It is more than one month after 52% of the UK electorate voted to leave the EU and we are still no clearer on what Brexit will look like, or what future trading relationship Britain will have with the EU after the two-year exit transition. This will need to be agreed at some point, with a long period of uncertainty expected ahead.
Taking back control of the UK’s borders and reducing immigration was a major factor behind many people’s decision to vote Leave, but this will prove to be a major challenge for the UK government in its exit negotiations with our EU partners. The freedom of movement of workers is one of the four economic freedoms and one of the founding principles of the EU. Accessing the single market involves acceptance of this principle.
Within the EU, the UK’s economy and business environment has grown and prospered to the dynamic, open economy it is today. In addition, many workers in the UK – both within the public sector, such as the NHS and social care, as well as in the private sector – come from other EU countries and have lived in the UK for many years. We rely on them to provide a service, meet a skills shortage, grow our economy, as well as enrich our society.
Nowhere has this been more important than in London. It has been a magnet for attracting highly skilled talent from other EU countries and from around the world for many years. Recent analysis by Deloitte found there were 1.7 million highly skilled workers in London – 550,000 more than in New York. There has been an increase of 235,000 new workers in the past three years alone, largely due to the growth of the technology sector.
With one in three Londoners having been born overseas, and one in ten coming from elsewhere in Europe, having access to this international talent pool is hugely important to London’s continued economic success.
In London’s key industry sectors of finance and technology, there has been a skills shortage of highly skilled workers, which has been met by workers from overseas, including other EU countries. According to the FT, if there is a churn of about 30,000 highly skilled migrants a year, it would only take a decade of strict immigration controls for the highly skilled population of London to be substantially depleted by Brexit.
So what impact would an ‘Australian style’ points-based immigration system have on London’s working population, as advocated by the Leave campaigners? Although Britain currently already has a points-based system for non-EU migrants, the Brexiters would like to copy Australia’s system. It has two programmes – a humanitarian and a migration programme. The migration programme assesses applicants on qualifications, age and ability to speak English. Australia admitted about 190,000 people in its migration programme in 2014-2015, with 68% of them skilled workers. Far from reducing immigration, this number is about twice the number of migrants per head of existing population than the UK currently admits. The other countries outside the EU, Norway and Switzerland, also both have higher levels of immigration than the UK.
It is therefore unlikely the UK would succeed in meeting its target of substantially cutting immigration to the tens of thousands under this system. Another disadvantage is it would reduce the number of EU migrants coming to the UK, who are not classified as highly skilled. This would have a significant impact on the thousands of workers in London from other EU countries who are fulfilling vital support and semi-skilled roles across a wide variety of sectors – such as in the NHS and social care, admin, construction, catering and hospitality.
While the UK’s domestic population is ageing rapidly and shrinking, it is increasingly being replenished by the growth in the migrant population, who are mainly younger, working and therefore net contributors to the UK economy. As the chart below shows, while net inward migration from non-EU countries was still higher than from EU countries, it fell to 194,000 people in 2014, from its peak of 266,000 a decade earlier. In contrast, net migration from EU nationals rose to 174,000 people in 2014, from only 87,000 in 2004.
Source: ONS Migration Statistics Quarterly Report, May 2016
The easiest and least damaging option would be to seek a ‘Norway-style’ trade deal, whereby the UK would still have access to the single market via the European Economic Area Agreement (EEA), but we would also be free to negotiate our own free trade agreements with non-EU countries. However, while this model provides access to the single market, it involves accepting the four freedoms, including free movement of people. This might be considered politically unacceptable to the majority of British people who voted Leave on the basis of controlling immigration.
It is possible the UK could negotiate its own bespoke free trade deal with the EU, such as the one Canada has negotiated. Under this type of deal, the UK would not have to accept the free movement of people or pay into the EU budget. It would also have zero or low tariffs on many industrial, fisheries and agricultural products.
But it falls far short of replicating the EU single market and it only grants limited services liberalisation. It has also taken seven years to negotiate so far and still has to be ratified.
It is also possible some sort of compromise trade deal could be reached with the EU, but it is inevitable a trade-off between having access to the single market and being able to control immigration would have to be reached.
Whichever trade deal the UK negotiates with the EU after the two-year exit process, it is clear having access to the EU single market is very important to the UK’s future economic success.
However, we would have the freedom to negotiate our own trade agreements with other major economies outside of the EU, such as the US and China, which could be a real positive upside risk for the UK economy over the long term.
For London’s economy and property sector to continue to compete on the world stage, it needs continued access to the diverse talent pool of migrant workers coming from other EU countries. This is the conundrum.
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