK
companies.6 The 2015 Global Entrepreneurship Monitor (or GEM) survey, conducted in around 60
countries worldwide over the last 20 years, finds that the percentage of immigrants involved in
starting a business (15%) to be around three times that of life-long UK residents (5%).7
Further analysis of GEM data by Enterprise Research Centre for the Skilful Exit report disaggregated
Total Early-stage Entrepreneurial Activity or TEA (the prevalence rate of individuals in the working
age population who are actively involved in business start-ups, either in the phase of starting a new
firm or in the phase spanning 42 months after the birth of the firm)8 by migrant status and region of
birth. The GEM data also shows that both EU citizens and non-EU citizens have higher shares of
individuals involved in entrepreneurial activity than the UK-born population. About 13 per cent of
non-EU migrants showed TEA, compared to 11 per cent of EU migrants and 7.5 per cent of UK-born
residents. The GEM data also found that EU entrepreneurs were more opportunity driven, rather
than necessity driven, as the primary motivation in establishing their business.9
All of these results point to the fact that the future EEA migration system needs to prioritise
attracting entrepreneurial talent from the EU in the future. FSB is eager to engage with the MAC
and Government policymakers on future immigration policies that will continue to allow EU citizens
to come to the UK to start and grow businesses.
4 There are 456,073 migrant entrepreneurs in the UK – The Centre for Entrepreneurs and DueDil, Migrant entrepreneurs: Building our businesses, creating our jobs, March 2016, http://www.creatingourjobs.org/data/MigrantEntrepreneursWEB.pdf 5 This analysis does not include sole traders. 6 There are 456,073 migrant entrepreneurs in the UK – The Centre for Entrepreneurs and DueDil, Migrant entrepreneurs: Building our businesses, creating our jobs, March 2016, http://www.creatingourjobs.org/data/MigrantEntrepreneursWEB.pdf 7 Hart, M., Bonner, K., Levie, J., Global Entrepreneurship Monitor, United Kingdom 2015 Monitoring Report, May 2015. https://www.enterpriseresearch.ac.uk/wpcontent/uploads/2016/05/GEM-UK-2015-final-report.pdf 8 IGI Global, http://www.igi-global.com/dictionary/total-early-stage-entrepreneurial-activity-tea-rate/47105, accessed March 2017. 9 Data prepared by Dr. Karen Bonner, Enterprise Research Centre (ERC), February 2017
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Have you made any assessment of the impact of a possible reduction in the availability of EEA migrants (whether occurring naturally or through policy) as part of your workforce? What impact would a reduction of EEA migration have on your sector/local area/region? How will your business/sector/area/region cope? Would the impacts be different if reductions in migration took place amongst non-EEA migrants? Have you made any contingency plans?
Following a restriction in the Freedom of Movement from the EU, small businesses would consider a diverse set of strategies to continue meeting their labour and skills needs. The most common response from members with EU staff was to continue to employ EU workers and accept some additional cost (40%) and more than a third of respondents said they would recruit UK citizens with the same skills. Both of these options suggest that many members are not making robust contingency plans and are, instead, relying on a ‘status quo’ approach to any restrictions in the Freedom of Movement. This behaviour fits with what we know about small businesses: they are time poor and do not have sufficient resource to plan for their future labour and skills needs. We also saw from our research that when members were asked whether they would be willing to pay additional one-off costs to employ EU citizens, where the majority said that they were either ‘unwilling to pay more’ or ‘did not know’ at this stage. At the same time, it was encouraging to see that some small business owners would consider investing in the skills of UK workers if they were unable to guarantee their supply of EU employees; 16 per cent would consider offering new employment and training opportunities to UK workers and nine per cent would invest in training their existing workforce to fill skills gaps.
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Worryingly, even with tighter labour market that will likely arise from Brexit, the least common response to a restriction in Freedom of Movement was to increase wages (6%). It is possible that firms will adjust their expectations and behaviour if market forces require them to provide a higher wage – but equally, consider moving abroad (13%), reduce business operations (13%), and close the business (8%) are all viable alternatives to a restriction in the Freedom of Movement and were all more commonly chosen responses by small business owners than increasing wages. Eighteen per cent of respondents said that they would sponsor non-EEA citizens to fill future labour and skills needs, but this did not reflect their current behaviour – where almost 95 per cent of our members have no experience with the non-EEA migration system.
Table 2: Small Business use of non-EEA migration
Tier 1 Visa 1.92%
Tier 2 Visa 3.24%
Tier 5 Temporary Worker Visa 1.00%
None of these 94.80%
Interestingly, when the training data is broken down by skill-level (Figure 4), it is evident that employers of EU citizens with predominantly mid-skilled jobs, often requiring practical or vocational elements, are most open to training, workforce development and using UK workers, which could reflect the traditional approach of particularly technical sectors towards skills investment. Whereas, employers of EU workers with mostly low-skilled work available are least likely to invest in training their existing employees or offering training opportunities. Small businesses with employees from the EU in roles that require at least a degree-level qualification and significant experience are least likely to recruit UK citizens with the same skills, instead, favouring other routes such as continuing to source talent from abroad that the availability of particular skills in the UK labour market cannot satisfy.
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Recruitment Practices, Training & Skills
Please provide evidence on the methods of recruitment used to employ EEA migrants. Seventy-two per cent of small employers with EU workers hired all their staff from the UK labour
market. A total of 85 per cent of small employers with EU workers recruited at least some of their
EU staff from the UK market. A further breakdown of this data shows that employers reliant on
mostly high-skilled employees are more likely to have recruited their EU workers from abroad, with
81 per cent declaring that some of their non-UK workers resided in the UK at the time of
recruitment, compared to 88 per cent of businesses with mainly low-skilled workers. Any future
immigration system needs to account for the fact that small businesses, particularly low-skill
dominated businesses, recruit non-UK citizens when they already reside in the UK and do not have
sufficient resources within their business to manage additional burdens to meet their labour and
skills needs.
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How well aware are you of current UK migration policies for non-EEA migrants? If new
immigration policies restrict the numbers of low-skilled migrants who can come to work in the
UK, which forms of migration into low-skilled work should be prioritised?
As shown in Table 2, the vast majority of our members (95%) have no experience with the non-EEA
migration system. Any new administrative barriers to accessing EU labour and skills would be
particularly challenging for small businesses, who often do not have a HR department to help
manage the exercise of hiring new staff. FSB has repeatedly expressed concern about creating a
two-tier labour market in the UK after Brexit, where larger firms are able to meet the new
administrative and financial barriers to accessing the workers they need and small employers are
locked out of the international talent pool.
Our research also showed that 47 per cent of small employers, with or without EU staff, described
themselves as predominately employing mid-skill workers. This finding sits in stark contrast to the
current discussions of a false dichotomy between high-skill and low-skill characterising migration
policy for EU citizens after Brexit. FSB was supportive of the Government’s plan to further develop
technical education within the UK, but this will take time to achieve. In the meantime, the MAC and
HO policymakers need to prioritise migration routes for workers with technical or vocational skills
to be able to fulfil growing skills gaps in the UK, while also providing the opportunity for the
domestic labour force interact with migrant workers to develop their own skills.
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For further information please contact:
Alexander Metcalfe [email protected] Federation of Small Businesses 2 Catherine Place, London SW1E 6HF Sonali Parekh [email protected] Federation of Small Businesses 2 Catherine Place, London SW1E 6HF