If Brexit means Brexit, what does it mean for the labour market?

Today marks a significant moment in UK history with Theresa May formally firing the starting gun for the process of the UK leaving the EU by triggering Article 50.

If there is one thing everyone has learned from recent political developments, it’s to avoid making predictions. But, when it comes to the future vitality of our labour market, we must nonetheless consider some of Brexit’s possible implications and challenges for policymakers.

For example, it is possible that we can expect a skills shortage in certain sectors, in others uncertainty may or may not depress the demand for staff, and crucially, unless replaced, we face a shortfall of investment in employment and skills services post-European Social Fund (ESF).  While addressing the Work and Pensions Select Committee inquiry into Brexit recently, I shared my recommendations on prioritising productivity, reducing skills gaps and grasping the opportunities that a post-EU world offers to improve the coordination of support to people, communities and employers.

Productivity and Skills

Successfully increasing productivity is the Holy Grail for our policymakers. At the heart of this, we need to make skills, and in particular upskilling, work. Progress is planned through the government’s focus on technical education, and in particular the new T-Levels announced in the Spring Budget. However, there remains a long way to go before we achieve parity of esteem between vocational and academic routeways.

Equally, we await the government’s ‘comprehensive strategy’ for careers (announced in the Industrial Strategy Green Paper), which we hope will provide the foundations of properly funded, universally available, high quality system, rather than doing things on the cheap, which is what the rollout of Jobcentre Plus’ advisers in schools threatens to be.  This needs to be all age and all geographies – why should decent advice about future career paths be the preserve of the few?  

Activating UK workers

We’re also seeing many sectors already effectively articulating the case to government to allow migrant workers to fill anticipated skills gaps.  This is likely to be necessary in some cases.  However, the majority of jobs taken by EU nationals are lower skilled and lower paid, with those filing them often highly qualified in their home countries. 

Clearly, explaining why UK nationals are not filling these jobs is complex, but I would hazard that much can be put down to attitude, aspiration and pay.

Feedback from some ERSA members is that we have a bit of a mismatch between some young people’s aspirations and the reality of starting at the bottom and working your way up.  It’s great of course that we are engendering aspiration amongst younger people – it’s partly why we need decent careers’ advice in schools. However, we know that you are far more likely to get a better job if you are in a job and that employers want to see some work experience on the CV as well as academic qualifications.  Conversely, some sectors need to do far more to develop clearer career pathways that are attractive to UK workers and which demonstrate the potential for progression. 

Pay matters too, and the continued perception that low paid work is simply uneconomic, is still a real factor for many people.  Simply stating that Universal Credit is the answer here, is not enough.  We know that UC will indeed help some people, but over £2 million people are likely to be worse off, with changes still needed to work allowance taper rates to ensure that work really does pay. UC also won’t address all the issues with our broken housing market.   Select Committee members asked why people who are unemployed do not move for jobs – our housing system is probably the biggest barrier to doing so. 

The final piece of the puzzle is that some unemployed people in the UK, such as those with disabilities and health conditions, have struggled to receive the necessary employment support to enter and sustain work. Unfortunately, this is set to worsen, with the government reducing funding by 75% for national specialist employment support programmes from this year.  Given that labour market participation is so high, this might seem justifiable, but it does bank on the labour market staying strong, something we can’t take for granted in the normal cycle of things, even before we factor in Brexit.

European Social Fund

My final point therefore is that the government has to continue to invest in active labour market policies, as well as increasing the nation’s skills. We therefore also have to focus on the need for a replacement for the European Social Fund (ESF).  That wouldn’t need to be a like for like replacement.  Many of us who have handled European monies will know how bureaucratic this can be.  But ESF does make available over £500 million annually in skills and employment support across England and Wales, which we can ill afford to lose.  We now have the opportunity to design a successor system that delivers better integrated provision and is made more accessible, particularly to smaller organisations. Complementing the Chancellor’s focus on ‘hardware’ investments for UK Plc, such as infrastructure, this will deliver the ‘software’ and services needed to help individuals thrive in a post-Brexit Britain.

So, while Brexit might well mean Brexit (or something akin to it anyway), for the labour market it means a mixture of challenges and opportunities. The challenge will be to start improving productivity and ensure that we have the skills to match economic demands. Equally, the opportunities to make our system work better and tackle issues such as low pay, underemployment and lack of career pathways are wide open.

Although I will avoid making predictions, I know we’ll chart a more successful course if we have the right specialist support to meet these challenges.

Kirsty McHugh, Chief Executive of the Employment Related Services Association (ERSA)