Gradually and then all at once – The UK’s new points-based migration system and small and medium enterprises

Responding to the Wales Centre for Public Policy’s (WCPP) report on the impact of a new post-Brexit migration system, in this blog Dr Llyr ap Gareth, Senior Policy Adviser at the Federation of Small Businesses (FSB), outlines the practical issues it raises for smaller firms.

Small and medium enterprises (SMEs) make up 62.3% of private sector employment, and 95.4% of firms in Wales, so any system affecting SMEs’ ability to recruit will be significant.

SMEs are overwhelmingly micro businesses – those made up of one to nine employees. As such, the onus and responsibility for SMEs’ workforce will fall on the business owner, as well as other bureaucratic parts of business life, due to a lack of capacity in the form of HR departments or the broader expertise available to the public sector and larger companies.

The Coronavirus pandemic has therefore resulted in significant challenges for SME business owners, including having to navigate through all the welcome but complex tranches of business support. As such, the bandwidth for the SME sector to take on additional information is ever narrower.

It is therefore important to keep this mind when looking at Brexit in general and the proposed migration changes in particular.


Clarity and consistency on the challenges of Brexit

Prior to the Coronavirus pandemic, Brexit had already become a long, protracted process, with deadlines shifting or becoming staging posts for the next set of negotiations. This risks SMEs viewing these dates as a series of ‘phoney wars’. For example, for the original March 29th 2019 deadline, those who had put aside resources to prepare for Brexit were actually at a competitive disadvantage in terms of opportunity costs as compared to those who had ignored the process. Surveys have shown that many view the upcoming December 31 deadline as being akin to the ‘Brexit is done’ transition following 31 December 2020.  

Moreover, from the perspective of firms, a lack of clarity on what a deal or a no-deal entails results in less incentive to engage. The Institute for Government notes that messaging privileging the opportunities and downplaying risks in Brexit mean that any call to action is also dampened. Clarity and consistency on the challenges ahead are therefore needed in order to prepare.


Recruitment challenges and the Tier 2 immigration process

One of the most consistent messages FSB hear from SMEs is their struggle to recruit, at all skill levels. Recruitment struggles result in skills shortages, which stunt SMEs’ productivity, at real cost to both themselves and the whole UK economy.

Migration changes are therefore highly relevant to SMEs, but at the same time, 95% of small firms have not engaged with the current Tier 2 immigration process before. This lack of experience is a real concern as EU nationals are due to fall under the more stringent Tier 2 immigration processes – many SMEs will likely not be aware that the ease with which they can access pools of talent in Europe will change.

As the WCPP report ‘Post-Brexit migration and Wales notes, it is low and medium skilled workers that are more likely to fall beneath the Tier 2 salary threshold of £25,600, and this is likely to affect SMEs in particular. With tighter financial margins than their larger counterparts, SMEs will often look to attract and retain staff through incentives such as flexible working and work-life balance, etc., so there is a real question as to whether financial thresholds are a similarly accurate measure in this regard in measuring the skills involved.


Federation of Small Businesses support and action

FSB are working very hard to update our members and the SME sector with materials and information related to government plans. Earlier in the year, we produced our ‘A World of Talent’ report on SMEs and the future points-based system, calling for an emphasis on ensuring small businesses can still access talent from across the world.

On the European Union Settlement Scheme, FSB have worked in partnership with the Home Office and all layers of government, as well as key third sector groups such as Citizens Advice, to spread the message to EU entrepreneurs and employees on the need to ensure their settled status. Employers are clearly key parts in the flow of information, and in dealing with workforce planning issues have helped link their staff to the necessary Settled Status process when made aware.

FSB shares many of the concerns in the WCPP’s report, and have worked to influence government on these:

  • We pushed for the original £30,000 wage threshold proposal be lowered and the new threshold is a welcome improvement. FSB share WCPP’s concern on medium skilled recruitment, especially with median wages in Wales being lower.
  • FSB have concurred with a view to regionalisation and supports a Welsh Shortage Occupation List. As well as different population age demographics noted in the report, migration and skills need to align with the economic development models in place and needs of those policies.
  • The monetary and time cost of recruitment remains a pressing concern.
  • At the time of writing, we are awaiting details of the digital system to streamline process. It is difficult to measure how this mitigates issues until tested.

It should be noted that for many SMEs this will not immediately affect them until they are actively recruiting, which for most, will not be the case for some time. Continued Coronavirus support – such as furlough – may also provide some breathing room for workforce planning, as SMEs will be able to use furlough until at least March 2021.


Looking ahead

It is important that a longer-term strategy in relation to the Coronavirus pandemic opens space for engagement with SMEs on issues such as migrations, skills and workforce planning, as well as helping government better understand skills needs and vulnerabilities in this sector.

Because of the Coronavirus support structures in place, business support networks such as Business Wales are in a better position now to reach SMEs in general.

FSB Wales shares much of the analysis in the report by WCPP. In practical terms what SMEs need is digestible information, along with clear and practical advice on preparation, based on certainty over what the EU relationship will look like from January. There are opportunities to ensure that we look to address skills shortages and ensure SMEs’ access to talent worldwide in future, and that the points-based migration system is flexible enough to do that.

As with so much in 2020, the concern is that SMEs will have to cope with the implications of any new system becoming available gradually, and then all at once.