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 alex.metcalfe@fsb.org.uk Federation of Small Businesses 2 Catherine Place, London SW1E 6HF Sonali Parekh Sonali.Parekh@fsb.org.uk Federation of Small Businesses 2 Catherine Place, London SW1E 6HF